The Welsh Economy - a European Solution

With further massive job cuts announced over the last week, this time at Hoover in Merthyr and Bosch in Miskin, it is becoming clear that the short sharp recession that many of us had anticipated is not going to materialise and that the downturn will be deeper and far worse than expected.

Unemployment in Wales is certain to hit 100,000 by Christmas and will probably be as high as 150,000 by the summer of 2009, well above the level for the last recession of the 1990s.

Currently, it remains popular amongst some politicians to argue that this is a global problem and that nothing much can be done in Wales to deal with the economic slowdown. Instead, only fiscal policies on interest rates and taxation will have the desired effect in stimulating the UK economy.

Given this, it is easy to forget that we have devolved responsibility for economic development and therefore can focus this nation’s resources specifically on our particular industrial strengths and weaknesses. More importantly perhaps, we have billions of pounds of European structural funds available to spend here within the poorer parts of Wales.

European structural funding is organised through what is known as the Convergence programme, which is the successor to the Objective 1 programme that operated between 2000 and 2006 and covers the fifteen local authority areas in West Wales and the Valleys.

During the period 2007-2013, there are two funds available to draw money down from, namely the European Regional Development Fund (ERDF) and the European Social Fund (ESF).

According to the Assembly, around £856 million of ERDF funds will be used to invest in the knowledge economy, help new and existing businesses to grow, regenerate Wales’ most deprived communities, tackle climate change and improve transport. In addition, some £570 million of ESF money will be used to reduce economic inactivity, increase skills and support employment.

This is a significant amount of money which, along with matched funding from the public and private sectors, was expected to bring in around £3.2 billion into the Welsh economy.

As the Convergence Fund originates from the European Commission, all payments are made in euros not pounds. However, since the programme was started in September of last year, the euro has strengthened by nearly 20 per cent against the pound. This means that, as things currently stand, Wales looks set to receive an extra £270 million in funding from the European Commission than originally budgeted for.

So at a time when budgets are being squeezed and funding is desperately needed to revive the economy, Wales has the opportunity to take advantage of this unexpected financial bonanza. So, what should we do?

First of all, the Assembly Government should seek an urgent meeting with the European Commission to re-examine the strategy for spending European funds in Wales. No one can seriously expect a seven year strategy to remain unchanged during a recession of the depth that we are about to experience. The economic situation has dramatically changed since this was drawn up in early 2007 and most of the actions contained within the strategy are no longer relevant to the current short term needs of the Welsh economy.

Secondly, Ministers should request that the additional £270 million in funding from the change in exchange rates should be brought forward for spending immediately. This sum has not been awarded to Wales as a result of the largesse of the European Commission but as result of currency fluctuations.

That is our good luck but it is an unexpected bonus that we should take advantage of immediately and not in the future. Indeed, there is a very strong case to also bring forward the £430 million of spending earmarked for 2012 and 2013 within the European programme to support the Welsh economy as it goes through its darkest period

Finally, it should set up a special ‘fast track’ scheme for projects to spend this additional funding. With European Commission approval, it should guarantee that these projects will be approved within a maximum of three months and that all red tape and bureaucracy surrounding the assessment of the projects would be minimised.

There should be only three conditions to the projects to be considered for approval:

(a) they should have the full support of the private sector
(b) they must only last two years to ensure they focus on immediate delivery during the recession and
(c) they should be solely focused on giving the Welsh business sector the tools to survive this downturn.

Projects could include the extension of grant programmes to guarantee jobs, loan guarantee schemes to enable small firms to gain access to funding immediately or, as suggested in this column a couple of weeks ago, funding which enables firms to switch workers onto training schemes during the current recession.

I am sure the first reaction of civil servants and politicians will be to argue that this cannot be done and that we cannot change regulations just to suit ourselves. However, it is clear that during the last six months, the economic rulebook has been torn to shreds and it is about time we stood up for ourselves and took full advantage of the opportunities that we have at our disposal.

The extra money is there.

All that is needed now is the political courage to tell Brussels that we want the flexibility to use our European funds to save the Welsh economy from further decline.