Friday, January 28, 2011

EU Structural and Cohesion Funds need root and branch reform

Members of the European Parliament are refusing to approve the EU’s 2009 accounts because of irregularities in the way structural funds have been spent by Member States. The European Parliament’s Budgetary Control Committee this week demanded assurances from the European Commission that action will be taken against those EU countries that have mismanaged EU money before it agrees to “sign off” the accounts. Since the European Parliament is the so-called “discharge authority”, effectively relieving the Commission of its management responsibilities for the 2009 budget, this is no idle threat.

It is a novel idea to many, but the European Parliament is assuming the role of a scrupulous auditor and that has set it on a collision course with both the European Council and the European Commission. It’s not the first time that the Parliament has threatened to block the discharge. In 2008, a third of paid-out EU funds were declared as not having been managed according to European Commission rules. However this latest “bras-de-fer” is more likely to force the Commission to take much tougher action. If it does not - and the administering of structural funds continues unreformed - then the whole funding system could un-ravel.

The cohesion and structural fund system of the EU is vast. Designed to aid the poorest regions and sectors of Europe, the funds make up 35% of the EU's annual €130 billion budget. There is some evidence that they do have the effect of protecting the most vulnerable regions in Europe. However, what are we to make of an Elton John concert in Italy funded from structural funds to the tune of €1m and a Slovakia local soccer team funded by €600,000 earmarked for integrating the Roma community? Clearly there is abuse and it is widespread. It reflects badly on the EU which is invariably blamed for misspending rather than the Member State. It’s true that 80% of structural funds are jointly managed by the European Commission and Member State authorities but, in reality, the Commission has very few resources to monitor EU spending on national projects and initiatives. For the little credit the European Commission gets for projects that work and are well-run, they attract much more criticism for a culture of corruption and mismanagement that is seemingly beyond its control.

Would it be in the EU’s interest then to repatriate structural funding to the Member States? The Commission has jealously guarded its spending powers – but at what price? It takes the blame when it is not being tough enough with Member States where spending controls have been lax – and yet when it does take action, it only sours relations with the Member States. It’s a lose-lose situation.

Back in 2003, the then UK Chancellor of the Exchequer, Gordon Brown raised the prospect of “repatriating” structural funds. He believed the policy would be in line with the principle of subsidiarity – under which decisions are devolved to member states where possible. However, the idea was quickly dropped. The UK went onto agree a settlement of €308bn for structural funds for the period 2007-13, €9.4bn of which went to the UK.

It was recognised that for all its faults, structural funding was still important for the single market to function. Its aim is to correct economic imbalances between the wealthiest and poorest regions in Europe by funding job creation schemes in areas hit by industrial decline. It is arguably now even more important to have more cohesion in the EU in order to save the single currency from being vulnerable to further shocks.

However, the failings of the EU funding regime are too serious and too many to ignore. The whole system needs re-calibrating. The Centre for European Policy Studies has said, “In a climate of austerity, this will be a very serious point. The EU can only defend the structural funds if you can justify them and show that you are not misusing them.”
Of course, a number of Brussels insiders will just dismiss this as an over-reaction. Error rates are on the decline – and the Court of Auditors in November last year concluded that in most policy areas, over 95% of payments in 2009 were made correctly. However, MEPs have said that this is an unrepresentative sample of mostly small northern countries.

The Parliament wants Member States to provide assurances that adequate controls are in place but only four countries – Denmark, the UK, the Netherlands and Sweden – have agreed to submit any national management declarations. MEPs are hoping that the Commission will apply further pressure on Member States while they hold out from signing off the 2009 accounts. The Commission is trying to make the case for salvaging most of the structural funds for the next spending round 2013-2020 and MEPs playing hard-ball over the discharge does not help. Or perhaps it could be a blessing in disguise for the Commission: A chance for root and branch reform of structural funding? The huge regional disparities in the single market and in the Eurozone do require public investment programmes that generate local growth in areas abandoned by the private sector but the structural fund system is failing to meet the challenge – and is becoming more of a burden to the European Commission.

Monday, January 17, 2011

David Cameron's Eurosceptic Headache

The UK Prime Minister, David Cameron, this week faced down a rebellion from back-bench Conservative MPs over Europe. Even after Europe minister David Liddington promised to make last-minute changes to toughen up the European Union (Referendum Lock) Bill, 27 MPs voted against it for not being tough enough on EU sovereignty.
The Bill aims to strengthen the UK procedures for agreeing to or ratifying certain EU decisions and Treaty changes, by providing for a referendum throughout the United Kingdom on any proposed EU treaty or Treaty change which would transfer powers from the UK to the EU.

It's not the first time in his premiership that Mr Cameron has faced a rebellion on Europe: Last year, 37 Tory MPs broke the government line to demand a cut in the EU budget. The question is why David Cameron decided to re-open a Pandora's box when it was entirely avoidable and when the Bill has almost no effect on the relationship between the UK and the EU in any case.

The British Government was keen to play up the significance of the Bill. Foreign secretary, William Hague said at the weekend the plans were "the strongest defence of national democracy put in place anywhere in Europe", and “a massive advance for national democracy”. David Cameron told BBC Radio 5 live on Sunday that “we will make sure that if politicians try to take powers from Westminster to Brussels you, the British people, will be given a referendum". But do the Bill's ambitions match the hyperbole?

The purpose of the Referendum Lock Bill was to ensure that governments abide by promises made to hold referendums on EU Treaty changes. Yet, the government would still in effect have the last word on whether a referendum would be needed. This Bill is not binding on furture parliaments and governments and EU law would still keep its supremacy over UK law. European Court of Justice rulings would still be applicable to the implentation of EU law in the UK.

No wonder then the eurosceptics are not happy. In any event, the Bill misses the point. Many Conservative Party MPs and members were never interested in so-called safeguards against more competences for the EU: they were settled on nothing less than repatriation of large amounts of policy-making from Brussels to London. However, a coaltion with pro-European Liberal Democrats has prevented Mr Cameron from pursuing repatriation of powers. And by refusing to concede to any of the euro-sceptic amendments he has ended up in a position of defending a Bill that was designed to appease his rank and file over Europe but which has only infuriated his euroscpetic members.

One such disgruntled euro-sceptic is Douglas Carswell MP, who wrote on his blog that "This bogus EU Bill is no substitute for the referendum we were promised." He continues to say that “… this Bill will do absolutely zip to halt the European commission proposals being cooked up right now in Brussels, which are to give Eurocrats a direct say over the formation of economic policy in Euro zone, and non-Euro zone countries alike.”

In a nod to his eurosceptics, Mr Cameron was quick to say this week - when French Prime Minister Francois Fillon came to visit - that the UK would take no part in any harmonisation of economic or social policy that may come about in order to support the beleagured single currency.

M. Francois Fillon said, "I've asked the UK to look at the arguments for harmonisation in a favourable light." He added: "I'm not asking the UK to join the eurozone ... [the] British want to remain British". "The question is: is the UK ready to accept or encourage greater integration of the eurozone or is the UK distrustful of that and will it create obstacles and make it more difficult to happen?"

M. Fillon was relieved to hear that Mr Cameron back more social and economic harmonisation for Eurozone countries. But it remains to be seen whether his eurosceptics will be satisfied with his insistence that the UK will not be drawn into new economic governance measures.

The EU Bill has let the genie out of the bottle. This was the week that saw the return of the eurosceptics. And Mr Cameron may need to start thinking of ways of keeping them on board without upsetting his coalition partners. An almost impossible task.

Friday, January 7, 2011

What 2011 has in store for the European Union

In Paris, British Chancellor George Osborne warns other EU Member States to follow the UK’s example of implementing austere spending cuts to tackle Europe’s deficit problem; In Budapest, the European Commission President berates the Hungarian Government over controversial new media restrictions; In Tallinn, Estonian shoppers are getting used to the Euro which has just replaced the national currency, the Kroon.

So begins the New Year for the European Union. After a miserable 2010, Brussels is hoping for a more successful 2011. There are some promising signs. Estonia has just become the 17th member state to adopt the Euro and the switchover on New Years’ day went smoothly; the new EU financial supervisory advisory bodies are now in operation and the EU’s diplomatic service, the External Action Service is now up and running.

However, the Hungarian Presidency of the European Council has got off to a poor start. The Commission President, Jose Manuel Barroso is in Budapest today where he will raise concerns over new media laws that the OSCE believe gives Viktor Orban and his government sweeping powers to restrict press freedom. The new Hungarian government has also introduced new taxes for foreign firms – mainly German - and a new citizenship law that allows ethnic Hungarians in Slovakia to get a Hungarian passport.

It is not yet clear whether the new media laws, which include forcing journalists to reveal their sources and imposing heavy fines on newspapers for “offending human dignity”, contravene European law but the international criticism has forced the Commission President to put pressure on Budapest. The Hungarians – a relatively new member of the EU – have only just got used to interference from the European Commission. What is new and seemingly even more offensive is the criticism from other Member States in their domestic affairs. On Tuesday 4 January, France, Germany and the UK openly criticised the media law saying it is “incompatible” with European press freedoms. Peer pressure in the EU is not new but direct and public interventions like this is a new departure for Member States and we should expect to see more of it during the course of 2011.

Prime Minister Orban admits that the criticism over the media law, foreign taxes and new citizenship rights for ethnic Hungarians has over-shadowed the start of the Hungarian Presidency but this should not cause any embarrassment for the EU. The rotating presidencies are over-rated – they last just six months, inherit a pre-existing agenda and have no executive powers. Post-Lisbon, it cannot claim to preside over the EU when a new Council President has been appointed on a more permanent basis.

What matters most to the success or otherwise of the EU is not so much the behaviour of the rotating President of the European Council but the political dynamics between the big Member States – in particular the Big 3 – Germany, the UK and France.

George Osborne’s message to G20 counter-parts meeting in Paris on Thursday 6th January has rankled with some EU Member States. To some, Mr Osborne’s warning to Eurozone members that they need to following the UK’s lead and introduce swingeing spending cuts, sounded like hectoring and was reminiscent of the tone that Gordon Brown had taken when he was Chancellor of the Exchequer. However what was most telling was Mr Osborne’s line about the Eurozone needing to adopt more economic governance measures to support the Euro (even if he did not put it in those words). Is this a sign that the UK is not just relaxed about a two-speed Europe but actively willing it? Maybe his advice is sincere. Eitherway, I predict that the UK will have a demonstrably more arms-length relationship with the EU in 2011 even if it means losing influence and its position as one of the leading three member states.

Other predictions for 2011? Well looking at the Commission’s work programme, it will be a busy year for the Internal Market Commissioner Michel Barnier. He will be driving forward new regulations for Credit Rating Agencies, a new framework for bank crisis management, applying new bank stress tests, amending capital requirement directives, reviewing the Market Abuse directive and more besides. Watch out too for a new initiative on the posting of workers and another revision of Working Time rules. There will be proposals for Smart Borders to set up an entry / exit system for immigration control. There will be new rules on EU procurement, a new 10 year plan for transport, new measures on economic governance and, of course, a settlement on the next round of EU spending 2013 – 2020.

It is a heavy regulatory agenda and will force Member State governments to make some of the far-reaching decisions which they have managed to avoid in 2010.

The big policy themes for 2011 will be closer economic convergence, better scrutiny of EU spending and even a direct EU tax – just what the EU needs to make itself popular! Well, of course, it depends on who will be taxed. Besides, there will be a few populist measures aimed at making the consumers life a little easier. 2011 might not be the year when everyone starts to love the EU but it might be the year it is disliked a little bit less. Let’s see how the year ends but the start of the year suggests it’s not quite going to be business as usual.