Monuments to waste overshadow EU budget battle

22 November 2012, Reuters

EU leaders go into a budget battle on Thursday under pressure to avoid some glaring mistakes of the past: half-empty motorways, airports that barely see a flight and high-speed rail lines with few passengers to repay vast construction costs.

Getting any deal on the European Union’s 2014-2020 budget at this week’s Brussels summit will be hard enough. Tougher still will be resisting the temptation to pour billions more into projects that become monuments to waste.

Cohesion funds – used for new roads, bridges and other infrastructure in the EU’s poorest regions – account for 33 percent of the European Commission’s proposed 1 trillion euro ($1.3 trillion) budget for the seven-year period. This is only slightly less than the biggest item, agriculture.

EU funding generally has brought many benefits to the poor in the continent’s least developed countries and far beyond. For instance, it has been credited with helping Poland to avoid recession during the current crisis and for saving countless lives through overseas aid and backing for medical research.

Cohesion funds, designed to bring EU nations closer together by narrowing the gap between rich and poor, have played their part. This funding has already helped to transform countries such as Spain, which enjoyed more than two decades of spectacular growth out of poverty until crisis struck in 2008.

While few people would argue against wise investment, Spain stands out as a site of overspending. The country has built more than its fair share of white elephants, some EU-funded. For instance, some Spaniards ask whether they really need such an extensive system of Japanese-style “bullet trains”.

“When the politicians trumpet that we have the largest high-speed train network behind China, we have to be worried, because something has gone wrong,” said Matilde Mas, research professor at the Institute of Economics Studies in Valencia.

Spain now has a longer network than Japan, which has almost three times as many people, and has overtaken France, which pioneered the concept in Europe and has a bigger landmass.

From 2000 to the end of last year, Spain received 55 billion euros more in overall EU funding than it paid in, according to EU financial reports. That was complemented by 127 billion euros in preferential loans from the EU financing arm, the European Investment Bank (EIB), between 1981 and 2012.

A chunk of this funding went into building high-speed lines connecting Madrid with cities such as Barcelona and Seville, but they have little prospect of justifying the investment through ticket sales.

Spanish networks carry only a fifth as many passengers as French high-speed trains and only a seventh of the Japanese equivalent, Spanish environment group Ecologistas en Accion said in a report this year.

BIGGEST RECIPIENTS

The biggest recipients of EU development financing are states in eastern and southern Europe.

Under the current 2007-13 budget, Poland gets the biggest chunk of cohesion funds followed by Spain and Greece. No decision has been made on exactly how much each country will get in the next round, although ex-communist Poland will at or near the top.

The European Commission says it has learnt from the past, and Spain is likely to become a net contributor to the overall budget for the first time in the current round of negotiations.

EU Transport Commissioner Siim Kallas, who was involved in the last set of negotiations for the multi-year budget, defended EU funding as beneficial.

“I know the contribution to transport projects was more or less proper. It was always assessed as a good example,” he told Reuters.

The main recipients of EU regional funds are not the only beneficiaries. Germany, the bloc’s biggest economy and one of its wealthiest, is doing a nice business in selling goods to projects in poorer states.

A 2011 study by Poland’s Institute for Structural Research found that increased German exports to the four biggest recipients of EU cohesion funds will easily outweigh Berlin’s net contribution to the policy from 2004 to 2015.

PROGRESSIVE SPENDING SQUEEZE

While cohesion funds will remain the biggest source of economic investment at EU level, the Commission has proposed allocating new funding under the 2014-20 budget to strategic cross-border infrastructure links and technological innovation.

This could include projects such as power grid links between member states, gas pipelines and telecommunications.

The Commission is worried that this new spending on projects to stimulate economic growth and global competitiveness will get squeezed out as the top beneficiaries of cohesion funds try to avoid cuts during the summit negotiations.

“I think this would be a very unfortunate situation,” Climate Commissioner Connie Hedegaard said, adding that Europe must not be left behind as other nations innovate. “Europe should be careful not to use the economic crisis as an excuse for inaction,” she said. “Our competitors are moving.”

Environmental campaigners also say debate over the budget numbers must not lose sight of the greater goal of EU funding.

“It has to be sustainable, it has to have a proper environmental assessment, it has to respect biodiversity, it has to be economically viable,” said Nina Renshaw, deputy director at campaign group Transport and Environment, setting out the green standards for any EU-backed project.

Conservation group WWF has listed cohesion projects it sees as positive. These include a 400 million euro upgrade to the Naples metro, half of which came from EU funding or EIB loans, railway modernisation in Estonia, at a cost of 79.5 million euros, including 85 percent from EU sources and a 315,000 euro electric bike scheme in Portugal. EU funding or loans delivered 81 percent of that sum. ($1 = 0.7801 euros)