Macroeconomic convergence in the EU - ok, but what about structural funds?

The macroeconomic stability regulations that the European Parliament passed in late September, better known as "sixpack", lay down severe penalties for countries whose economies exceed the European average by too much. This could hit overachieving Germany just as much as underperforming Greece.

Two of the six pieces of legislation are relevant for this, the Ferreira regulation and the Haglund regulation. The Ferreira regulation allows for the establishment of "an alert mechanism for early detection of emerging macroeconomic imbalances" within the European Commission, but under consultation of the European Systemic Risk Board. This mechanism "should be based on use of an indicative and transparent scoreboard comprising indicative thresholds, combined with economic judgment" (see the exact rules for the scoreboard in the regulation).

If a Eurozone economy exceeds the European average by too much, and for too long (meaning that it ignores several warnings from the Commission), it will be heavily fined. Within the Euro area, "the yearly fine [...] shall be 0.1% of the GDP of the Member State concerned", according to the Haglund regulation.

The aim of the two regulations is among others to bring the macroeconomic policies of the 17 different Eurozone economies closer together. While one country lowers taxes, establishes a minimum wage and gives out subsidies to make people spend more, it should be safeguarded that its neighbor doesn't raise taxes to keep its purchasing power at home (Germany has been pretty good at that over the last decade, and France was rather angry about it).


While the structural funds of the EU (European Regional Development Fund, European Social Fund, Cohesion Fund and two others) are not directly related to macroeconomic policy of the member state governments, they also have an important role in bringing European economies closer together. The Commission has just published its proposal for the structural funds 2014-20, which are expected to have a volume of 336 billion EUR. Three different types of regions are to profit from the funds, namely

• less developed regions, whose GDP is below 75% of the Union average (this will continue to be the top priority for the policy)
• transition regions, whose GDP is between 75% and 90% of the EU 27 average
• more developed regions, whose GDP per capita is above 90% of the average.

This is probably not fair, and I am not an expert on structural funds, but on a polemic note it strikes me as funny that Germany's North-Rhine Westphalia (whose Brussels representation you see below, next to the Latvian embassy) has already been promised funding of some sort for the period of 2014-20...

Latvian embassy in Brussels. Source: The embassy's Flickr page	North-Rhine Westphalian Representation in Brussels. Source: derwesten.de

Update (10/10/11): The Commission's 6 October proposal does incorporate a suspension of cohesion funds if macroeconomic criteria are not met. Read more here.

Kiyosaki's promise: Quit your job, let your money work for you

Don't work for money, let your money work for you. That is the essence of an interesting book by Robert T. Kiyosaki called "Rich Dad, Poor Dad". Employment in a company with a fixed work contract, Kiyosaki says, will lead most people into a hamster's wheel. Looking to earn money to support their growing expenses (children, house, car etc.), most people tend to work harder to receive more pay. They promptly hand over a larger share of their income to the State as they enter a higher tax category. In 2010 for example, an average German citizen employed in a private firm was working for the government until July 4th, after which he started producing value for himself. If he decided to work harder, it might push Tax Freedom Day even farther away.

Let your money work for you/adapted from
Flickr CC BY esbjorn2

Kiyosaki therefore proposes to a) cut spending and b) invest the money thus saved. His book can be criticized for many reasons, but the idea of "making money work for you" sounded appealing. I'm all in favor of investment with a moral backbone, so I scrapped speculation on oil, currencies, pension funds and food commodities in favor of stock options. I invested a fictional 7740 EUR into a portfolio of big stable European companies on May 7th (if I wanted to do that annually, it would require me 645 EUR per month in real life). Commission fees etc. of approx. 2% would put it down to 7585 EUR.

Now, the DAX which reunites 30 of the strongest enterprises in Europe's economic locomotive, Germany, grew by roughly 26% in 2009 and 17% in 2010 (my calculations). If I was lucky and my European company portfolio outdid the DAX by a third, I'd be between 23% and 35%. After a year of foregoing spending, I'd have gained 1745-2654 EUR (again subject to taxes).

Let your money work for you? I couldn't quit my job and live on 2654 EUR per year. Nor could I do so after ten or 20 years. Investment, I guess, cannot replace a work contract. It can give you a bit of spending money, but it won't make you rich unless you put your money into high-risk endeavors like startups or low-priced stocks.

Besides, for the last month all of my big European company stocks have only seen one direction: down.