 Washington, DC, 26 September 2005 - When eight Central European and Baltic states joined the European Union last year, they set an example for the entire region. Romania and Bulgaria are hoping to join the club in 2007. And EU aspirations, however distant they may be, are prompting other countries further a-field to reform, trade and grow.
The recent inclusion of countries much poorer than older EU member states also raises an issue that has long preoccupied commissioners and parliamentarians: how to make sure that overall growth does not hide regional disparities and leave remote communities behind. This question was at the heart of a World Bank workshop on Regional Development held on September 23, 2005 in Washington DC on the margins of the Annual Summit. EU Commissioner Danuta Huebner and European Investment Bank President Philippe Maystadt were invited by the World Bank’s Europe and Central Asia Vice President Shigeo Katsu to share lessons and best practice examples from their attempts to reduce regional inequalities in the EU. They spoke to a packed audience of World Bank staff and representatives of member countries. “The regional and local levels are where people earn their livelihoods and poverty reduction actually happens,” noted Vice-President Katsu in his opening remarks. “Regional development is therefore a key challenge, not only in our region but Bank-wide.”
Cohesion has long been a European priority The idea of fostering regional and social cohesion is as old as the Treaty of Rome of 1958 (which established the European Economic Community) and was reaffirmed in subsequent European treaties. The latest strategic plan known as the Lisbon Agenda, in which EU governments agreed on the ambitious goal of making the EU “the most competitive and dynamic knowledge-driven economy by 2010,” also emphasized the need for “sustainable economic growth with more and better jobs and greater social cohesion.” 
In practice, European regional development has meant targeting disadvantaged regions with special 'structural funds' that help them become more competitive, create jobs and cut poverty.
Responding to a question about whether these money flows from Brussels represented a return of the “heavy-hand of the state” which could hinder free-market mechanisms, Commissioner Huebner argued that the extra help from the EU comes into play only when the market fails to do its job. “Even in the United Kingdom where skepticism towards EU policy is higher than average, I’ve seen structural funds in action in science parks in Birmingham and Coventry,” said Huebner, a former minister of European Affairs for Poland and now a commissioner who travels extensively. “Wales recently convinced IBM to invest there, with a small amount of structural funds.” Investing in Human Capital The European Union also acts to spur growth through a financial institution known as the European Investment Bank. As thinking about development has evolved, so has the type of projects that the European Investment Bank (EIB) has been asked to support through a variety of loans. While the EIB used to fund mostly "brick and mortar” projects, recognition of the importance of human capital has led the Bank to invest increasingly in the fields of education and research and development. In Spain, where investments in physical infrastructure helped the country catch up with other EU states after its accession in 1986, the government is currently putting more emphasis on human resources in an effort to close what it perceives as a crippling technology gap. "It’s key to find the right policy mix," noted Huebner. Setting clear spending priorities for the allocation of limited EU funds is a big challenge, particularly in new EU states where the needs are so pressing and disparate at the same time. Participants at the workshop also stressed the importance of responsible and competent local authorities. Without mayors and regional administrations capable of devising smart projects, managing money and sticking to well-laid out plans, the best intentions and most generous funding schemes can go astray, noted EIB President Maydstadt. Building the Capacity of Local Authorities to Use EU Funds The search for competent local stake-holders is perhaps particularly difficult in post-Communist countries where decentralization and the development of civil society are relatively new concepts. Projects funded by the EU, however, often come with a component aimed at developing local institutional capacities.
Give them time, urged Commissioner Huebner. When communes (local administrative units) where created in Poland in 1990, local authorities where given rights and responsibilities but a very limited budget, she recalled. It’s only now with Poland’s accession to the EU that they can taste real power and learn to act responsibly. “Look at Ireland and Spain in the first years,” she said. "This is a long-term, learning process."
* * *  For insights into the economic development of EU8 countries, read the World Bank's latest EU8 Quarterly Economic Report.
A Project Story from Bulgaria illustrates the importance of dynamic elected officials in spurring regional development.
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