How to win friends and influence people (with other people's money)

We've consistently questioned the logic of sending taxpayers' money from Paris to Berlin via Brussels in the form of the EU's regional (or structural) funds. It seemingly makes little sense for taxpayers in economically comparable countries to subsidise each other's regional policies, only minus the Brussels admin fee.

And it turns out that the search for a logical explanation was all in vain, as, according to German MEP Markus Pieper, the use of EU-channelled money to co-finance projects in relatively wealthy member states is completely justified because it contributes towards making the EU more visible to citizens.

"In countries like Germany, France and the Netherlands, Europe shows its face through local projects in the regions," he said.

This is the kind of argument you might expect to hear from the Commission or an MEP from one of the net recipient countries, but coming from a member of Chancellor Merkel's CDU party, which is making some pretty loud noises about fiscal prudence at the moment, makes it quite odd.

And it's not like the Commission doesn't already have a sizeable pot of money to spend on EU PR.

all or nothing?

Over the last few days a story first picked up on EUobserver, then Austrian daily Wirtschafts Blatt and again today on Euractiv looks at the future of EU cohesion (also referred to as regional or structural) policy in the upcoming EU budget negotiations.

The current interest was sparked by a letter to the Commission, penned by Poland, Hungary, Slovakia and the Czech Republic, calling for the European Social Fund (one of the cohesion policy's funding streams) to remain intact. In addition, a recent Polish government policy paper reportedly told its diplomats to ensure that the EU's €50bn a year cohesion spending remains untouched.

The articles all present the debate in stark terms. For example, the EUobserver piece says:

One contact noted there is a danger that the bogeyman of "renationalisation of regional development" - the theory that each EU country should look after its own poor instead of creating a joint pot - could raise its head in the EU budget talks due to the politically painful austerity measures coming into effect across the union.

However, when it comes to regional spending there is no reason for there to be an 'all or nothing' choice. As we have argued before almost half of the EU's regional spending is spent in the richer member states (those with a GDP 90% or higher than the EU average) and much of this spending represents poor value for money, due to the prescriptive top-down rules governing its expenditure.

Repatriating this spending is not the same as abolishing cohesion policy altogether. There is an obvious deal by which countries with 90% or less of average EU GDP continue to receive the funding until they catch up. This should be the goal of cohesion policy after all - to allow those poorer member states to catch up with the richer ones. Once they have done so, they should take on the responsibility of funding their own poorer areas.

The EU's budget is unmanageable

On EUobserver today, Open Europe spells out in some more detail what we consider to be wrong with the EU's budget and how it should be reformed. The piece is a response to Commissioner Siim Kallas' article on the same site a few days ago. We argue,

The fundamental problem of waste and mismanagement involving EU money lies primarily with the budget itself...Mismanagement and waste in the EU budget are two sides of the same coin. They both stem from the size, complexity and irrational nature of the EU budget. Both receive their thrust from the blurred line between spending and accountability, owing to the set-up of the EU's budget programmes. And both can be radically reduced by simplifying the budget, cutting down on the spending and by repatriating a large chunk of regional spending and the CAP to member states.

As we argue in the piece, for a start, reform of the EU budget should involve:

fully repatriating regional policy to the member states except those with a GDP of less than 90% the EU average (which would target the funds on the poorer member states where the money actually can have a real impact); repatriating all parts of the rural development programme which are not related to promoting the environment (as the environment is inherently a cross-border issue); and establishing a better link between performance and receipt of subsidies.

We also pick up on Commissioner Kallas' insight that: "One cannot reasonably expect an EU official from an office in the Commission's headquarters in Brussels to know what best fits the needs of a small town in the West Midlands - this is for the local authorities to say."

We fully agree. So why then are regional spending and rural development a matter for Brussels in the first place?

There was a better way

The Economist's Charlemagne today claims that by opposing the incredible 60 percent rise of the British contribution to the EU budget, the Conservative Party is turning its back on "such ideas as promoting free trade, the pursuit of economic growth and the defence of Western values."

By doing so, Charlemagne risks perpetuating the myth that the only way of paying for the EU's new members to integrate was to increase an already bloated and misdirected EU budget.

Charlemagne summarises Tony Blair's 2005 budget deal as follows:

To cut a long story short, Mr Blair was snookered by the French, among others...The French very cleverly managed to force the British into a position where they had to choose between defending their rebate and cutting funds earmarked for the new member states from the ex-Communist block who had joined a year earlier.

The article goes on to argue that the Conservatives' hostility to the budget rise is "purely about British money going to Brussels" and that the increase was imperative for enlargement to be a success.

It says the Conservatives are dismissing one of "Britain’s greatest victories in more than 30 years of EU membership, securing valuable allies for the cause of Atlanticism and open markets and burying forever any thoughts of turning Europe into a federalist superstate."

Charlemagne concedes that Blair's budget deal was "not brilliant" as it was supposed to prompt a review and reform of EU agricultural spending which, surprise, surprise, has not so far materialised. It should also be noted that central and eastern European countries received a very poor deal when it came to their share of agricultural spending.

But the rest of Charlemagne's argument seems to rest on the notion that EU regional spending is a 'good' in itself. He writes that EU funds for new members "have a long record of improving infrastructure such as motorways, ports and railways for the general benefit of trade and growth."

If only it were so for the 50 percent of EU regional spending that is spent in the EU's 15 richest states. This money does nothing to boost trade and growth but is simply a money-go-round which helps keep countless EU (and UK) bureaucrats in work.

Of course, having invested so much political capital in enlargement, it is only right that the UK ensured that the EU takes its responsibilities to its new members seriously. What is not forgivable is that the UK failed to make others understand that enlargement fundamentally changed the 'rules of the game' and that the EU's budget should reflect that.

As we have argued in the past, the EU's regional policy needs fundamental reform. It simply does not make sense for the UK to send money to Brussels to only see it sent to countries of equivalent wealth to be spent on highly prescriptive and dubious projects. The EU's 'structural funds' should only be spent in countries that need it such as those whose GDP is 90 percent or below the EU average. The rest should be scrapped.

This is perhaps what Conservatives should consider arguing for. It would have many useful effects: Firstly, it would still allow money to be spent where it is needed most, thus fulfilling the UK's commitment to the policy of enlargement. Secondly, it would result in a net and gross decrease in the UK's EU budget contribution. And third, it would allow them the political victory of reclaiming powers from Brussels by returning regional policy to the UK.

Instead, it seems that Shadow Europe Minister Mark Francois is following the mantra of "try, try again" by saying he would offer a deal painfully similar to Blair's in 2005. The Telegraph reports that Francois is suggesting giving up more of the UK rebate, if the Conservatives "thought there was genuine reform available.”

Seeing as this worked so well in the past (not), why not play 'hard-ball' and actually refuse to agree the next budget at all, unless the new deal is palatable. This would force the EU to live on a budget paid out in 'provisional twelfths'. This is a bargaining chip which is only available every seven years. The Conservatives, if elected, will still have the energy and the room to manoeuvre in the next round of budget negotiations (due in 2011-12) and what better way to prove that they are serious about reforming the EU?

(B of the) Bang for our Buck?

If ever you wanted a metaphor for the shambles that is the EU budget, this is it. The Times tells us that the “B of the Bang” sculpture in Manchester is being dismantled and sent for recycling, after only four years of existence.

Last month the Mail reported the original design and construction of B of the Bang cost £1.42 million, £700,000 of which was funded by the EU's European Regional Development Fund - money matched by the Northwest Regional Development Agency and Manchester City Council. Bear in mind that the EU's regional funds are meant to boost regional employment and growth.

The project was plagued by delays, spiralling costs and safety fears. Only two weeks after the work was unveiled in January 2005, parts of the sculpture, which swayed alarmingly in the wind, began to fall off and more spikes had to be removed. Manchester City Council closed the nearby road amid concerns that a passer-by could be injured by a falling spike.

If local councils want to waste taxpayers' money, then they are at least accountable to their electorates. It's a mistake that local councillors would be unwise to repeat if they want to hold on to their jobs.

However, there is no such incentive for anyone to put a stop to the EU wasting our money - in fact, the unaccountable nature of the EU budget, designed for the 1950s rather than the 21st Century, leads to these ridiculous types of projects year after year after year. See here for last year's '100 examples of EU fraud and waste', for instance.

Any fool can see how ridiculous the system is: sending money to Brussels only to have it sent back (minus the admin fee) with strict guidelines on how it can be spent and with the added caveat that failure to spend it (even badly) means less money next time around. To read our take on why the EU shouldn't run regional policy, see here.

How many more examples does the Government need to take EU budget reform seriously?