EU funds and the EIB
Structural and cohesion funds
With €347bn allocated for the 2007-2013 period, the structural and cohesion funds represent more than a third of the EU's budget. Just over half of the total – €177bn – has been earmarked for the ten CEE new member states. These countries have been receiving EU funds since 2000, but the annual volume has more than doubled since 2007. Their governments will have to add further billions of euros from their own budgets, as the EU only pays up to 85% of each funding programme. The funds can be used for all kinds of projects: transport infrastructure, sewage treatment plants, new technologies for enterprises, research, education, etc. The candidate countries such as Croatia and Macedonia receive much less – but still significant – pre-accession funding from the EU.
European Investment Bank
The EIB is the EU’s public bank, which lends money on favourable terms to projects that should support EU policy objectives. The EIB provides loans to EU member countries and often also co-finances projects in tandem with the structural and cohesion funds. With a total annual portfolio of almost €53bn in 2006, the EIB is responsible for almost double the amount of investments made by the World Bank and has recently been increasing its operations outside the EU.
Misuse of EU funds
According to the EU Court of Auditors, at least 12% of the structural and cohesion funds, or around €4bn, was spent erroneously in 2006. Irregularities in accounting, however, are only part of the problem and it is far from certain that the remaining billions were spent correctly. Our research in Poland revealed that projects applying for EU funding are often arbitrarily selected by regional politicians and officials who, without justification, override project evaluations done by independent experts. In Hungary, a local politician was caught on camera in 2007 explaining to an entrepreneur how applicants for EU funds are expected to secretly return part of that money to the ministry if they wish to get the subsidy. In Lithuania, there is talk about a widespread "10% rule" for EU fund applicants. If EU funds are to be spent effectively, there needs to be a major improvement in not only accounting controls but also in project prioritisation and overall transparency standards. In this way EU funds could actually help reduce overall corruption in the CEE countries by spreading good practice throughout their public administrations.