A COHESION PACT FOR THE REGIONS

Abstract

The Lisbon Agenda of 2000 and the supporting Sapir and Kok Reports have set the parameters of economic policy in the European Union (EU) in the medium term. The asymmetric regime of economic governance locks manifold regions and industries into an inflexible and unbalanced policy environment so that the objectives of Lisbon may be difficult to achieve. The monetary straitjacket of the euro, buttressed by the Maastricht Treaty and the Stability and Growth Pact (SGP) fiscal conditions, limits the degree to which competitiveness and cohesion may be delivered, particularly in an expanded Union. This article explores these issues of economic governance in the EU in order to investigate the possibility of a ‘cohesion pact for the regions’ which places a more comprehensive industrial policy as the fulcrum for achieving a better balance between growth and cohesion. Operating within an Open Method of Coordination (OMC) framework and by linking industrial policy instruments to a system of fiscal federalism, a more flexible and balanced regime of economic governance may ensue, one in which the ambitious objectives of the Lisbon Agenda may start to be achieved or at least moved towards more efficaciously.

Acknowledgements

The author is grateful for comments on this article by John Parr, David Bailey and two anonymous referees.

Notes

1. Institutional embeddedness refers to the degree to which regional economic development benefits from the interaction of local institutions and their degree of governance power.

2. Hypothecation is the process whereby fiscal instruments are used for particular policy objectives. For example, in the UK the revenue gained by local authorities from imposing residential parking charges can only be used for transport improvements.