Author: Marek Pielach

Journalist at Obserwator Finansowy

The economy needs more than UE funds

We have a huge layer cake from Brussels – more than PLN 300 billion. There are reasons for joy of successful negotiations. Yet, the rhetoric of the success of the battle for each euro cent should fast give way to reflections on how the funds will be used. Experts remind us that the growth of productivity in the economy is already zero, and EU funds are in fact social and not development expenditure.

Heads of State of the EU Member States, just like every seven years, agreed upon multiannual financial frames, i.e. the plan on which EU budgets will rely in 2007 through 2014. This is an important event, but far from a miracle. Only those that focused on the political spectacle, which is inherent in such occasion, may claim something rather different. This time, the spectacle was exceptionally long, as times are hard and actors ambitious.

The winners of the political theatre

The best prepared of all actors was David Cameron who had his dress rehearsal when still in London, announcing a referendum on leaving the EU. He walked onto the Brussels scene leaving his limousine round the corner to play a ruthless, cutting cost accountant. The German Chancellor, Angela Merkel, the leading actress, came to his aid. Their opponent appeared to be an advocate of a large budget, French President, Francois Hollande, who – which is rare in such performances – returned home humiliated. Others were the supporting actors.

As a result, a new financial perspective – EUR 908 billion in the actual payments (putting the spending ceiling at EUR 960 billion), which is less than 1 per cent of EU GDP, and this is the lowest ratio since 1993 when multiannual financial frames were introduced. Obviously, this is still much less than the EC wished for in June 2011 (EUR 988 billion in payments, EUR 1033 billion in commitments) and less than can be imagined by the European Parliament to which the political theatre will move now.

One of the important items is that in the new 7-year horizon, compared to the present one, only funds for employment schemes and scientific research were increased – up to EUR 125.6 billion from EUR 91.5 billion. The largest savings were made in direct support schemes for famers and on development of rural areas. This will be EUR 373.2 billion compared to the present EUR 420 billion. Still, “The European Union spends more on cows than on young people”, as the European Youth Forum declared before the summit, and the quote caught on. The cohesion policy also suffered. EUR 325.1 billion was allocated to it, and in the present budget the figure stands at EUR 354.8 billion.

Considering the above, the best supporting actors were: Hungarian Prime Minister, Lithuanian President, Greek Prime Minister, Latvian Prime Minister and Polish Prime Minister. These are the first five countries that may receive the largest morsels per capita in a given country. If we disregard the size of the population, Poland will be the largest beneficiary.

Thanks to the agreement with France, and also probably to the German aid, with shrinking budget, we received from the cohesion fund more than before. If we take account of inflation, the figure is 10 per cent smaller. Anyway, EUR 72.9 billion for the cohesion policy in numbers comes to more than EUR 68billion and EUR 28.5 billion on the agricultural policy is more than the existing EUR 24 billion. Together with other items, this totals EUR 105.8 billion, which at the Friday’s exchange rate comes to PLN 441 billion. The amount however must be reduced by a third if we think about our European contributions.

In relation to the national product

This is probably why, during the Prime Minister’s conference at which he was cutting the huge layer cake, only EUR 303.5 billion appeared. The number was a result of conversion of EUR 72.9 billion from the cohesion policy funds. The PLN 303.6 billion for 7 years in real terms is PLN 43 billion per annum and this is only if 100 per cent of the funds are used. In comparison with the state budget the sum looks impressive but not in comparison to the entire economy. Poland’s GDP at end-2011 was PLN 1522.7 billion, so PLN 43 billion per annum is 2.8 per cent.

To compare, Polish companies had more than 10 per cent of GDP (PLN 157 billion) on their accounts in September 2012, and – as the Ministry of Economy admits – they are afraid to invest in the present market environment. What would then be more useful – engaging huge forces for writing motions to the EU to squeeze out maximum PLN 43 billion p.a. from the “Brussels Sprouts”, which will be consumed by covering each municipality with the concrete setts, or to create better conditions for private firms to invest? A rhetorical question but still rarely asked.

The last time I heard it was a year ago during a presentation of the report called: „Course for innovations. How to pull Poland out of the developmental drift”. Its authors, led by Professor Jerzy Hausner, were not speaking too warmly about the cohesion policy plans for 2014-2020. They were talking about the “absorption opium” and that these funds should be called by name – i.e. as social policy funds, since they do not serve development but protective measures in poorer regions.

“Fast projects are preferred, usually small or medium-sized (for delivery time) and carrying a low risk of delay. Usually these projects absorb relatively large allocations compared to the deliverables. In effect, persons and institutions responsible for implementation of the EU funds are reluctant and reserved toward ambitious, innovative projects and thus difficult and long-lasting development projects, not seeing there any opportunity for civilisation changes and real progress” – they wrote in the report.

Easy money makes you indolent

I spoke personally to entrepreneurs who used, say, the most sensible EU subsidy which is the Innovative Economy Operational Programme. Action 8.1, that is supporting the electronic provision of services. Many of them were saying that they would not take the “easy money” now. This is because most of their time is consumed by completing forms and fights with public officers. The fact is that the people that complained were only those that actually had a business model and opportunity for profit in the future.

I do not know the authors of project – “a portal for passionate hairdressers”, who in 2009 got more than PLN 800 thousand, but I guess that they do not complain that much. The fact that their product has nothing to do with innovation is irrelevant. The most important is that they outstripped competitors in filling the forms. Sadly, the EU funds often lead to pathology. This is because public officers will never decide so well about the capital allocation as private entrepreneurs in their own firms do. In addition, it is not easy for the latter to compete against blown eggs fuelled by subsidies that take the money from the market, and after some time go bust strikingly.

„Numerous estimates demonstrate that the productivity growth in Polish economy shrank from ca. 2-3 per cent p.a. early in the 21st century to zero now. The shrinkage happened just at the time when large streams of EU funds started to flow into the country” – Ignacy Morawski says in the Rzeczpospolita daily.

Assuming that we have a cause and effect here, we pay for the ineffective investment of billions from Brussels with a loss of effective billions in the country, which is but harder to notice. In a discussion on EU funds, it is worth recalling that “there is no such a thing as free lunch” and even if we are about to hold an invitation to an exquisite restaurant (the European Parliament must still approve the financial frames); this does not mean that we should close the kitchen at home. Especially that in this bar only the dessert is served – a huge layer cake for PLN 300 billion, and no true lunches.


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