Two issues keep the debate around the new Multiannual Financial Framework (MFF) going: one is about how to find a mechanism to react to governments which do not comply with the Copenhagen Criteria, i.e. infringe democratic and/or rule of law principles (the infringement of democratic principles is more indirect as the sheer outcome of elections favours the governments of Hungary and Poland - although in Poland the tide may turn - but the circumstances under which these governments win the votes are at least dubious) without resorting to the famous (or rather notorious) Article 7, which is rightly called the "nuclear option" as it is very strong and virtually impossible to implement. It has to be noted also that this "nuclear option" is not directly so nuclear as it strips a country from its voting rights but leaves all other right untouched - of course after this the other member states can vote other sanctions if they are in line with general law.
The other question is also raised in the context of the projects in Hungary where the government is distributing EU funds with an extreme speed - leading to suboptimal decisions in itself - and favours its cronies in this distribution.
As it seems that - at least in Hungary - these two negative phenomena go hand in hand - and the concentration of power and hollowing out of all checks and balances really ensures that cronyism and corruption cannot be brought to court or hindered any other way, including wide publicity, the two questions are mixed together.
Proposals are tabled which would make EU funds conditional on rule of law criteria. In terms of proper use and avoidance of fraud, joining the European Prosecutor's Office is favoured. On the other hand, soon a new Financial Regulation will be voted which will simplify the disbursement of EU funds.
EU structural funds are an important source of economic development, a positive factor in the image of the EU and also help cohesion between the countries (also by enabling that their economic development approaches them to each-other - they are also called cohesion funds). I totally agree with Markko Markkula, president of the (European) Committee of the Regions, who emphasised the importance of these funds in an interview already serving as a preparation to the fight around the new MFF, arguing that the cohesion funds should not be cut. A recent article (and one of a leading Hungarian commentator who can also not be suspected of being on the side of the present Hungarian government, arguing that austerity will not break the government of Orbán) warns that the cut of funds can be counterproductive.
So what?
My proposition is that the decisions (including acceptance of projects and procurement) should be more centralised and also more controls should be applied, covering the cost of these from the funds made available to the country in question. These controls should also depend on whether the coutry joins the European Prosecutors' Office.
This would of course require additional resources which is always difficult to achieve but even more difficult now when EU sources are decreasing due to the Brexit. Therefore the structural funds should be used for this purpose. This would not be such a sensitive cut as what is proposed in the framework of the new "conditionality" proposals. Also, joining the European Prosecutor's Office should be the precondition of applying the simplifications in the new Financial Regulation.
Showing posts with label Structural funds. Show all posts
Showing posts with label Structural funds. Show all posts
Saturday, May 26, 2018
Tuesday, January 26, 2016
Why does the EU finance the Orban regime?
I hear this question more and more often. The Hungarian government
plans to use all EU funds available for the 2014-2020 programming cycle
till 2019 (mainly before the 2018 parliamentary elections and the 2019
municipal elections. This may mean 6 billion euros every year or even
more
These amounts help to keep the system running. They amount to about 4% of GDP at the moment, may be as much as 6% according to the ambition plans, thus they are the source of the 2-3% growth (and may increase it to 4-5% per year in the future) with which the goverment boosts.
Apart from the legal problems which hinder the decrease or withdrawal of these funds, the workings and the logic of the EU does not enable to withdraw them.
I do not agree, by the way, that these funds should be withdrawn. These are used for good purposes, beyond some publicity actions like fancy pavements on the main squares of villages, fountains and other, well publicised useless projects. They make it possible to revamp the university clinics in Budapest, a lot of seqage and other utilities reconstruction in the slums and in rural cities, technology and building improvements for schools, transport reconstruction and renewal (all these are concrete projects taking place). And without the EU, the "small circles of liberty" we still have, would not excist or be much more limited. The Orbán (FIDESZ) government retreated on the media law, on forced premature retirement of judges, publicity taxes killing the biggest independent TV-station and much more.
It is still worth understanding, how the EU works. It is not a superstate (it is supranational, true, but neither a state, nor super), it is rather a co-operation framework. The Commission is more a regulatory agency then a government, inparticular not in the sense of the executive branch of most European parliamentary democracies (where the party or coalition giving the executive is also in majority in the Parliament and thus, as the goverment implements the party programme in theory, it is able to gain every vote in the parliament.
I do not think the basics need explanation here: the European Parliament has no governing party or coalition, all decisions require approval from the Council, which consists of the heads of state or government (the head of the executive according to the legal system of each country) of the member states, Commission implementing decisions (very limited and only possible when the directive or regulation voted by the Parliament and the Council foresees it) are reached through consultation with committees of experts of the member states and are subject to validation by the legislative (although ex post).
In my view the EU has three, relatively distinct coordination domains (not identical to the pre-Lisbon three pillars, though not unrelated):
First the common market - this requires a lot of harmonisation concerning product standards, like quality and security requirements. I would classify the land-based and porduction agricultural support and agricultural market regulation measures here. Trade and competition issues also belong here.
Secondly political co-operation which is first of all a way to increase the weight of Europe in the world compared to tis individual member states. Of course for this we have to talk with one voice- therefore a harmonisation of opinions is necessary, sometimes some countries have to accept that their opinions are not represented - of course this only works if there are common goals. This is the practical reason why this only works when there are shared values (of course all political co-operation requires common values an the values of Europe are noble and on the long term they ensure a lot of benefits, but let's stay on a practical ground.
Thirdly, the interest of good co-operation and the common values also lead to the recognition that too big deviations in the level of development are unfavourable and thus it is in the interest of the richer countries to help the poorer ones to develop, to approach them in living standards, technical and social level. The structural funds are the means for that. Let us not go into the debate how much of thesse funds are used in the donor countries as goods and services are provided in exchange and similarly an argument could be brought up that the awarding and managing authorities both also have an interest to favour local suppliers. Formally speaking there is no possibility to promote neither donor country nor local suppliers, but if one of these is possible, the other is also.
This interest of leveling is independent whether a country "behaves well" in the political arena. Legally it is clearly separated, but it is also not practical - a higher level of economic development and integration can also foster sharing of values but not the other way: cutting funds leads to resentment and even lower sharing of values.
We do not like the practice of the government in Hungary that economic support depends on whether someone agrees with the politics of the government - why do we expect that from the EU? We have to solve our problems ourselves, not rely on blackmail by outsiders to do it for us.
These amounts help to keep the system running. They amount to about 4% of GDP at the moment, may be as much as 6% according to the ambition plans, thus they are the source of the 2-3% growth (and may increase it to 4-5% per year in the future) with which the goverment boosts.
Apart from the legal problems which hinder the decrease or withdrawal of these funds, the workings and the logic of the EU does not enable to withdraw them.
I do not agree, by the way, that these funds should be withdrawn. These are used for good purposes, beyond some publicity actions like fancy pavements on the main squares of villages, fountains and other, well publicised useless projects. They make it possible to revamp the university clinics in Budapest, a lot of seqage and other utilities reconstruction in the slums and in rural cities, technology and building improvements for schools, transport reconstruction and renewal (all these are concrete projects taking place). And without the EU, the "small circles of liberty" we still have, would not excist or be much more limited. The Orbán (FIDESZ) government retreated on the media law, on forced premature retirement of judges, publicity taxes killing the biggest independent TV-station and much more.
It is still worth understanding, how the EU works. It is not a superstate (it is supranational, true, but neither a state, nor super), it is rather a co-operation framework. The Commission is more a regulatory agency then a government, inparticular not in the sense of the executive branch of most European parliamentary democracies (where the party or coalition giving the executive is also in majority in the Parliament and thus, as the goverment implements the party programme in theory, it is able to gain every vote in the parliament.
I do not think the basics need explanation here: the European Parliament has no governing party or coalition, all decisions require approval from the Council, which consists of the heads of state or government (the head of the executive according to the legal system of each country) of the member states, Commission implementing decisions (very limited and only possible when the directive or regulation voted by the Parliament and the Council foresees it) are reached through consultation with committees of experts of the member states and are subject to validation by the legislative (although ex post).
In my view the EU has three, relatively distinct coordination domains (not identical to the pre-Lisbon three pillars, though not unrelated):
First the common market - this requires a lot of harmonisation concerning product standards, like quality and security requirements. I would classify the land-based and porduction agricultural support and agricultural market regulation measures here. Trade and competition issues also belong here.
Secondly political co-operation which is first of all a way to increase the weight of Europe in the world compared to tis individual member states. Of course for this we have to talk with one voice- therefore a harmonisation of opinions is necessary, sometimes some countries have to accept that their opinions are not represented - of course this only works if there are common goals. This is the practical reason why this only works when there are shared values (of course all political co-operation requires common values an the values of Europe are noble and on the long term they ensure a lot of benefits, but let's stay on a practical ground.
Thirdly, the interest of good co-operation and the common values also lead to the recognition that too big deviations in the level of development are unfavourable and thus it is in the interest of the richer countries to help the poorer ones to develop, to approach them in living standards, technical and social level. The structural funds are the means for that. Let us not go into the debate how much of thesse funds are used in the donor countries as goods and services are provided in exchange and similarly an argument could be brought up that the awarding and managing authorities both also have an interest to favour local suppliers. Formally speaking there is no possibility to promote neither donor country nor local suppliers, but if one of these is possible, the other is also.
This interest of leveling is independent whether a country "behaves well" in the political arena. Legally it is clearly separated, but it is also not practical - a higher level of economic development and integration can also foster sharing of values but not the other way: cutting funds leads to resentment and even lower sharing of values.
We do not like the practice of the government in Hungary that economic support depends on whether someone agrees with the politics of the government - why do we expect that from the EU? We have to solve our problems ourselves, not rely on blackmail by outsiders to do it for us.
Monday, May 5, 2014
"Suspension or no suspension?"
The tenth anniversary of the "big bang" enlargement and thus the accession of Hungary was also marked by some controversy. Some Court decisions against Hungary in infringement procedures (I will return to these later) and a controversy about disbursement of EU funds. So let's now speak about this and return to a summary of these ten years later.
The European commission is asking for additional information on the new system of managing EU funds in Hungary and asked the Hungarian authorities not to send new requests for disbursements (invoices) to the Commission before the workings of the new system is clarified. This is not a suspension of payments in the sense that payments on already submitted claims are going to be done. It is quite logical, these funds were disbursed under the old system which was working in a way (according to information from OLAF, there were twelve cases where OLAF proposed further follow-up (which can mean criminal prosecution, recovery of amounts paid or disciplinary action). The situation is that OLAF cannot directly take disciplinary action or initiate prosecution, it is up to the national authorities do it. The low percentage of criminal charges brought by the national prosecutors against fraudsters embezzling EU funds was the reason why the Commission proposed to set up a European Prosecutor's Office which would bring in these charges.
The Hungarian change came – and this shows the ignorance or lack of political feel, or even worse, lack of interest or understanding towards European developments – at an inopportune time: the Commission was strongly called upon in the report of the Court of Auditors and the discharge resolution (which accepts the report on the previous year and evaluates the management of the EU budget) by the Council and the Parliament to do more to tackle the loss of EU funds due to irregular and/or fraudulent claims for reimbursement submitted and not controlled by the member states.
The background is that while administrative expenditure and in general expenditure areas where the Commission directly spends EU money, get since years a "green" mark from the Court of Auditors, meaning that error rates are below the 2% materiality limit, i.e. are in the normal range, in the area of agricultural and structural funds, there is an error rate which is significantly beyond that. And the reason is that the member states' implementing and audit authorities do not provide the assurance requested that this spending really happens also in the quality expected. Unjustified costs are paid, documentation is lacking or erroneous affecting more than the (in)famous 2% (the materiality limit of 2% means that this is the level of errors which is considered a level where the cost of introducing additional controls is exceeding already the savings (improvement) which could be expected from them, and therefore this level of error is considered as inevitable). It can be disputed whether this level really is at 2% (some suggest it may be higher in complex areas), it is commonplace, however, that the authorities of the member states are too lenient towards their beneficiaries – among others because beyond the obvious economic interest, there is a political pressure to spend the funds assigned. This is evidently visible in Hungary, where the slow catch-up at the start makes the rate of spending an obvious target, in particular as the negotiations on the 2014-2020 financial framework did not result in a spectacular success for the government, so they want to differentiate themselves from the previous government by spending better.
So the Commission is finally planning to introduce a stricter monitoring and re-auditing of the implementation of EU funds by the member states, and it was in this process when the announcement by the Hungarian authorities to further centralise the implementation system and eliminate some actors in it came. And it is clear that at least a side-effect of this (if not the objective) will be less hassle – which would be nice if it would eliminate administrative hassle and unnecessary complications, on which the Commission is also working – and a quicker spending. This, however, entails more risk of irregularities being left unnoticed. And this risk – and weakening of the control system - the Commission cannot afford when its main task is to reinforce controls. Had the Hungarian decisionmakers taken this into account, we were better off now.
The European commission is asking for additional information on the new system of managing EU funds in Hungary and asked the Hungarian authorities not to send new requests for disbursements (invoices) to the Commission before the workings of the new system is clarified. This is not a suspension of payments in the sense that payments on already submitted claims are going to be done. It is quite logical, these funds were disbursed under the old system which was working in a way (according to information from OLAF, there were twelve cases where OLAF proposed further follow-up (which can mean criminal prosecution, recovery of amounts paid or disciplinary action). The situation is that OLAF cannot directly take disciplinary action or initiate prosecution, it is up to the national authorities do it. The low percentage of criminal charges brought by the national prosecutors against fraudsters embezzling EU funds was the reason why the Commission proposed to set up a European Prosecutor's Office which would bring in these charges.
The Hungarian change came – and this shows the ignorance or lack of political feel, or even worse, lack of interest or understanding towards European developments – at an inopportune time: the Commission was strongly called upon in the report of the Court of Auditors and the discharge resolution (which accepts the report on the previous year and evaluates the management of the EU budget) by the Council and the Parliament to do more to tackle the loss of EU funds due to irregular and/or fraudulent claims for reimbursement submitted and not controlled by the member states.
The background is that while administrative expenditure and in general expenditure areas where the Commission directly spends EU money, get since years a "green" mark from the Court of Auditors, meaning that error rates are below the 2% materiality limit, i.e. are in the normal range, in the area of agricultural and structural funds, there is an error rate which is significantly beyond that. And the reason is that the member states' implementing and audit authorities do not provide the assurance requested that this spending really happens also in the quality expected. Unjustified costs are paid, documentation is lacking or erroneous affecting more than the (in)famous 2% (the materiality limit of 2% means that this is the level of errors which is considered a level where the cost of introducing additional controls is exceeding already the savings (improvement) which could be expected from them, and therefore this level of error is considered as inevitable). It can be disputed whether this level really is at 2% (some suggest it may be higher in complex areas), it is commonplace, however, that the authorities of the member states are too lenient towards their beneficiaries – among others because beyond the obvious economic interest, there is a political pressure to spend the funds assigned. This is evidently visible in Hungary, where the slow catch-up at the start makes the rate of spending an obvious target, in particular as the negotiations on the 2014-2020 financial framework did not result in a spectacular success for the government, so they want to differentiate themselves from the previous government by spending better.
So the Commission is finally planning to introduce a stricter monitoring and re-auditing of the implementation of EU funds by the member states, and it was in this process when the announcement by the Hungarian authorities to further centralise the implementation system and eliminate some actors in it came. And it is clear that at least a side-effect of this (if not the objective) will be less hassle – which would be nice if it would eliminate administrative hassle and unnecessary complications, on which the Commission is also working – and a quicker spending. This, however, entails more risk of irregularities being left unnoticed. And this risk – and weakening of the control system - the Commission cannot afford when its main task is to reinforce controls. Had the Hungarian decisionmakers taken this into account, we were better off now.
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