Wednesday

18th Jul 2018

Tying EU funds to politics could be double-edged

  • Budapest's fourth metro line was built with the help of EU funds (Photo: Eszter Zalan)

In a Twitter thread over the weekend, the head of cabinet of EU Commission vice-president Jyrki Katainen, Juho Romakkaniemi suggested that EU member states might be reluctant to support countries where EU core values are challenged, such as Poland and Hungary.

"How long the other MS [member states] are willing to pay large sums for cohesion if it leads to divergence?," he asked following the Czech elections, which paved the way for an anti-establishment leader, Andrej Babis, who opposes joining the euro and deepening EU integration.

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Romakkaniemi added that Poland, Hungary and the Czech Republic are among the highest net recipients of EU funds, yet they tend to favour populist, eurosceptic parties.

He suggested one of the reasons for this was the unrealistic expectations when joining the EU that these countries "would catch up [to] German living standards in a decade".

While Romakkaniemi tweets in a personal capacity, the rare, straight-forward tone and his line of argument highlighted some of the frustrations tangible among policy-makers in Brussels with central and eastern European countries taking EU funds while challenging EU policies and values.

"These remarks are unfortunate," a high-ranking diplomat from one of the targeted countries told EUobserver.

"It is true that we sometimes give the impression that we beg, and we have to change that. But the reality is more complex than that," he said.

Another EU official pointed out that the tweets tap into a sentiment that is often exploited by political parties: people's dislike of being told by Brussels how things should be done.

The source told this website that central and eastern member states "often don't feel like equal partners."

"Populism is not an eastern European phenomenon only," noted Milan Nic, senior fellow at the German Council on Foreign Relations.

Nic said that - just as in western Europe - people are getting fed up with democracy, and don't see a perspective for themselves.

EUobserver has reached out to Juho Romakkaniemi, but have not immediately received a response.

His comments came just a few days after EU Commission president Jean-Claude Juncker hosted the prime ministers of the Visegrad countries, the Czech Republic, Hungary, Poland and Slovakia in an effort to create a better understanding between the EU executive and the often eurosceptic, reluctant regional players.

The issue of the next seven-year EU budget came up, but was "not really the main topic," a source said.

The EU official said that linking political conditions to the EU cohesion funds has already been discussed at the early stage of talks on the EU's next seven-year budget.

Central and eastern European member states argue that this linkage is against the treaties, the source said.

"If we create political conditions, you never know where this will stop," the top diplomat said.

Trickles back

Using EU funds to exert political pressure would be a double-edge sword, they argue.

Poland's deputy minister for economic development Jerzy Kwiecinski recently told this website that according to studies, net contributors get most of their investment back as profits.

"For every euro which is invested under the cohesion policy in our countries, 80 cents come back to the EU-15 in different forms - in the form of capital transfers but also in terms of exports and other transfers. So the whole EU benefits from that," he said.

"A lot of the EU money goes towards infrastructure, where western companies benefit the most," Daniel Bartha, the director of the Budapest-based Centre for Euro-Atlantic Integration and Democracy, told EUobserver.

This was confirmed by the EU's budget commissioner.

In an interview earlier this year Guenther Oettinger said: "The Poles use the money to place orders with the German construction industry, to buy German machines and German trucks. So net contributors such as Germany should be interested in the structural funds. From an economic perspective, Germany isn't a net contributor but a net recipient."

"The cohesion sums are small compared to the benefits," the diplomat insisted, adding that it would be "absurd" to cut into the funds.

"The cohesion policy is linked to the development of the single market and to compensate weaknesses in capital and infrastructure [in some countries]," he explained.

That is why, the EU official pointed out, central and eastern countries "still need those funds to continue catching up."

With less EU funds, convergence will be even slower and these funds are "one of the reasons why people in the region are so pro-EU," the official added.

No charity?

The argument that the EU subsidies should not be viewed as charity has also taken root in central and eastern Europe.

Bartha said that at the time of joining the EU it was not a choice whether new members would open up their markets or not, it was a precondition.

A heavy price was paid for the fast liberalisation of the post-communist economies, he argued, which for instance resulted in weak SMEs and few national corporations in Hungary.

The Hungarian government has even called the suggestion to tie political conditions to the EU funds "political blackmail."

"We have opened up our markets back in 2004, among circumstances when the Hungarian economy was far from […] being competitive as required by European standards. Don't try to suggest that [the] EU cohesion fund is a gift for central and eastern member states," Zoltan Kovacs, Hunagrian government spokesman told reporters in Brussels last month.

Mixed results

EU funds are nevertheless vital for the economic development for these economies. But their direct effect on the daily lives of the public are nuanced.

Milan Nic said that EU funds have been "tremendously important" in public investment in central and eastern Europe.

A Hungarian study of EU funds for the period 2007-2013 suggested that the financial assistance keeps the country's economy alive on a respirator, but without much of a long-term effect.

GDP growth was 0.3-2 percent higher because of the EU funds in the country, but they only produced 81,000 lasting jobs. They sometimes lead to market distortions, and help reinforce the local political elite.

Bartha said the EU should better monitor the spending of EU funds by national governments, but added that with Hungary and Poland refusing to join the European Prosecutors Office, it would be difficult to keep them in check.

He expects that during the new round of negotiations over the seven-year EU budget, the "friends of cohesion", a lobby group of member states interested in EU subsidies will be less united and fewer.

"The Czechs might be net contributors, Romania, the Baltics would be easier to disconnect from the group with perks, and western states will be less willing politically to support the agenda of Poland and Hungary," Bartha said.

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