Economic Policy Review ISSN 1313 - 0544

The Distortions of EU Money

Author: Svetla Kostadinova / 08.08.2008
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Our observation of the practice of European projects in Bulgaria and Europe indicates that:

  • ° A number of expensive projects do not encourage employment or increase in human potential, nor do they contribute to the development of the regions and administrative capacity. There are many examples in all operating programs without exception. For example, activities are financed which one way or the other would be implemented by certain companies, i.e. in reality EU financing is not required for the project, or people are trained for skills for which there is no demand on the labor market.
  • ° It is not possible to calculate the bureaucratic costs in Bulgaria connected with EU money. Although a part of these costs are financed by the EU, a significant portion of these costs are covered by the Bulgarian taxpayers and as a result the expected benefits are much less. We would like to bring to your attention the fact that on a European level more than €800 million annually is spent on bureaucracy connected to the funds.
  • ° The rule that one country must spend the money over a specific period of time or the money is lost leads to horrifying behavior in the national and local administrations which simply spend.
  • ° The preliminary process of defining the priorities and the main directions from EU financing leads to complete or very limited possibility to finance activities which could have a much more positive effect on the economy than some of the current projects. Even if the Government wants and sees that part of the money is set aside for irrelevant objectives it could not act due to the existing rules.
  • ° The complexity of the structural funds (which as it came about does not necessarily mean that there is more control) is the reason for the great opportunities for fraud. The problems with fraud are one of the constant reasons for the European Audit Chamber not to certify the EU budget for 13 years. The Chamber determined that at least €4 billion should not have been spent. In their last report the auditors' show that only 31% of the audited projects are flawless (these numbers are for a total of only 90 audited projects!).
  • ° The main objective of the structural funds is to reduce the differences in the economic conditions between the European regions. Unfortunately there is no convincing evidence that this is taking place although billions have been spent. During 1989 there are 44 regions falling within the first group (the worst indices for unemployment, levels of income etc. compared to the average European levels). During 2003, 43 of them are still in the same group!

There are several reasons for the politicians to like the EU money:

  1. To return from Brussels and to give a press conference claiming that you have succeeded in negotiating additional funds for a given region, sector or municipality is very attractive incentive for every politician.
  2. The Bulgarian government (not only the current, but the previous as well, related to European integration) is more interested in the specific amount of the money which we would get and not as much in what projects could be financed and whether or not they would encourage such behavior of the companies and citizens that latter they would expect more and more money from the Government, the EU or any other object. 
  3. Getting the money from the structural funds is often quoted as probably the only effective instrument of the EU to intervene in countries like Bulgaria and to impose difficult reforms.
  4. We should not forget that more and more citizens of the EU have a negative attitude towards the Union. The results from the recent referendum in Ireland indicate that in that country there is a majority of those who feel negatively. The money from the structural funds is the most convenient means used by the Commission, to insure support and to compensate the citizens for the damages caused. The subsidies and the programs for redistribution of the EU are a "very natural" mechanism to pay for the fact that the poor regions are part of the large European economy and sometimes senseless European regulations go against all normal logic.

The eventual conclusion is that there is significant proof for lasting negative effect from the structural funds on the economy. The more optimistic conclusion is that there is a need to show explicitly the positive net effects in order to be sure that we are not destroying our societies by encouraging such behavior by the administration and all possible recipients.