EuroBil­lions, or how the EU sup­ports the SEE economies

Top 100 See - - See Top Industries - By Valentin Sta­mov, se­nior busi­ness an­a­lyst, SeeNews

“EU funds” is a sa­cred phrase in South­east Europe (SEE). Over­all, it means “hope for higher liv­ing stan­dards”, which is ac­tu­ally the ul­ti­mate goal of the EU's Co­he­sion Pol­icy. To tackle is­sues that some­times lead to the mis­ap­pro­pri­a­tion of funds the Euro­pean Com­mis­sion re­formed the schemes for the 2014-2020 pe­riod. How­ever, it re­mains to be seen whether the over­hauled Co­he­sion Pol­icy will in­deed lead to an eco­nomic and so­cial fairy tale.

EU funds in a nut­shell

To make the long story short, the goal of the EU funds is to re­duce the gap be­tween the rich and poor coun­tries and re­gions across Europe. The to­tal bud­get of the EU funds for the 2007-2013 pe­riod was more than 340 bil­lion euro, and for the 2014-2020 pe­riod over 351 bil­lion euro will be al­lo­cated to boost the Euro­pean econ­omy. There are two main groups of funds un­der which the SEE coun­tries can ob­tain fi­nanc­ing. The EU mem­ber states in SEE – Bulgaria, Croa­tia, Ro­ma­nia, and Slove­nia, re­ceive fund­ing from the five Euro­pean Struc­tural and In­vest­ment Funds (ESIF), while the non-EU mem­bers are in­cluded in the In­stru­ment for Pre-ac­ces­sion As­sis­tance (IPA).

How much EU mem­bers in SEE got…

In the 2007-2013 pe­riod Bulgaria, Croa­tia, Ro­ma­nia, and Slove­nia re­ceived a to­tal of 21.2 bil­lion euro un­der ESIF funds. The leader in terms of ab­sorp­tion of EU fund­ing was Slove­nia, which man­aged to ab­sorb 84% of the to­tal funds al­lo­cated to the coun­try.

…and will get

The EU's re­formed co­he­sion pol­icy will make avail­able up to 351.8 bil­lion euro to be in­vested in Europe's re­gions, cities and the real econ­omy. It will be the EU's prin­ci­pal in­vest­ment tool for de­liv­er­ing on the Europe 2020 goals: cre­at­ing growth and jobs, tack­ling cli­mate change and en­ergy de­pen­dence, and re­duc­ing poverty and so­cial ex­clu­sion. The goals will be achieved by fo­cus­ing the Euro­pean Re­gional Devel­op­ment Fund on sup­port for small and medium-sized en­ter­prises with 140 bil­lion euro, or dou­ble the 2007-2013 sum.

What the funds were used for

ESIF boosted the in­fra­struc­ture devel­op­ment and em­ploy­ment in the SEE EU mem­ber states in the 2007-2013 pe­riod.

EU in­vest­ments in Bulgaria were pre­dom­i­nantly fo­cused on road and rail­way in­fra­struc­ture. The EU and the lo­cal au­thor­i­ties failed to al­lo­cate in­vest­ments in job cre­ation and start-ups, al­though the coun­try had the high­est num­ber of Euro­pean So­cial Fund par­tic­i­pants.

Ro­ma­nia also used a large amount of EU funds to im­prove its road net­works but also man­aged to raise the em­ploy­ment lev­els and sup­port star­tups as well.

Slove­nia ab­sorbed the EU fund­ing to im­prove the wa­ter sup­ply and waste wa­ter man­age­ment sec­tors, as well as ex­pand the broad­band cov­er­age of its population.

Money for SEE EU can­di­dates

IPA is the pro­gramme used by the EU to sup­port re­forms aimed at meet­ing EU mem­ber­ship cri­te­ria for the EU-as­pir­ing coun­tries - Al­ba­nia, Bos­nia and Herze­gov­ina, Mace­do­nia, Kosovo, Mon­tene­gro, Ser­bia, and Turkey. IPA's 2007-2013 bud­get stood at 11.5 bil­lion euro and its suc­ces­sor, IPA II, will pro­vide a to­tal of 11.7 bil­lion euro for the 2014-2020 pe­riod. IPA II will fo­cus on bet­ter gov­er­nance, with projects aim­ing at re­form­ing pub­lic ad­min­is­tra­tion, us­ing EU as­sis­tance more ef­fi­ciently, adopt­ing and en­forc­ing EU stan­dards, as well as im­ple­ment­ing more re­forms in the ju­di­ciary and fun­da­men­tal rights and fur­ther sup­port­ing the fight against or­gan­ised crime and cor­rup­tion.

EU fund­ing pit­falls

De­spite the seem­ingly pos­i­tive im­pact of the EU fund­ing, it hides some risks such as oc­ca­sion­ally feed­ing cor­rup­tion prac­tices, caus­ing en­vi­ron­men­tal dam­age, and suf­fer­ing from in­ad­e­quate dis­tri­bu­tion of funds.

Other weak­nesses of the EU fund­ing schemes, ac­cord­ing to a re­port by UK think-tank Open Europe, in­clude:

Con­flict­ing aims – some­times the struc­tural funds are chan­neled to ar­eas where the ab­so­lute re­turn of cap­i­tal is the great­est rather than in ar­eas where they can fos­ter the great­est con­ver­gence be­tween poorer and richer re­gions;

Op­por­tu­nity costs – in some cases, the lo­cal au­thor­i­ties di­vert spend­ing from more pro­duc­tive eco­nomic projects to un­nec­es­sary projects, for ex­am­ple costly and eco­log­i­cally harm­ful in­fra­struc­ture projects, in or­der not to miss money from EU's struc­tural funds;

Pro-cycli­cal and un­re­spon­sive to chang­ing needs – fi­nanc­ing un­der the EU pro­grammes is ne­go­ti­ated on a seven-year ba­sis, and comes with fixed spend­ing cri­te­ria with some dis­cre­tion to al­ter spend­ing on a yearly ba­sis. This pushes gov­ern­ments and lo­cal au­thor­i­ties to spend the money on co-fi­nanc­ing the projects, even if this means run­ning up mas­sive debts, in or­der not to forgo the po­ten­tial op­por­tu­ni­ties pre­sented by tak­ing up struc­tural fund­ing;

No link be­tween per­for­mance and spend­ing - the ab­sence of strong con­di­tion­al­ity and per­for­mance cri­te­ria in the al­lo­ca­tion of funds meant that some projects con­tinue to re­ceive fund­ing de­spite the ab­sence of re­sults from the bil­lions in fund­ing that it has re­ceived. This also means that the fo­cus is on get­ting money out of the door rather than spend­ing the cash wisely.

Ac­cord­ing to the an­nual re­port of the Euro­pean Anti-Fraud Of­fice (OLAF), cor­rup­tion in EU fund­ing ab­sorp­tion was most widely spread in Ro­ma­nia. The coun­try topped the rank­ing in terms of in­ves­ti­ga­tions into the use of EU funds in 2014. A to­tal of 36 in­ves­ti­ga­tions were car­ried out in Ro­ma­nia, fol­lowed by Hungary with 13 and Bulgaria with 11. OLAF re­ceived 73 sig­nals from pri­vate sources and six sig­nals from pub­lic in­sti­tu­tions in Ro­ma­nia, while 54 pri­vate sources and five pub­lic sent sig­nals to OLAF in Bulgaria. In Al­ba­nia, Bos­nia and Herze­gov­ina, Croa­tia, Kosovo, Mace­do­nia, and Slove­nia OLAF in­ves­ti­gated only one case in 2014.

Brighter fu­ture?

The weak­nesses of the EU's Co­he­sion pol­icy for 2007-2013 prompted the Euro­pean Com­mis­sion to re­form the fund­ing pro­grammes in or­der to fur­ther boost the economies of the less de­vel­oped EU mem­ber states and cut cor­rup­tion prac­tices. The re­forms in all ESIF en­vis­age stronger re­sult-ori­en­ta­tion, clear and mea­sur­able mile­stones and tar­gets in or­der to stim­u­late good projects.

*Ab­sorp­tion rate and pay­ments un­der Euro­pean Re­gional Devel­op­ment Fund (ERDF), Euro­pean So­cial Fund (ESF) and Co­he­sion Fund (CF) Source: Euro­pean Com­mis­sion

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