Embracing the potential of EU regions

Not overly burdened by debt, Europe’s regions, if invested in, hold the key to emerging from the economic crisis, write Martin Schulz and Mercedes Bresso

WITH every passing day, the serious crisis besetting Europe seems to be undermining more and more the process of European integration and the various forms of solidarity arising from that process.

To ensure a sustainable route out of the economic and financial crisis, a fresh European compromise needs to be negotiated. This would require greater political integration of the EU, including an obligation on member states to adopt greater fiscal rigour, and would also mean shifting our continent towards a model of sustainable development, giving more prominence to innovation, employment, and social justice.

Against this backdrop, we firmly believe that the regions and cities have a crucial role to play. Not overly burdened by debt, they are both the drivers of public investment and the guarantors of solidarity mechanisms on the ground. Local and regional authorities are behind two thirds of European public investment and are thus well placed to prepare the ground for making the environmental transition and revitalising the industries of the 21st century.

However, for some four years now, the crisis has been jeopardising local government’s investment capacity, in three different ways. Firstly, the necessary fiscal adjustments in our individual countries have often led governments to cut appropriations to local and regional authorities.

Facing much demand from communities experiencing increasing difficulties — latest EU statistics show 40% of people out of work have been unemployed for over a year and 110m people are at risk of poverty or social exclusion — now more than ever they must continue to ensure the smooth functioning of public services.

In the absence of alternative resources originating directly from the productive sector, local investment thus fell by over 7% in 2010 and this trend continued in 2011.

Secondly, some states wish to cut the EU budget by €100bn over seven years. This argument seems somewhat skewed given the colossal sums that have been disbursed to bail out the banks and in light of the fact that the overall EU budget barely amounts to more than 1% of EU gross national income. That is also why we are strongly calling for new resources to be rapidly established, such as a financial transaction tax.

Finally, the fiscal treaty should soon come into force. Undoubtedly, this will impose long-term austerity which will weigh on refinancing conditions for local and regional authorities and encourage a return to centralisation in most states. If Europe is to get back on the path to growth, it is vital to re-prioritise investment in the regions. It holds the key to exiting the crisis.

Indeed, to cut our carbon emissions and our energy consumption, we must act primarily in the cities by investing in the modernisation of existing facilities. Improving our living environment, and access to efficient public services for all, also involves long-term public investment in education, health, and information.

Experience shows job creation is only possible if the training available is in sync with the local or regional labour market, in other words if the socio-economic players, along with local and regional authorities, can count on sustained financial support from the EU and the member states.

This forward-looking investment also concerns major projects, particularly in infrastructure. Such investment can help stem the haemorrhaging of Europe’s industrial jobs and restore a competitive development framework in our regions. These policies will pave the way for making the environmental transition that will enable us to place the EU at the top of the value chain of international trade. While the existence of suitable EU legislation is essential, it is really at the local and regional levels that a favourable climate for the long-term development of businesses can be created. In establishing or maintaining strong synergies between research centres, companies, and universities, local and regional authorities hold the key to preventing relocation, stimulating innovation, and fostering the emergence of new products and services that will create quality jobs.

However, this virtuous circle will only come about in the context of multilevel governance. The EU long ago devised the instrument that enables the effective cooperation at a lower cost of all levels of governance for socio-economic development.

This instrument is cohesion policy. The European Parliament, Commission, and Council set out a strategy and common goals to cover a seven-year period; this framework is then customised to various regions. The security provided by multi-annual funding is conducive to long-term investment. Through financing from the European Investment Bank, backed up by project bonds, this policy has the potential to lead Europe towards a model of development that is solidarity-based and sustainable.

We are therefore calling for a veritable paradigm shift: A recovery policy giving local and regional authorities their rightful place, with due regard to the requirements of fiscal consolidation. While EU states have a responsibility to streamline their expenditure, they must not mortgage our future, and the EU must achieve the goals it has set under the Europe 2020 strategy. We are convinced that by bringing to the table their expertise, the regions and cities will get Europe back on track.

* Martin Schulz is president of the European Parliament and Mercedes Bresso is president of the committee of the regions