Still dodging the question: The Commission Responds To Our Aid Report (Part 2)

As promised, here is Part 2, which focusses on the Commission's second response to our two-part series on EU aid - this time our report looking specifically at the EU's approach in North Africa and the Middle East, the follow up to our briefing on the EU external aid budget taken as a whole.

In our previous post we noted that the Commission completely failed to engage with the main recommendation in our earlier report - that national contributions to aid funding should be made voluntary - and suggested why it chose to dodge the question. But in this post we'll take up some of the more detailed points raised by the Commission's two responses, which you can read in full here and here.

Firstly, there's the issue of 'budget support'. Over the last ten years, the EU has been increasingly relying on delivering its aid in the form of 'budget support', meaning that the money is transferred directly to the treasuries of recipient countries, rather than being committed for individual projects. Budget support can be either 'general' or 'sector-specific'. In 2009, 35% of the money allocated via the EU's Neighbourhood Policy (ENP) was in the form of sector budget support.

The Commission says in its response to our aid report that it "provides budget support only to certain governments in the developing world that meet minimum conditions of governance and good administration."

However, the Commission then fails to explain how Ben Ali’s Tunisia and Mubarak’s Egypt – where people took to the streets to protest against these regimes’ autocratic and corrupt rule – were able to fulfil the Commission’s criteria on transparency, democracy and good governance, given that in 2009 alone they were allocated €61.3 million and €107.7 million respectively in direct budget support funding by the EU.

The Commission writes:

“It goes without saying that in a number of countries…the EU has often felt frustrated by the lack of political reforms, stifling of civil society, and violation of human rights or dominance of the state…However, the serious shortcomings of a government do not justify isolating a population, punishing its youth and leaving it only in the hands of despots or dictators.”

But this still does not explain the Commission's history of dealing directly with illegitimate regimes via budget support, rather interacting with civil society groups.

To be fair, the Commission insists that it “has funded civil society to a large extent,” for example via the European Instrument for Democracy and Human Rights (EIDHR). However, we can’t help noting that €141 million to develop 14 projects in the EU’s Southern neighbourhood between 2007-2010 is dwarfed by the direct support to now discredited regimes in the area. The Commission's Annual Action Programmes show that, over the same period, a total €394 million in the form of budget support was committed to Egypt alone.

Secondly, the Commission has defended its financial and auditing controls, saying, in particular, that:

"In order to achieve clarity about the outcomes of aid in a certain country or in a particular sector like health or education, the European Commission contracts a higher level evaluation to carry out an examination across a number of projects and programmes."

However, the Commission’s response to our report on EU aid to North Africa and the Middle East shows something went very badly wrong in the evaluation of a €40 million project in the Occupied Palestinian Territories. Between 2006 and 2007, the Commission allocated €40 million to pay for power sold to local electricity companies operating in the area, with the aim of ensuring Palestinians received uninterrupted power supplies. In our report, we cite from an independent evaluation of the EU’s MEDA II funding programme for Mediterranean countries carried out by a network of European audit firms - an evaluation contracted by the Commission.

The evaluation raises two important concerns. Firstly, the auditors write, “We do not have the documentation to record disbursements” - in other words, the auditors had no idea where the cash went. Secondly, they note that

“by providing meta-level support, in the form of payment of invoices for power sold to the local electricity companies, the European Commission is not directly engaging in issues of who pays what for their electricity at a retail/consumer level. Funds generated at that level could be used to subsidise any element of the operations in West Bank and Gaza, including activities which might further destabilise the area.”

The Commission is now dismissing this evaluation, saying that a separate international audit firm “was able to confirm that all claims submitted for payment were eligible.” Extraordinarily, the Commission goes on to explain that

“The evaluators [the ones we quote in our report] were given access to the Commission's financial records system for contracts in the external relations field. It is therefore difficult to say why they could not find this data which was available for them…The comments quoted in the report were made by independent evaluators based on incomplete information.”

But here's the thing, the Commission actually signed off the evaluation, saying that it provided “credible and substantiated findings and conclusions”. The Commission is contradicting itself in so many ways that it's almost an achievement. What's clear is that this example inspires little confidence in the auditing and monitoring systems that the Commission claims are at the heart of its efforts to "identify the results of its aid".

Another issue we raise in both our reports concerns a €10 million grant given to the Italian Interior Ministry to train Libyan 'law enforcement authorities' and prepare them better to tackle illegal migration to Italy and other Southern EU member states. The project's expected results included: "Special units trained/able to gather intelligence information by debriefing the illegal migrants detected"; and "technical equipment provided to improve the operational capacity of the relevant Libyan agencies in charge of border and migration management, search and rescue operations, investigation."

The Commission argues that "retrospectively this spending was particularly pertinent given the current situation in the Southern borders of the EU." We're suprised the Commission is willing to defend training Gaddafi's 'authorities' for any purpose - especially given Gaddafi's resort to effectively blackmailing the EU on migration issues.

Also on Libya, the Commission says "contrary to what is stated in the Open Europe report, the EU has never 'opened' an association agreement with Libya." In fact, we said, "in 2008, the EU opened negotiations on a possible association agreement with Libya" and we make it very clear that talks were suspended. The point is that the talks were opened as late as 2008.

The Commission also fails to come up with an adequate defence of why it chooses to fund so many cultural projects and initiatives in Mediterranean countries whose added value remains, according to us and the Netherlands' Europe Minister, dubious. In the response to our aid report, we read that “cultural and creative industries, as well as cultural tourism, create jobs and economic growth on an important scale.” This may be true, but then the Commission should at least try to explain how this applies to, for example, the €22,500 for a Europe Day Concert or the €9,500 German folk band concert, both in Jordan - in addition to a range of other projects promoting European culture.

Finally, we note that, as was the case with our earlier aid report, the Commission has decided not to engage with some of the key suggestions we make, including: making aid to Mediterranean countries voluntary and granting the EU’s Southern neighbours full market access, which would involve lifting tariff quotas on agricultural products and scrapping the EU’s complex rules of origin.

A real shame that once again the Commission has chosen to avoid the real issues in this hugely important area. Instead, it opted for a response riddled with contradictons and inconsistencies - which largely served to vindicate our conclusions rather than refute them.

As much as we like being vindicated, we would prefer if the Commission instead engaged in a grown-up discussion about how we can better target EU aid. Everyone would gain from that, not least the world's poor.

"For 500 million Europeans in times of austerity"

...That was how EU Budget Commissioner Janusz Lewandowski presented his 2012 EU budget proposal, tabled today.

With such a heading it must include lots of belt tightening, better targeting and some relief for those European governments whose budget is already incredibly strained, right?

Unfortunately, not.

To the surprise of no one, the proposal includes increasing the budget by 4.9% (€6.2bn), around 2% more than average inflation in the EU. I don't know about you, but we wouldn't usually describe that as austerity.

Needles to say, given that all EU members are trying to cut spending, increase taxes and impose varying austerity levels onto taxpayers, we have a feeling that Lewandowski's proposal won't be met by cheers in many countries. Below we have a breakdown of what we estimate each country’s increased contributions to the EU budget will be under the proposal - based on the projected national share of contributions for 2011, as forecast by the Commission (it's a moving target since you're never be quite sure what the actual contributions are until the money is paid out.)

We're looking at a €769m (£680m) increase for the UK. This is dwarfed by the €1.2bn that is added to Germany's EU bill for next year under the proposal (quite apart from the €100bn+ in loan guarantees that the country's taxpayers are already liable for through the bail-out packages). The French, who are beginning to realise that they are now net contributors to the EU budget, are on the hook for an extra €1bn - not exactly pocket change. The Netherlands, whose Government is now asking uncomfortable questions about the EU's external aid (partly as a result of our recent report on the topic) are on the hook for another €309 million. For all the contributions see table below (click to enlarge - these figures are gross contribution, meaning that in reality some countries might actually get more cash back than what they pay in, for example Spain).

Comically the Commission's press release outlines the fact that "bills must be paid", alluding to the fact that the Commission has committed to various projects which still are running. This argument is weak. Although it's true that the EU budget can't run a deficit, meaning less room for manoeuvre compared to national budgets, there's no reason whatsoever why the Commisison, MEPs and member states can't come together to prioritise and re-shuffle, since funds are clearly getting tighter. Just as national governments are forced to prioritise. As we note in our response to the proposal, there's plenty of fat to cut in the EU budget, from the 50 or so EU quangos, to paying non-farmers not to farm, to recycling 'cohesion' funds between some of Europe's richest regions. And, seriously, does Europe really need projects like these...(click link for examples)

We're sorry, Mr. Lewandowski , this proposal is neither for "500 million Europeans" nor for "times of austerity". In fact, it's quite the opposite.

Commission utterly confused by its own aid figures

Our recent aid report has kicked off a bit of a storm in the Netherlands.

Nieuws.nl reports this evening that a debate will be held in the Dutch Parliament, the Tweede Kamer, on EU aid spending at the request of a PVV MP, with the support of the governing VVD and CDA, as well as the Socialists. Dutch MPs are asking why EU external aid has been spent on various projects cited in our report, including €463,ooo in funding for a dance project in Burkina Faso, and by what Sunday Times' journalists found in Sierra Leone.

Meanwhile, the Commission is particularly sensitive about this issue. We're reliably informed that its press officers are briefing journalists that our main criticism - that only 46% of EU development aid reaches lower income countries - is unfair and inaccurate as it includes EU aid that is not meant for development (The 46% of EU aid targeted at lower income countries compares with 74% of UK aid using the same methodology).

The Commission has been saying, although not yet in public, that money spent in Europe's neighbourhood cannot be considered development aid in the same sense as aid to sub-Saharan Africa, for example.

To get technical, what this boils down to is how much aid is classified as "Official Development Assistance" (ODA) - a classification used by the OECD's Development Assistance Committee to categorise external aid spending that has "promotion of economic development and welfare as the main objective". ODA only includes money granted to what the OECD classifies as "developing countries".

Now we are particularly puzzled as to what the Commission is playing at on this one as our findings simply bear out the facts contained in their own figures. The Commission's 2010 Annual Report on External Assistance, which looks at funds spent in 2009, lays it all out very clearly in black and white (the key financial tables are from p168 onwards). In the Commission's own words,

"Figure 6.5 shows the share of the EU’s external assistance classified as ODA. In all, 96% of the total resources of EU external assistance committed in 2009 are considered reportable as ODA, indicating an increased focus on development in external financial allocations."

So, of the EU's €12,298m 2009 aid budget, €11,764m was considered as reportable as ODA or development aid. And to be clear, this includes the majority of money spent in European countries under the so-called European Neighbourhood Policy, for example. Table 6.3 (on p170 of the report) clearly shows that of the €1,463m spent on the "European Neighbourhood Policy and Relations with Russia", €1,356m was considered by the Commission as ODA (click the table below to enlarge).


What about our claim that only 46% of EU aid reaches lower income countries. We are especially surprised at the Commission's refusal to accept this as its actually more generous than the Commission's own figure of roughly 35%. Please take a look at this table from the Commission's own report (p15):


The green line at the top combines EU ODA spent in what the OECD considers to be "Least Developed Countries" and "Other Low Income Countries", which dips to about 35% of EU aid disbursed in 2009 (if you're wondering why our figure is a higher percentage, it's because we have taken the EU's spending in lower income countries as a share of "allocable ODA" rather than total ODA spending, which includes aid that can't be allocated to countries using an income category).

In its 2011 multilateral aid review (p170), the UK's Department for International Development said of the Commission's central aid budget that, "Although almost all budget instrument spend is classified as ODA, none of the budget instruments, except for the DCI geographic programmes and most of its thematic programmes, are purely development focused."

So, unless the Commission is saying that its own figures are wrong or can explain why this (its own) methodology is no longer valid, we don't know what other conclusion can be drawn from the figures - they're there in black and white in the Commission's own documents. It's not our fault if the Commission reports something as development aid which it doesn't consider development aid (it doesn't exactly inspire confidence but that's a different discussion).

Frankly, what in the world is the Commission on about?

EU external aid: who is it for?

In a new report released yesterday, we examine the EU’s €12bn external aid budget and question who is it actually for? As the waves of protests in Africa and the Middle East prompt some much needed reflection on the West's foreign policies, we think it’s about time that EU aid is also put back under the spotlight.

The UK currently sends around £1.4bn to the Commission to be spent on external aid each year, which is no small sum. The Sunday Times featured our report, including many of the wasteful projects that we highlight.

Click here to read Open Europe's report to get the full picture. But to summarise, we find that EU aid is poorly targeted at tackling poverty, despite this being a core objective enshrined in the the Lisbon Treaty. In fact, only 46% of EU aid reached lower income countries in 2009, compared with 74% of UK aid and 58% of EU member state governments’ aid. Instead of poverty, it appears that geographical proximity and ties with former colonies continue to determine the destination of much of the EU's aid budget.

For example, the wealthy, tropical islands of New Caledonia receive on average €16 per person each year from EU aid, despite basically just as rich as your average EU country.

Vital aid funds are also being lost in a sea of administration costs. EU aid, managed by the Commission, currently has admin costs of 5.4%, higher than the UK’s Department for International Development’s (DFID) 4% and the UK target to reduce these to 2%. Some EU aid streams, such as the programme for African, Caribbean and Pacific countries, have administration costs as high as 8.6% - above the ceiling the UK imposes when giving grants to NGOs.

€1.4bn or roughly 10% of EU aid is needlessly passed on to other multilateral donors every year, such as the UN and World Bank. This money is simply being recycled between donors – up to three times in some cases – before it reaches a recipient country.

Transparency is also often lacking when it comes to recording how EU aid is spent on particular projects selected for grants - some recipients are simply marked "confidential".

Having said all this, credit to the UK government for taking the lead in pushing for better transparency of EU aid and greater effectiveness. In response to our report, International Development Secretary Andrew Mitchell said:

"This report underlines the very reason why we are pressing for reforms of the way the EU spends aid…The EU's aid needs to be far more transparent, results-focussed and targeted at the poorest people, and we are now working with Brussels to help achieve this."

We argue in our report that the best way to achieve this is to make all national contributions to the EU's aid spending voluntary - the European Development Fund, which is the only voluntary-funded stream of the EU aid budget, performs far better in terms of targeting the poorest countries. There is no need for Brussels' centralisation of aid funds - it simply leads to inefficiency and unaccountability.

Time for a radical rethink.

Italy is testing the limits of EU integration

Italy's Lega Nord has probably been dreaming of this moment for years: a head-on European collision over immigration, with Italy pitted against the Commission and other EU governments. The 20,000 North African migrants stranded on the tiny Italian island of Lampedusa provided Italian Interior Minister Roberto Maroni (from Lega Nord, see picture) with an"opportunity" to make a point that he hardly would miss out on.

Speaking after yesterday's heated meeting of EU interior ministers in Luxembourg - where Italy found itself completely isolated with only Malta on its side - Maroni launched a full-scale attack on virtually everyone. He said that the EU is

"an institution which takes action quickly only to bail-out banks and declare wars, but when it comes to showing concrete solidarity to a country like Italy, then [the EU] hides itself...I wonder if it really makes sense [for Italy] to remain part of the EU."

Ouch!

Italy isn't in any way contemplating leaving the EU of course, so Maroni is engaging in political posturing. This is obviously a hugely sensitive issue, but Maroni needs to chill a bit. It's not like Italy has completely been left hanging, as Maroni seems to suggest. This year, the country receives roughly €140 million in EU funding aimed at tackling various migration-related issues. In addition, it hasn't exactly used the billions it has recieved in EU structural funding in the most effective way - Italy's south is probably the biggest bottomless pit for EU funding. Instead of wasting it, this money could be used to deal with social exclusion and create more jobs for migrants. Call it "concrete solidarity" with European taxpayers.

But there's lots more to this story, and Italy does have a point, in so far as the distribution of migrants across Europe is hugely uneven (though this doesn't only apply to southern Europe. Finland took in 700 asylum seekers in 2010 for example, whereas its neighbour Sweden last year accepted close to 30,000 of them, which alongside Malta, is the most per capita in Europe). This is to say that if the wave of migrants from North Africa continues, and intensifies, the European Commission, and the member states that support this agenda, has been given a pretty strong hook for pushing a common EU immigration policy, including "burden sharing" between member states. Writing in Swedish daily Dagens Nyheter, the EU's genial Home Affairs Commissioner, Cecilia Malmström, recently argued that, in the light of recent events in the EU's Southern neighbourhood,

“The need for a common EU policy on asylum and immigration is urgent...I hope that the current situation also contributes to the EU taking several steps forward towards a common asylum and immigration policy.”

For various reasons, Italy's clout in Europe has been seriously reduced recently - the country is unlikely to emerge as winners from this recent spat. However, calls for a common EU immigration policy won't go away - whether we agree or disagree with it, it's hard to a find more controversial area to outsource to Brussels, so this is likely to drag on.

In fact, it's up there with cross-border bail-outs and EU-enforced austerity measures, as the top issue that really will test the limits of European integration.

Le Portugal demande l’aide financière de la Commission européenne
TRIBUNE DE GENÈVE: Le Portugal a demandé mercredi à bénéficier d’une assistance financière de l’Union européenne, a annoncé le président de la Commission européenne José Manuel Barroso dans un communiqué.

"Le Premier ministre du Portugal José Socrates a informé ce jour (mercredi) le président de la Commission européenne José Manuel Barroso de son intention de demander l’activation des mécanismes de soutien financier" de l’UE, a précisé la Commission.

"Le président de la Commission a assuré que cette demande serait examinée le plus rapidement possible (...) et s’est dit confiant dans les capacités du Portugal de surmonter ses difficultés actuelles avec la solidarité de ses partenaires", a ajouté la commission. Peu auparavant, le Premier ministre portugais José Socrates avait annoncé lors d’une allocution télévisée que le gouvernement portugais avait "décidé aujourd’hui même d’adresser une demande d’assistance financière à la Commission européenne". » | AFP | Mercredi 06 Avril 2011

EUtopia 2050

European Commission plans to ban petrol-fuelled cars from city centres by 2050 have led to general outrage all over Europe.

UK Transport Minister Norman Baker said:

“We will not be banning cars from city centres any more than we will be having rectangular bananas. It is right that the EU sets high-level targets for carbon reduction, however it is not right for them to get involved in how this is delivered in individual cities.”

The German Car Industry Federation called the proposals "planned economy methods from the old days".

Dutch mobility federation Bovag made the point that "2050 is too far away. Nobody can look so far ahead. But if you look now at where electronic cars stand there isn't really a rush."

The last point is really the main issue for us: why is the EU trying to create policies for 40 years time? It is impossible to predict what the exact needs of people will be in 2050, especially in urban transport, a sector which has been developing quickly over the past few decades. Any elected official worth his salt would not bother with a policy such as this, the EU would fair far better by trying to tackle the mountain of problems it faces now - the sovereign debt crisis, the banking crisis and a growing bribery scandal.

People 40 years ago predicted we'd all be in flying cars by now, maybe the EU should start planning for that...

EU to Ban Cars from Cities by 2050
THE DAILY TELEGRAPH: Cars will be banned from London and all other cities across Europe under a draconian EU masterplan to cut CO2 emissions by 60 per cent over the next 40 years.

The European Commission on Monday unveiled a "single European transport area" aimed at enforcing "a profound shift in transport patterns for passengers" by 2050.

The plan also envisages an end to cheap holiday flights from Britain to southern Europe with a target that over 50 per cent of all journeys above 186 miles should be by rail.

Top of the EU's list to cut climate change emissions is a target of "zero" for the number of petrol and diesel-driven cars and lorries in the EU's future cities.

Siim Kallas, the EU transport commission, insisted that Brussels directives and new taxation of fuel would be used to force people out of their cars and onto "alternative" means of transport.

"That means no more conventionally fuelled cars in our city centres," he said. "Action will follow, legislation, real action to change behaviour." » | Bruno Waterfield, Brussels | Monday, March 28, 2011

The EU's fisheries policy gets battered

If there ever was a competition for the worst EU policy, the Common Fisheries Policy would probably end up on top. The policy simply has to go.

So it's encouraging that the EU’s Fisheries Commissioner Maria Damanaki yesterday did the right thing and called for an end to the CFP-mandated practice of throwing back dead fish overboard if fishermen's quotas have been exceeded:

"I consider discarding of fish unethical, a waste of natural resources and a waste of fishermen's effort. But I would like to go further – since our stocks are declining, these figures are not justifiable anymore. If we continue with our policy, then we will soon face a situation where the production capacity of marine ecosystems is at risk”.

This is of course hardly a revelation; groups from across society and the political spectrum have been warning about the economic, social and environmental catastrophe that is the CFP for a long time.

To give only a couple of examples of what Europe's fishing industry has come to under the CFP :

· 80% of Europe’s fisheries are considered to be overexploited or in danger of collapse

· 1.3 million tonnes of seafood are thrown back every year in the North Atlantic alone, including two out of every three haddock caught to the west of Scotland

· The value of fish that thrown back every year by the Scottish fishing fleet alone was estimated at £40m, resulting in higher prices for consumers.

Momentum against the CFP is building, and the recent “Fish Fight” campaign fronted by TV chef Hugh Fearnley-Whittingstall has brought the issue to a much wider audience, helping to put pressure on the EU for reform. While Damanaki’s pledge is good news, this time it must be followed by concrete action. After all one her predecessors, Joe Borg, called the discards policy “morally wrong” and pledged root-and-branch reform back in 2007, but to no avail.

The common sense void in which the CFP exists is a big reason why hostility to the EU is growing, exemplifying Brussels’ painful inability to reform its policies as the circumstances around it changes (on this one, it's not the Commission's fault as a handful member states, most importantly Spain, continue to block reform). It is so detested that it even managed to unite such diverse groups as climate change sceptic Conservative MPs and Greenpeace activists.

Although dumping the discards policy will not solve all Europe’s fishing problems, it's certainly the right place to start.

A blueprint for doing nothing?

‘Enhanced economic co-ordination in the euro area’ is the long winded title for the new watered down version of the Franco-German ‘pact for competitiveness’ - the blueprint for saving the eurozone (well...).

Following the massive hostility towards the initial proposals the pact was pawned off onto Herman Van Rompuy, the European Council president, in an attempt to find a compromise. The result is a four page document that outlines some nice ideas but, scratch the surface, and it has very little substance.

The pact focuses on: fostering competitiveness, fostering employment and enhancing the sustainability of public finances. It feels as if we've heard this before, i.e. the Lisbon Agenda (or the new Europe 2020 strategy, same difference) with a pinch of the original Stability & Growth Pact.

All admirable aims and definitely issues which need to be tackled, especially if the eurozone is to avoid a similar crisis in the near future.

In most areas the actual policy specifics (specifics being pretty much every aspect of the policy other than the general overarching aim) will be left to member states, bringing into question the actual need for this document at all. Between the new macroeconomic monitoring and the increasing acceptance in member states for the need to enhance competitiveness on the national scale, what value is this pact supposed to add in real life? The lukewarm reception it received seems to support this, and casts further doubts over the chances of an agreement which contains something new and convincing being produced at the March summits.

An interesting question is how the German Bundestag and Bundesrat will respond to a proposal which quite clearly give national government quite a bit of discretion in defining their own caps on debt levels and wage setting arrangements.

At best the new pact looks to be a set of guidelines for member states to follow and to show a unified approach. That is fair enough, but it should not be treated as more.

Mean journalists ganging up on Brussels

An internal commission newsletter reveals what European Commission President José Manuel Barroso thinks about criticism of the pay and perks enjoyed by EU staff.

In what is seen as a direct response to revelations that 2,000 EU officials, earning between €124,000 and €185,000 a year, were also entitled to three months off work on full pay last year, Presidente Barroso said:

"The European civil service is often attacked for its apparent 'privileges' when this is not the case and I am always defending this."

Adding that he "cannot accept populism against the European civil service", while paying tribute to EU officials, describing them as a "great asset to Europe".

Sure, EU officials can do a good job but please! Not a week goes by without media across Europe lamenting the various excessive ways in which EU officials are compensated for their work. In Barroso's world, one is led to believe, this is just a case of mean journalists ganging up on Brussels (despite the Commission spending around €8 million a year on entertaining, training and 'informing' journalists. What has the world come to when you can't even buy some decent coverage?)

Only today, Danish newspaper Politiken reported that on average, salaries across Europe have fallen by 5% since 2008, while for EU officials they have increased by 4% during the same time period. One in five EU officials has an annual salary of around €135,000, or more - which seems high even to us. Between 1,100 and 1,600 make more than the Danish PM.

It would be strange if media did not report on this.

Barroso should take a stroll down the hallway in the Berlaymont building and have a chat with his colleague, Budget Commissioner Janusz Lewandowski, who understands the need to cut at least some of the EU institutions' expenditure.

Message to the Commission: Denial won't reduce waste

You remember the non-existing Hungarian dog fitness centre which received €400,000 in EU subsidies? We highlighted the project at the top of our list of 50 examples of EU waste.

Well, from the Hungarian press we now learn that the Hungarian Development Agency - the national body responsible for the distribution of the EU's regional development funds - has asked the company Gyrotech Ltd (which, bizarrely enough is an IT company) to pay back the money it received in 2007 for the project to the European Regional Development Fund. The original grant was aimed at "improving the lifestyle and living standard of dogs."

Hungarian economic magazine HVG credits Open Europe for bringing the case to the attention of the international press.

If the money will in fact be paid back, this is good news and shows that it’s possible to fight EU waste. As a result of efforts to shed some light on these funds (by Open Europe and others), EU waste was detected and the money which was misused is now being reclaimed. Everyone happy?

Not the European Commission, it appears, which didn't quite seem to appreciate Open Europe's efforts to ensure that the EU budget constitutes good value for taxpayers' money and contributes to growth and jobs in Europe.

Note the differing responses:

The Hungarian National Development Agency – which admittedly should have been more prudent when giving grants to the project in the first place - investigated what went wrong and claimed back the money.

The European Commission:

“We don’t consider this to be credible research”. Our list, with the dog fitness centre at the top, was apparently “based on a loose collection of unverified secondary sources”, according to the Commission.

And, “It is regrettable that Open Europe did not even approach the commission to verify any of their so-called facts…it is very easy to pull out a few of the less orthodox projects from thousands funded by the EU and present them in a onedimensional manner for ridicule.”

The Commission does indeed look pretty ridiculous when it makes statements like this, and it turns out that the number one item on the list, the dog fitness centre in question, was a clear case of undisputable EU waste and that the project is now forced to refund the cash.

It’s not that hard to verify actually. The first-hand source (the Hungarian Regional Development Agency), detailing the grant, is right there in the footnotes of our report – all you have to do is to click on the link and voila!

The same goes for almost all the other projects we’ve highlighted, apart from a handful, such as the case of the two fishermen who received a €500,000 grant from the EU and the Swedish government to scrap their boat under a scheme to reduce over-fishing. It then used the grant to buy a new boat, under a separate set of rules, and carried on with their fishing business. In this case, the fishermen themselves were widely documented to have admitted that this was exactly what had happened.

Instead of going on its counterproductive rant, the Commission should thank anyone who tries to identify waste and who proposes reforms to stamp it out.

We’re not holding our breathes though.

Meanwhile, the Financial Times and the Bureau of Investigative Journalists have made European taxpayers and transparency campaigners a great service this weak by shedding some additional, and much needed light, on the EU's structural funds. See here, here, here, here, here, here, here, here, here, and here for example.

Some of the findings have included:

• Only 10% of the earmarked funds for 2007-2013 have actually been paid out to date, due to difficulties in many member states to find money for co-financing projects at a time of austerity in Europe (showing how poorly equipped the structural funds are to respond to changing economic circumstances in Europe, in turn undermining their ability to foster "convergence")
  

• €12mn of EU funds have been spent on a port which lays idle in Gran Canaria.

• More than €3mn of public funds – including an estimated €1.5m from EU structural funds – have been allocated to tobacco companies in Europe. The funds have gone to help equip cigarette factories and to fund training projects. Under the Framework Convention this is in breach of WHO guidelines on tobacco control. Paradoxically, the EU also spends more than €16mn a year on antismoking campaigns.

• Some big beneficiaries of the structural funds include McDonald's, which received funds to train staff in an affluent region of Sweden, in addition to IBM, Coca-Cola, and Japan Tobacco International. This is despite the fact that the funds are specifically meant to help small and medium sized companies, particularly in poorer regions.

• Structural funds have been allocated to companies relocating factories from west to east Europe, despite this contravening EU rules.

The Commission has resorted to its trade mark 'nothing-to-see-here' and 'it’s-all-only-a-misunderstanding' response. Indeed, denial remains the most predictable of the Commission's responses.

To be fair, the Commission has at least one sensible proposal for improving the targetting of the structural funds - linking more of the funds to actual performance and achieved targets (as outlined by Commissioner Hahn).

More stuff like this and fewer defensive rants, would serve to improve both the effectiveness of the funds as well as the image of the Commission itself.

Talk about micro-managing...

First the EU sets renewable energy targets that force member states to build thousands of wind turbines, then the Commission tells them how not to build them...

According to Euractiv:

The European Commission has issued guidelines on how to design wind farms so that they do not disturb birds and bats living in the EU's 'Natura 2000' network of protected sites.

Nice to know that you're expected...

The publication of our annual list of examples of EU waste seems to have become a much-anticipated occasion in Brussels.

As L'Express reports today, an internal document prepared by EU Tax Commissioner Algirdas Semeta reveals that the Commission expects us to "publish a list of 'absurd' EU projects" on the eve of the publication of the EU Court of Auditors' annual report, due for 9 November. The Commission is reportedly investing extra energy in preparing its defence.

All this attention could seriously make us blush...

Double standards on leverage

The excellent WSJ Real Time Brussels blog notes that EU Budget Commissioner Janusz Lewandowski isn't entirely happy with the amount of money that potentially can be lent to struggling governments, using the EU budget as a guarantee.

Mr. Lewandowski told a group of journalists: "That is worrying me...[the EU must] be realistic about the budget as a guarantee." In case of danger, he said, "we should be very watchful" about the maturities of the various pieces of debt issued to countries.

So what exactly is the Big Lewandowski on about?

Well, besides the €440 billion eurozone bailout package, which does not include the UK and is guaranteed by eurozone governments, the EU also agreed in May to a separate €60 billion fund. This fund is to be raised by the Commission on the markets, and then lent to eurozone countries in trouble, using the EU budget as collateral. The loans would therefore be guaranteed by all member states, including the UK, since all member states pay into the budget.

Added to the pre-existing fund for non-eurozone members, which totals €50bn, the EU budget can therefore potentially be used as a guarantee for €110bn in loans. And given the state of the economies on the receiving end, these loans can only be described as sub-prime (with some exceptions).

The size of the EU budget is roughly €123 billion euros this year (set to rise by €7 billion if MEPs get their way), so should countries max out these bailout funds, the bloc's debts could reach 89% of its equity (the EU budget).

Ironically, the Stability and Growth Pact stipulates that no EU country is allowed to have a debt higher than 60% of GDP. We know it's not the same thing, but Lewandowski is certainly making a good point. €110 billion is actually massive exposure.

In addition, isn't this potentially causing the EU - as in the legal entity not individual countries - to break the very same rules that the Commission now wants to beef up?

But then again, on leverage as well as fiscal prudence, the EU isn't exactly known for leading by example.

Well done Margot

Credit where credit is due.

Regular readers of this blog will know that we're not the biggest fans of the former Commissioner for Propaganda Communication, Margot Wallstrom. Margot and her office too often acted like outright lobbyists trying to promote ever closer union - including spinning facts on the Lisbon Treaty and trying to silence and slander dissenting voices - rather than civil servants charged with providing factual information (they are funded by taxpayers after all).

But Margot, who now holds a UN position - Special Representative of the Secretary-General of the Secretary-General on Sexual Violence in Conflict - has recently done a rather principled thing. Unlike most of her former colleagues, she turned down the controversial 'transitional allowance' that Commissioners are entitled to for three years after leaving office. We've looked at this issue before, but the transitional allowance is again hitting the headlines, as it emerged that ex-Commissioners such as Charlie McCreevy and Peter Mandelson receive hefty pay-outs from the EU despite holding lucrative jobs or making money from book sales.

The allowance is worth a lot of money - for Margot it would have been up to 60% of her final annual Commission salary for three years, or the difference between her current salary and her salary as a Commissioner (€270,376).

Now, Wallstrom won't starve - having made €2,991,313 during her ten years in Brussels and with an annual pension of €113,486 - but you still have to give her credit for doing the decent thing here (given that she did turn it down for ethical reasons and not, for example, because she makes more than what she did as Commissioner in her new role, which would be a scandal in its own right).

So well done Margot - as taxpayers we salute you.

Taking their own advice?

Finance Ministers meet today in Brussels to discuss proposals for strengthening the EU’s “economic governance”, spearheaded by European Council President Herman Van Rompuy and his “task force” on the subject (which so far has failed to convince member states). In parallel with whatever Van Rompuy and the Finance Ministers come up with, the Commission will on Wednesday table its proposals for various measures intended to pre-empt another sovereign debt crisis. These will include sanctions for countries which run unhealthy budget deficits .

According to German daily Die Welt, the Commission is also contemplating the introduction of a “warning system” to monitor wages in member states' public sectors. This is potentially hugely controversial stuff, depending on what the proposal looks like in the end. Marco Buti from the European Commission for Economic and Financial Affairs explains the rationale: "the wage development in the public sector does of course have a great influence on the economy".

Fair enough. However, although it's not entirely clear to us which EU institution will be in charge of deciding when public sector wages are posing a risk to the sustainability of the overall economy under the forthcoming proposal, if Mr. Buti sees the Commission in this role, he might be up against some resistance. Says Buti, "when wages in the public sector damage competitiveness and price stability then the country will be requested [by the Commission] to change this policy."

Problem is, the Commission isn’t exactly in the strongest moral position to give lectures to member states on public sector pay. EU officials’ salaries are already far higher than the majority of public servants in member states, and the Commission now wants to award its officials three pay rises by 2011, adding up to a pay hike of 5% – at a time when most member states are busy imposing pay freezes and deep cuts. The same reasoning can be applied to the Commission’s drive to make Europe’s various pensions systems more sustainable (including retiring later). Meanwhile, EU officials can retire at 63 with up to 70% final salary pensions, and many take early retirement.

It has been pointed out many times before – by Dan Hannan in the European Parliament last week for example – but it can never be repeated enough times: the mismatch between what the EU institutions preach on public finances and what they practice is mind-boggling.

If member states had the same pay and pension policies as the EU institutions, we fear that they would go bust in no time.

Time to get serious about Commissioners' code of conduct

Among ordinary citizens, one of the most enduring images of the EU is that of the 'gravy train' - MEPs and bureaucrats in Brussels determined to get their hands on as many taxpayer-funded perks as possible. Given the EU's continuing popularity crisis, you would think that the various EU institutions would be all over this issue like a rash.

MEPs have rightly been under intense scrutiny in recent years, be it their generous wages and allowances, exotic junkets or second pension schemes. But what about EU Commissioners?

The Sunday Times yesterday reported that MEPs have demanded that the Commission's 'ethics committee' investigate whether former Commissioner Günter Verheugen is in breach of rules on lobbying. Verheugen, who retired in February, received the Commission’s approval to take up posts with Fleishman-Hillard, a public relations firm, the Royal Bank of Scotland and associations representing German banks and Turkish commodity exchanges.

But apparently he did not seek permission for the European Experience company, of which he is a co-founder, co-owner and unpaid managing director. The company’s website promises clients “expertise and vast experience in the area of EU policy” as well as “the best strategy” to deal with European institutions.

If the claims are true, it would appear that Verheugen is indeed in breach of the Commission's code of conduct, which states:

Whenever Commissioners intend to engage in an occupation during the year after they have ceased to hold office, whether this be at the end of their term or upon resignation, they shall inform the Commission in good time. The Commission shall examine the nature of the planned occupation. If it is related to the content of the portfolio of the Commissioner during his/her full term of office, the Commission shall seek the opinion of an ad hoc ethical committee. (p3)

But the problem is these rules leave far too much room for ambiguity and it is no wonder that cases such as this occur. After all, Verheugen is not the only ex-Commissioner to take up a job which would potentially involve lobbying his former employer. Charlie McCreevy also took up a job, this time at Ryanair, which is clearly open to a conflict of interest given the airline's run-ins with the Commission in competition cases in the past and perhaps the future.

So, let's see the Commission tighten up the rules, perhaps taking inspiration from the UK's ministerial code of conduct, and bar ex-Commissioners for two years from working for any firm that would seek to influence the Commission. It's not like these ex-officials are going to starve to death. Verheugen is in receipt of a pension worth around €115,000 a year.

Economic governance: a tale of two polls

A new poll published yesterday by the German Marshall Fund of the United States makes for interesting reading.

With a few exceptions, majorities in the eurozone countries said the euro has been a bad thing for their economy, including France (60%) and Germany (53%), but also Spain (53%) and Portugal (52%). Italians were divided on the benefits of the euro with 47% saying the euro has been good and 48% saying it has been bad for their economy. Only the Dutch (52%) and Slovaks (64%) had majorities saying the euro has been a good thing.

Unsurprisingly, a full 83% in the UK thought that using the euro would be a bad thing for the economy.

But perhaps just as interestingly, the poll found that a plurality of EU respondents (46%) believe that in dealing with the current economic crisis, each country’s national government should have primary responsibility. Roughly two-in-five EU respondents (39%) said that the EU should have primary responsibility for handling the current economic crisis.

Only in Germany did the majority (54%) agree that the EU should have the leading role in economic decision-making. The French were divided on the issue, with 47% saying the national government and 43% saying the EU should have the primary responsibility.

This certainly makes an interesting comparison with the Commission's recent claims that "75% of EU citizens want more European economic governance", based on a rather creative interpretation of its Eurobarometer survey, which we have debunked before. EUobserver notes that the results "sharply contradict" the European Commission's interpretation.

Respondents were only asked whether or not “a stronger coordination of economic and financial policies among all EU member states” would be effective to combat the ongoing crisis (see p. 38 here). The question didn’t even mention the role of the EU or the term “European economic governance”. The Commission got its 75 percent figure by adding up the respondents who thought that stronger coordination would be “very effective” (26 percent) and those who only thought it would be “fairly effective” (49 percent).

Herman Van Rompuy's taskforce clearly has a very difficult job on its hands if it's to convince people on the need for greater economic governance.

Third time unlucky

Euractiv has returned from its summer break with a rather good, albeit concerning, story about concerns over German EU Energy Commissioner Günther Oettinger's extra-curricular activities. It has been revealed that he has been forced to re-submit his 'declaration of interests' three times and it's still not right.

It seems that Oettinger has repeatedly failed to disclose the full list of trusteeships he undertakes and Stern reports that German prosecutors are checking whether he committed a criminal offence by lying in his affidavit, following charges made by German management consultant Andreas Frank.

Makes you wonder whether other Commissioners are also being economical with the truth when it comes to potential conflicts of interest? And if Oettinger is unable to fill out a simple form at the third time of asking, is he really capable of solving the EU's pressing issues of energy security and liberalisation?

You can access the various Commissioners' declarations here:
http://ec.europa.eu/commission_2010-2014/index_en.htm