Analysis: Missing rail link, underused port: EU’s uphill battle to spend recovery billions

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FILE PHOTO: European Council President Charles Michel is seen on a screen as he attends a virtual meeting with European leaders to discuss the bloc's budget and recovery fund, in Brussels, Belgium June 19, 2020. Olivier Hoslet/Pool via REUTERS/File Photo

By Gabriela BaczynskaGavin Jones

BRUSSELS (Reuters) – In 2016, the agency set up to ensure European Union funds are spent properly complained that the southern Italian port of Taranto was “heavily underused” despite millions of euros of the bloc’s money thrown at it.

Five years later, as European capitals bid for grants from a massive economic recovery fund, the poorly connected Taranto facility – still awaiting an adequate rail link – is a warning of how difficult the bloc can find it to spend its money effectively.

“The problems at Taranto were typical of a lot of Italian infrastructure projects: a long series of complex authorisations and permits required by different government ministries and agencies,” project commissioner Sergio Prete told Reuters.

Prete added that Taranto was due to get a fully-functional rail connection by year-end – nearly a decade after he was appointed.

Spending EU money has always meant governments finding a way through complex bureaucracy and procurement laws at home and in Brussels. Domestic political wrangling is a constant risk.

In Taranto, the European Court of Auditors’ (ECA) 2016 complaint related to a modest 38 million euros of EU cash. But as the EU seeks to stabilise an economy devastated by coronavirus lockdowns, the stakes are much higher.

Wary of a growing wealth gap between the bloc’s rich and poor nations undermining its cohesion, EU leaders last year agreed unprecedented stimulus, attaching 750 billion euros of jointly borrowed cash to 1.1 trillion euros from the regular 2021-27 budget.

The European Commission, the EU’s executive arm, says the extra recovery spending can claw back 2 percentage points in economic growth and create 2 million jobs.

It wants to target poorer, peripheral nations in the south and east that lack resources to subsidise generous furlough schemes, and is seeking to favour digitalisation projects and green initiatives.

Past experience, however, suggests that will not be easy.

“Structural and agricultural funds already have a bad reputation for being misspent. Now the problem just gets bigger,” said Guntram Wolff at the Breugel EU think-tank.

“If the money is spent poorly it would undermine trust in the process, there will be backlash from the net payers.”

POOR TRACK RECORD

Underlining the need for stimulus in the bloc, the IMF said this week that while the United States and Japan were expected to return to their pre-pandemic economic activity levels by the second half of this year, the euro area would need until 2022.

But national capitals have often struggled to clear the hurdles needed to access EU funds, and then spend them well.

In the joint budget for the 2007-13 period, EU countries failed to use some 1.6 billion euros intended to narrow development gaps between the bloc’s regions, according to Commission data.

While that might represent only 0.5% of the total, just 14 countries – or half – spent all that was available to them, with Italy, Romania, Croatia, Austria, Slovakia, Germany, the Czech Republic and now-departed Britain performing worst.

Italy had the lowest absorption rate, failing to spend just over 5% of the money available.

Ireland’s plan to provide broadband Internet in rural areas offers another example. It has been beset by escalating costs, changes to the tender process and a minister’s resignation. As a result, it has failed to draw down a single euro from the 75 million earmarked for that project in 2014-20.

Misspending is also a problem. The ECA shamed Madrid and Lisbon in 2018 for a speed rail link between the two capitals that was never finished, despite EU funding. They now hope to complete the project by the end of 2023 – with the help of EU recovery funds.

In Poland, 17 million euros of EU funds were drawn in 2008-15 to train small businesses in environmental solutions. But the four coaches hired had no relevant education or experience, the ECA said in a 2014 study.

Corruption remains a risk.

According to a report last year by the bloc’s anti-fraud body OLAF, irregularities emerged in nearly 4% of all EU funds spent by Hungary in 2015-2019, way above EU average of 0.36%.

SPENDING SENSIBLY

Difficulties have already emerged as EU capitals seek to make an April deadline to submit spending plans. The Commission said initial proposals lacked reform ambition, measurable targets or realistic schedules.

In Rome, a bitter cross-party row over how to spend the money has contributed to the collapse of the government.

Spain, whose economy has taken the biggest hit in Europe from the pandemic, overhauled its public procurement laws to speed up the intake of EU funds.

France is among those that have expressed frustration at the process and called for disbursement to be sped up.

But campaigners warn that relaxing oversight rules also increases the risk of fraud, turning a worried eye to Romania and Bulgaria, where corruption is persistent, as well as Poland and Hungary, fighting battles with the EU over democratic rules.

“Swift orders and tenders must not come at the expense of the money being misused,” Transparency International’s Nicholas Aiossa told Reuters.

The pressure to spend will be particularly high in 2021-23, when final payments from the previous EU budget can still be made even as the new funding kicks in.

Declan Costello, a senior Commission official, said the goal was to get the recovery funds into the real economy in the second half of the year, but acknowledged the trade-off between time and quality.

“There is no point in just throwing this money out,” he told a seminar this month. “If we want to rebuild better… you need a little bit of time to design it right.”

Additional reporting by Michel Rose in Paris, Belen Carreno in Madrid, Conor Humphries and Padraic Halpin in Dublin, Jan Lopatka in Prague, Sergio Goncalves in Lisbon; Writing by Gabriela Baczynska; Editing by Mark John and Alex Richardson

Our Standards: The Thomson Reuters Trust Principles.

Reuters

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