The EU will continue to boost Baltic economies in 2014–2020

BRUSSELS - The EU cohesion policy-related EU structural funds will remain the main investment source in the Baltics in 2014–2020.
On Oct. 6-9, some 5,500 representatives from Europe’s regions and cities as well as experts, gathered in Brussels for the traditional annual networking forum named Open Days, which this year included over 100 workshops and many other discussion events regarding the new trends of the EU-cosponsored investment policy for 2014–2020.

“It is like Woodstock, just without drugs,” Wolfgang Petzold, a representative of the Committee of the Regions (or the CoR – it is the EU’s assembly of regional and local representatives), said about Open Days. He added that neither “Merkel or Cameron makes the decision about a bridge or a school – some two-thirds of public investments are made by local authorities.”

The EU’s cohesion policy aims to help the EU’s poorer regions (the ‘new’ EU member states and some regions of the ‘old’ EU member states, like the western part of Wales or the Cornwall peninsula of England, for example) to catch up with the rest of the EU and, therefore, make the EU, as a whole, more competitive in the global economy. The cohesion policy will make available up to 351.8 billion euros in 2014–2020, a policy that makes up one-third of the total EU’s budget for that time period.

For 2014–2020, Lithuania has been allocated 6.82 billion euros in total, while 4.51 billion euros will be allocated from the EU structural funds for Latvia and 3.59 billion euros for Estonia. During the previous EU cohesion policy financial period, in 2007–2013, the total allocation from cohesion policy funding was 6.9 billion euros for Lithuania, 4.6 billion euros for Latvia and 3.5 billion euros for Estonia.

The allocated sums do not mean that all the money will be used: it depends on the administration skills of each national state or region, which take part in implement projects getting the EU co-financing. Now there is a transitional period: the money allocated for the period of 2007–2013 is still being used. “The average absorption rate [of the allocated money] across the EU is 70-80 percent,” said Shirin Wheeler, the spokeswoman for the EU regional policy commissioner.

According to Lewis Dijkstra, an employee of the Economic Analysis Union of the Directorate-General of Regional and Urban Policy of the European Commission, the absorption rate (the situation in October 2014) was 82 percent in Lithuania, 81 percent in Estonia and 70 percent in Latvia. It means that the three amigos of the Baltics are great at taking EU money: Lithuania and Estonia are traditionally among the best structural funds users in the entire EU while Latvia is doing quite well too – it is not below the EU average rate. A part of the cohesion policy’s money goes to develop the administrative capacity skills — i.e. the training of local public authorities — the absorption rate depends on these skills.

The main priorities of the EU cohesion policy for the programming period of 2014–2020 are, according to Eurocrats’ jargon, “the investment in the real economy” (i.e. less money for investment in infrastructure projects) to create jobs (according to Dijkstra, Germany was the only EU state – some regions of its eastern part also get the EU’s co-financing due to the EU’s cohesion policy – which managed to lower its unemployment rate during the recent economic crisis) and fight social exclusion and poverty: supporting small and medium-size business, research and innovation, information and communication technology, and the low-carbon economy and energy efficiency. The latter is especially important for the Baltic countries, which are trying to minimize their dependency on gas and oil supplies from Russia.

“If we are able to save only 1 percent of energy, we could save 2.8 percent of gas imports into Europe, reducing our dependency on external energy supplies,” Johannes Hanhn, EU commissioner for the regional policy, said during the roundtable discussion with journalists during Open Days in Brussels.
One of the positive examples of the EU cohesion policy of 2007–2013, which were presented by the European Commission, is the upgrade of the thermal power station in the town of Siauliai in northern Lithuania. The station’s owner, the company Siauliu Energija, has implemented works on a combined cycle thermal power plant, resulting in a decline in fossil fuel consumption of more than 40 percent by the company (due to the biofuel usage) and a 16.6 percent reduction in customer prices. The total budget for the upgrade was 16.1 million euros (the Cohesion Fund contribution was 5.2 million euros).

According to Zygimantas Mauricas, the chief economist of the Lithuanian branch of Nordea Bank, during the 2007–2013 period, Lithuania spent a lot of EU cohesion policy’s money in the spheres which do not generate high economic growth (environmental issues and real estate construction) and spheres which are already well developed in Lithuania (the Lithuania’s transport infrastructure as well as the Lithuania’s information and communication technology). He stated that more of the EU’s money should be spent on scientific research, business start-ups and energy efficiency in Lithuania. The new EU cohesion policy priorities are rather beneficial from such a point of view.

One of the new specifics of EU cohesion policy is the following: more EU money will come in the form of loans, not subsidies. According to Rasa Budbergyte, a Lithuanian auditor working in the Luxembourg-based European Court of Auditors (the court audits the EU money spending), the shift towards loans will help to avoid taking EU money for business projects in Lithuania, which would be carried out anyway, i.e. even regardless to a lack of co-financing from the EU funds.

Hahn promised zero tolerance for any wrongdoings in EU spending. During the Open Days, Italian journalists, as usual, made noise about EU money going into the pockets of Italian crooks. Hahn said that he has “mixed feelings” about Italy (Italy, in total figures, is the second biggest beneficiary, after Poland, of the EU’s cohesion policy): some regions of southern Italy spend EU money correctly, but there are problems in the regions of Calabria and Sicily. According to Budbergyte, Lithuania is an average EU country in terms of EU money-related fraud.

The priorities for 2014–2020, which were announced during Open Days 2014, mean a further shift of the EU cohesion policy from co-financing of infrastructure projects. It means that the European Commission will agree with some EU co-financed road building only in case the road is really adding some value to the local business environment (for “brain circulation” as Hahn put it) or in case the road is vital for survival of some remote community.

Hahn emphasized that EU cohesion policy is the main source of public investment projects in some EU countries. In 2010–2012, cohesion policy funding was equivalent to 21 percent of public investment in the EU as a whole, to 57 percent in the regions, which are covered by the EU’s cohesion policy, and to over 75 percent in such countries as Slovakia, Hungary, Bulgaria, and the Baltic States. Without this EU funding, public investment in the less developed EU member states would have been almost non-existent, especially during the years of economic crisis.

“The cohesion policy in the 2007–2013 period made a substantial contribution to growth and jobs. It is estimated to have increased GDP by 2.1 percent a year on average in Latvia, 1.8 percent a year in Lithuania and 1.7 percent a year in Poland in relation to what it would have been without the investment it has funded. It is also estimated to have increased the level of employment, by 1 percent a year in Poland, 0.6 percent in Hungary, and 0.4 percent in Slovakia and Lithuania. The estimates of the longer-term effects are larger because of the impact on the development potential of economies. In both Lithuania and Poland, GDP in 2020 is estimated to be over 4 percent above what it would be without the investment concerned and in Latvia, 5 percent higher,” reads the European Commission-issued sixth report on economic, social and territorial cohesion of July 2014.

Open Days 2014 were attended also by Volodymyr Hroysman, Ukraine’s deputy prime minister for regional development, which shows Ukraine’s pro-EU intentions. Austrian Hahn will be the commissioner for the European Neighborhood Policy and enlargement negotiations in the Luxembourg’s politician Jean-Claude Juncker-led European Commission, which will start its five-year term in November. Juncker stated that there will be no EU enlargement during the next five-year term work of the European Commission. However, Hahn, during his hearing in the European Parliament on Sept. 30, stated that he will be happy if some country would be ready to join the EU soon after his next five years-term in the European Commission.

On the eve of Open Days, Benediktas Juodka, the chairman of the Foreign Affairs Committee of the Lithuanian parliament, announced his proposal regarding the re-building of Ukraine’s economy, which would help Ukraine to be more ready for its hypothetical EU membership (such accession, at least for now, is opposed by the most influential EU member states, such as Germany and France).
The proposal by Juodka is the following: that the EU member states refuse from 1, 2 or 3 percent of the sum allocated for them from the EU structural funds. In this way, an EU fund for Ukraine could be created for some kind of “Marshall Plan for Ukraine,” according to Juodka.

The chairman of the Foreign Affairs Committee of the Lithuanian parliament said that he would discuss his proposal in December during his meetings with all the heads of foreign affairs committees of all the national parliaments of the EU member states and Federica Mogherini, who, starting from November, will replace Catherine Ashton in the post of EU’s high representative for foreign affairs and security policy.