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Topic - Regional Policy

Boosting the regional economy

Introduction

All regions are different – both in terms of their economic structure and the environment for growth they offer. The objective within regional policy is to find ways of compensating for the economic disadvantages that some regions are having to cope with and to ultimately create a situation whereby living conditions are equally high across all of Germany’s regions.

Regional policy is about promoting individual regions and attracting business to them. It helps ensure that regions that face similar challenges and economic deficits are treated equally. A coordinated and targeted regional policy serves to foster balanced development within a country.

In the spotlight: regions that are structurally weak

German and European regional policy is about supporting regions that are structurally weak. It is about finding ways to make up for the disadvantages that are holding these regions back, thus allowing them to catch up economically. This is good for overall economic growth, helps with structural change, and results in the creation of attractive jobs.

Promoting the regional economy - in figures

46
Symbolicon für Geldscheine

billion euros
Amount of funding for business investments that was approved under the coordination framework for the GRW between 1991 and 2015

348
Symbolicon für Fabrik

million euros
Amount of GRW and ERDF funding granted to the manufacturing sector in 2015

126
Symbolicon für Schreibtisch

million euros
Amount of GRW and ERDF funding granted to the services sector in 2015

37
Symbolicon für Bürogebäude

per cent share of infrastructure funding
(GRW and ERDF funding) approved for developing land for use by the industrial sector and/or trade – that’s around 8.6 billion euros

Funding instruments

Improving regional economic structures

The most important instrument Germany uses as part of its national regional policy is the Joint Federal Government/Länder Scheme for the Improvement of Regional Economic Structures (GRW). Since 1969, the GRW has helped Germany foster balanced regional development.

GRW funding is dedicated to those regions that are structurally weak. The idea behind it is to strengthen regional investments, which in turn will generate attractive local jobs for the long term. This means that regions that are structurally weak are encouraged to play an active part in their development, rather than remain in a passive role.

A broad range of funding instruments is available

For regional policy to be effective, it needs to take account of the differences that exist between different types of regions. The GRW puts at regions’ disposal a large toolbox of funding instruments and strategies that they can use in line with their specific needs.

GRW funds are used to support investments by trade and industry, investments in local commerce-related infrastructure, measures designed to encourage networking and cooperation between local players, and measures designed to improve SMEs’ competitiveness.

  • The idea behind supporting investments by trade and industry is to provide incentives for companies to invest in regions that are structurally weak. This helps with the structural change that is needed for growth, employment and local income.
  • Building a strong commerce-related infrastructure is essential for weaker regions to be able to attract companies and thus become more competitive.
  • Greater networking and cooperation between local players (e.g. by means of development strategies or within regional management bodies and innovation clusters) helps improve the local business environment.

The basic guidelines for the GRW, the map of Assisted Areas, the instruments available and the rules and maximum funding rates that apply are all set out in the coordination framework which is agreed between the Federation and the Länder. The coordination framework transposes the European rules on national regional aid (subsidies) into national law.

There is no legal entitlement to funding under the GRW. Funding is provided in the form of grants or low-interest loans and is financed half and half by the Federation and the Länder.

The map of Assisted Areas shows which regions are eligible for support

The exact terms and maximum rates of funding that apply under the GRW vary depending on the level of structural weakness/needs of the region.

The level of structural weakness for each region is assessed on the basis of a national procedure. A complex system of mixed regional indicators (which is based upon the respective sizes of the labour market, income levels, and the quality of infrastructure) is used to rank regions according to their overall performance, starting with the region that is structurally the weakest (structurally and in terms of economic performance) to the one that is the strongest. The resulting list is used to determine the degree of support each region is to receive (map of Assisted Areas PDF: 2 MB; in German). The outcomes of the procedure are reviewed at regular intervals.

The current map of Assisted Areas, which applies from 1 July 2014 through to 30 December 2020, was approved by the GRW Coordination Committee of the Federation and the Länder on 7 April 2014. On 11 March 2014, the decision was approved by the European Commission as compliant with state-aid rules.

  • All of the New Länder as well as Berlin continue to have a lot of catching up to do, which is why all of their territory is designated part of the GRW Assisted Areas.
  • There are also some Assisted Areas located within selected regions that are structurally weak and situated within the Old Länder.

Depending on the class of Assisted Area a region belongs to (which itself depends on its level of economic development) and on the size of the company receiving the funding, different maximum funding rates apply when it comes to aiding investments by trade and industry. Small and medium-sized companies are eligible to receive higher rates of funding than large corporations. For details, please refer to the coordination framework (PDF: 706 KB).

The Länder are in charge of allocating GRW funding

Notwithstanding the national framework that has been agreed between the Federation and the Länder, Article 30 of the German Basic Law applies, which stipulates that responsibility for fostering regional economic development lies primarily with the Länder. As a result, the task of administering and managing GRW funding is reserved to the Länder. Within the bounds of the legal framework established by the Federation and the Länder, each Land is free to target funding at certain areas or at meeting certain objectives. The Land or the region in question decides for itself which projects are to receive what amount of funding, issues letters of approval, and verifies that beneficiaries adhere to the terms under which the funding has been approved.

The GRW as a living system

The GRW is a dynamic instrument that is continuously being honed and developed. The Coordination Committee of the Federation and the Länder approved a new coordination framework on 27 June 2014, which took effect on 1 July 2014 and applies throughout the 2014-2020 funding period. Under this new framework, the rules according to which funding is made available have been adapted and amended, the Federal funds made available to the GRW have been reallocated, and a new map of Assisted Areas (PDF: 2 MB; in German) drawn up.

On 10 June 2015, the Coordination Committee made several additional adjustments to the coordination framework (PDF: 706 KB). Most of these adjustments were made in response to a need for clarification and modification of the rules according to which investments are funded, in order to bring them into line with EU state-aid rules as clarified by the European Commission.

More information on regional policy and the GRW

For more detailed information and clarification, please see the First Report on Regional Policy (in German). The report provides in-depth information about the GRW, its conceptual and legal basis and its political priorities. It also looks at the future challenges for regional policy at national level.

Regional policy – facts and figures

The amount of funding for investments by trade and industry approved under the GRW (PDF: 692,4 KB; in German) between 1991 and 2015 was worth more than 46 billion euros. It helped leverage an overall investment volume of 250 billion euros, created more than 1.1 million permanent jobs, and helped safeguard more than 2.4 million existing jobs. Over the same period, GRW funds worth more than 23 billion euros were approved (PDF: 19 KB; in German) to support investments in commerce-related infrastructure worth a total of 35 billion euros.

Further facts and figures about the GRW are available from the website of the Federal Office for Economic Affairs and Export Control (BAFA) (in German). Learn more about it (in German).

The GRW funding scheme is reviewed by external experts at regular intervals. A study entitled “Lehren aus dem Strukturwandel im Ruhrgebiet für die Regionalpolitik (Structural change in the Ruhr area - lessons to be learned for regional policy)” (in German) was commissioned by the Federal Ministry for Economic Affairs and Energy and published in September 2015 by Prognos AG and InWIS, which is based at Ruhr University Bochum.

Rebuilding Eastern Germany (Aufbau Ost)

Economic development within the New Länder

Since German reunification, the New Länder have made major headway towards building a competitive economy. Much has already been achieved, particular in the industrial and logistics sectors.

These results are extremely important in order for economic development in the New Länder to become self-sustaining in the future. One particular challenge that remains is unemployment, which is still much higher in the New Länder compared to the Old Länder. Furthermore, the New Länder need to attract competitive companies in order to diversity their economies.

The Federal Government Commissioner for the New Federal States

Federal Government Commissioner for the New Federal States Ms Iris Gleicke, who is also Parliamentary State Secretary at the Federal Ministry for Economic Affairs and Energy, is in charge of coordinating the various policies that affect the area of former East Germany.

Major policy objectives in this work include the task of promoting research and education to learn more about the SED dictatorship, creating living conditions that are equally high across the whole of Germany, and finding ways of securing funding for the ‘Aufbau Ost’ (the rebuilding of Eastern Germany). Demographic change and a loss of financial scope for public-sector budgets in Eastern Germany are key challenges that need to be addressed in the coming years.

Since reunification, the Federation has been supporting the New Länder (including Berlin) in their efforts to pay off extra costs that have accrued as a result of the division of Germany and to close the infrastructure gap that exists between Eastern and Western Germany. As the current fiscal equalisation system between the Federation and Länder, including the so-called Solidarity Pact II, will however expire in 2019, putting in place a new system is a key priority for Eastern Germany during this parliament.

Annual Report on the Status of German Unity

On 23 September 2015, Iris Gleicke presented the Federal Government’s Annual Report on the Status of German Unity. The report shows that per capital GDP in the new Länder has more than doubled, but still amounts to no more than approx. two thirds of the figure for the old Länder. Also worth mentioning is the fact that unemployment in the area of former East Germany in 2014 (annual average) fell to its lowest level since 1990. The current figure of 9.8% is, however, still far too high compared to 5.9% unemployment in the area of former West Germany today.

European Regional Policy

A structural policy for Europe

Regional policy is one the European agenda as well: Social, economic and territorial cohesion within the Union is a central objective in EU policy. Around a third of the EU budget is used to level out differences in development between the various countries and regions. Under its Regional and Structural Policy, the EU promotes growth and employment in regions that are lagging behind in terms of development. Funding is allocated via the two structural funds of the EU: the European Regional Development Fund (ERDF) and the European Social Fund (ESF).

Both operate according to the co-financing principle: whenever a project is to receive funding from the structural funds, the member state in question must also provide funding from its own budget. Another principle that applies is the following: EU regional funding is always granted in addition to funding provided by the member states themselves (so-called principle of additionality). It can never be used to replace national funding.

Supporting sustainable growth in Europe

The EU’s structural policy is very much guided by the objectives of the Europe 2020 Strategy, which sets out a framework for the funding that is needed for Europe to be able to reach its strategic objectives of ensuring smart, sustainable and inclusive growth. Coordination of EU Structural Policy and of matters relating to the European Regional Development Fund (ERDF) in Germany falls within the remit of the Federal Ministry for Economic Affairs and Energy.

For further information about the European investment and structural funds, please click here.

Further information

  • 12/09/2016 - Press release - The New Länder

    Press release: Gleicke in U.S. promoting venture capital for eastern German start-ups

    Open detail view
  • 13/04/2016 - Press release - Economic Policy

    Press release: Federal Government adopts 2016 National Reform Programme

    Open detail view
Construction of a building symbolises regional policy; Source: mauritius images / Maximilian Weinzierl / Alamy