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Tuesday
Nov062012

The Art Of Siphoning Off EU Money

The European Union has been pursuing a dream, and in doing so, it has created a ballooning superstructure of governance manned by 41,000 bureaucrats and mostly unelected politicians. In 2011, they spent €129 billion that had been obtained from member states and their taxpayers. But now, the European Court of Auditors released its audit report for that year—a damning document that outlines how up to 4.8% of the EU budget had seeped through the cracks without ever reaching its target.

Already, the EU is under fire. As member governments are tightening the belts of their people to get deficits under control, and as austerity measures are tearing into healthcare benefits, wages, pensions, and safety nets, and as living standards are being hammered to smithereens, the EU government demands another budget increase.

It’s going to be quite a sight when the 27 member states have to sit down around the negotiating table on November 22 and 23 to cobble together a budget compromise for the next seven years. Some of them want the budget to be cut, and UK Prime Minister David Cameron, who has to quell a conservative rebellion in the House of Commons, threatened to veto the budget if it isn’t. France threatened with a veto, but in the opposite direction: it wants its beloved agricultural subsidies to survive intact. And Denmark threatened with a veto if it doesn’t get a juicy rebate.

So the audit report came in the nick of time. It concluded that, overall, payments were “materially affected” by error and that supervisory and control systems for payments were only “partially effective.” The numbers were stunning: 44% of all transactions were “affected by material error,” and anywhere from 3.0% to 4.8% of the entire budget was unaccounted for, with 3.9% being the “most likely error rate” (MLE).

The worst offender in percentage terms was the policy group, Rural Development, Environment, Fisheries, and Health, which spent €13.8 billion. A cool 7.7% of it dissipated into the atmosphere.

The largest policy group, the Agricultural Guarantee Fund, handed out €43.8 billion in subsidies to farmers and landowners and lost track of 2.9% of it.

Regional Policy, Energy, and Transport, the second largest policy group, spent €33.4 billion, and a blistering 6.0% remained unaccounted for.

Research and Other Internal Policies spent €10.6 billion, of which 3.0% disappeared along the way.

Employment and Social Affairs spent €10.1 billion, with 2.2% not reaching its target.

These policy groups with their deficient controls and “material errors” spent 87.6% of the EU budget. The accounts of the rest of the policy groups, responsible for 12.4% of the outlays, were deemed “free from material error.”  

There were also problems on the revenue side. Though much of the revenue was collected with an iron fist from member states, there were other sources, such as “Fines and Penalties” imposed on companies. The rules stipulate that the European Commission has to “enforce the recovery of amounts receivable by any available means.” But the Court found that in 57% of the cases that were in arrears, the Commission had been lackadaisical in its collection efforts.

In its rebuttal, the Commission claimed that enforcing recovery “at any price could have irreparable consequences and destroy or make bankrupt companies that are subject to fines.” And so it prefers “negotiating with the companies.” Companies prefer that too—negotiating being cheaper than paying. But are 57% of the companies that have to pay fines really this close to the edge that the fines would kick them over it? Or are the fines so harsh, and the rules they’re trying to enforce so intrusive, that the Commission doesn’t want to enforce them? Or is it just bureaucratic oversight?

The unelected but powerful Commission, which is ultimately responsible for the implementation of the EU budget, knows how to defend itself. It was the Court’s 18th annual report in a row that criticized the Commission for its shortcomings in controlling the money flows. With its bland jargon, the Court pointed at the infamous black holes where billions sink from view every year without trace—because entities across the continent have perfected the art of siphoning off the money. The audit results for 2011 were worse than 2010 when 36% of all transactions were “affected by material error,” and when 3.7% of the moneys disappeared along the way. However, some years were much worse. In 2006 for example, 7% of the EU budget seeped through the cracks.

In another act of impeccable timing, a “secret” report by the German version of the CIA, the Bundesnachrichtendienst, bubbled to the surface, asserting that the bailout of Cyprus would use money from taxpayers in other countries to bail out mostly rich Russians who have over the years deposited their “black money” in Cypriot banks that are now collapsing. Read....  The Bailout Of Russian “Black Money” In Cyprus.

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Reader Comments (10)

Several problems come together.
1. You cannot demand for more money if your administrative organisation is like this. The UK will bring this up and rightly so and you already start with a handicap in the budget negotiations.
2. The EU institutions (after the set up was changed with Lisbon) are mainly busy with giving themselves a profile. They are very unsuccessful in that. First of all the people who have to do that are very weak. Obama is a bag of hot air, but nobody can deny he has great presentation skills. Monti looks like a dusty retired college professor but it is clear that he knows what he is talking about. The EU is over the whole line the worst of both worlds in this respect. They look crap and havenot got a clue what they are talking about (dealing with the subject matter which is supposed to be their specialism).
Made even worse because Southern and Eastern and Western requirements are pretty different from each other.
Commission: Barroso, a guy that never would be elected up North, simply looks like a Berlusconi light (with an even bigger ego (and not backed up by brains)). Havenot got a clue how the population up North ticks. Also not really interested in the populations but more in getting politicians behind him. Plus a huge gap between his real skills and the skills he thinks he has.
Rompuy: Charisma of a wet rag as somebody summarised it.
Foreign policy:the Ashton woman (generally accepted as a complete disaster).
EP: bunch of clowns taking all the wrong battles (like now on a woman in the ECB, you donot start a longer term issue when you up to your neck in the manure and sinking).
Overall: arrogance (not backed up by skills and it shows) of which a lot of the population simply has enough.
3. Governance. Basically on things like corruption the South is in a completely different league than the North. North is usually worldclass, while the South (and often the East) is semi-African. The whole EU is a bit between the 2, plus the start up of new things clearly caused delays in proper organising a new set up. Making the mess even bigger.You cannot get the Northern voter so far to transfer more money in a time of severe austerity to a governing body like that.
Reasons why they kept the coverage of audit problems low key. However at the moment the North's governments are under pressure lead by the UK and they bring up the issue and put it in the papers. Same with he audit departments, people there are pretty frustrated and see now a possibility for change.
4. Overall it is simply having no idea how to market the EU. Basically the main markets now are the North (they come up with most of the cash and have to do that even more). You should focuss your efforts there. With people the average Northener accepts. No Berlusconi lights (Barroso) or wet rags (Rompuy) or walking disasters (Ashton) and a bit humility. Plus do the things that Northeners appreciate (like good governance), things have to move that direction anyway if it wants to be sustainable (big inefficient governments look simply unaffordable, like in the South now).
5. Basic problems when you give general direction and do say annual supervision the EU set up works. You simply got the time to do things. And if there are bumps in the road you have the time to clean things up. When like basically with Lisbon and the Euro you move to day-to-day life (and very important parts thereof) you need another management structure. And you donot have the time to adjust the structure when you get into problems.
That is the rootcause of the mess. Plus with huge conflicts of interest (in case of problems like with the Euro now) it will as it shows be nearly impossible to change things (as it is clear from the start who should pick up the bill. Not for good and for bad for both, but for good of the South and bad of the North from the start).
Difficult to see how they will straighten this one out. The problems are of the size that they are referendum or election material (take a decade or so, Tns involved, daily negative headlines) and the population in several countries simply donot like what is happening at all.
6. People generally like to stay away from negativity. This could be such an issue. The UK was the first. UK politics simply could not hold its population in check. The genie is out of the bottle there. Basically only on pubicity as it is not an Euro member costs are marginal. Other countries might be traditionally more EU positive, however there is still a long way to go plus these countries will be presented the bill (and a big one). Now all nearly went over ECB and via guarantees that are not seen as an expenditure. When permanent transfers are necessary or haircuts (budget stuff) require cuts on local entitlements that is likely to change.
November 6, 2012 | Unregistered CommenterRik
All true. The hatred on the ground for "Brussels" is intense, all over Europe.

If you're in the USA ... you have Washington that is pure big and evil. Imagine if, further, al of "Washington" was some strange foreigners that don't even speak your language, and are not even comic-elected....if you can really picture that you can picture the hatred of "Brussels."

Every normal person in every country in Europe despises "Brussles", even more seethingly than Americans despise "Washington." But then, you can't beat bureaucrats - it will never happen. Every functionary, bureaucrat, freeloader and hanger-on in Europe loves and feeds "Brussels" - just as the same happens in the US for "Washington".

The only saving grave (for now) in Europe is that "Brussels" is still a fraction of the size of "Washington" - "Brussels" spends, what, 100th, 1000th, of what "Washington" spends.

"Brussels" will simply grow endlessly until it's as hyper-bloated and ultra-evil as "Washington."

But that's just a matter of time. It's impossible to stop societal leech.
November 7, 2012 | Unregistered Commenterfatster
What exactly is being said here? There seems to be a consensus that "bureaucracy" in particular and "government" in general are to blame for the problems we have. It is certainly true that we live in an era of unparalleled technological and productive power and yet we remain unable to develop an economic system that benefits more than a minority and that is not subject to catastrophic failures. We have been unable to organise a world without poverty for huge numbers of people at a time of unprecedented wealth. Even the richest nation has millions in poverty.What is also true is that we have lived through a long era when the dominant ideology has been to dis-empower "big government" and to deregulate, in the belief that some kind of "natural" free market system will evolve in the absence of government constraints and all will be well. That experiment does not seem to me to have worked.
There are also clearly environmental constraints to unregulated growth as a model for human well being. So perhaps it is possible that bureaucracies that develop policy for organised ways forward, rather than a free pursuit of greater ill distributed "wealth", are not such a bad thing. I think it is very unlikely that if we are simply free to seek our individual dreams and hopes for the good life the good times will roll. Really, is that likely in a massively complex situation of human development evidently in crisis? Is the solution for us to all go our own ways? Quite what is being said here? Perhaps the pursuit of narrowly defined wealth rather than the pursuit of an organised society is the real problem. We are, after all , social creatures (I mean in terms of evolutionary biology). We are co operative as a species, not competitive.
November 7, 2012 | Unregistered CommenterRoger Yates
I get what the auhtour is saying Mr Yates, your drivel is just wishy washy fasism, do what we say or your not part of the system of everyone so can just be put in a corner with a loner hat on. Their was a leader of Germany that thought that way as-well.
November 7, 2012 | Unregistered CommenterShevva
@Shewa
Fascist is the correct spelling.
You're ( you are ) not your ( belonging to you )
There was, not their was. Their means belonging to them.
November 7, 2012 | Unregistered CommenterRoger Yates
@Fatster
There is a huge difference between Washington and Brussels.
While the US is difficult to imagine without Washington (well at least a capital), Europe without Brussels is a real possibility. Especially some countries saying goodbye to the EU is a real possibility. Or cutting it back to a Common market again (an organisation iso a super-country).
The EU is in a Catch22 now. It got that far into becoming a real 4th (mostly) layer of government, but it doesnot have the legal and political structure to make it work. It looks to have gone too far and in very dangerous water for them. They have created a (or better carry a huge part of the responsability for the ) mess, while they need most likley a lot of citizen/voter approval (via elections and/or referenda) to make it work. While huge parts of the population simply doesnot trust them, donot want more government, do not like a big Europe and certainly donot like to pay big time for it. In other words if big Europe comes to the voter it could be a real problem (and as I said it will have to go to the voter may be not everywhere but in several countries, without a doubt). Made even more complicated by the fact that they basically need all countries to agree (which is a lot of approval).
Just ask yourself would you want to get further into a club that has bad headlines nearly every day for the last 3 years and for the decade to come. No, unless you cannot avoid it. Well that should all those governments try to do (but a lot of them seem to have given up before it started as it would not work).

The good point is that the EU is very cheap for a government. But realise that
a) most people simply after say 10 millon simply move to very big whether it is 20 million or 20 Trillion, they simply do not grasp it; and
b) the amounts involved for Europe (with a lot of mediacoverage of massive waist) are still equal or higher than thse for some pretty unpopular cuts taking place at the moment.
November 8, 2012 | Unregistered CommenterRik
@Yates
'We have been unable to organise a world without poverty for huge numbers of people at a time of unprecedented wealth.'

UN goal of halving the poverty (number of people living on less than $1.25 a day) targeted to happen in 2015 was reached already in 2011. Media didn't report it because apparently the goal was reached 'ideologically impure' way, through capitalism.

'What is also true is that we have lived through a long era when the dominant ideology has been to dis-empower "big government" and to deregulate, in the belief that some kind of "natural" free market system will evolve in the absence of government constraints...and all will be well. That experiment does not seem to me to have worked.'

Experiment have done wonders in the developing world but it hasn't been in effect in the US or in Europe. The US federal covernment has been expanding it's budget and regulatory powers 80 years in a row. Development with the EU has been similar but with accelerated pace due to lack of legality or democratic mandate from the people. EU elites have trampled referendum's and national sovereignty of the peoples of Europe under their feet.

'We are, after all , social creatures (I mean in terms of evolutionary biology). We are co operative as a species, not competitive.'

Is slavery under tyrannical regime your concept of co-operation?
November 8, 2012 | Unregistered CommenterRami Eskola
The main difference between Brussels and Washington is that Washington believes it has the right to make war where it chooses and Brussels believes it has the right to legislate for olive and cabbage production and then have a slap up dinner in an expensive restaurant.
The EU is a GOOD THING. When I was born the entire continent's peoples were busy murdering one another. Now we live in one another's cities and moan about each other down the pub.
The problem is that the EU is run by the wrong people. Really by Wall Street and the alumni of Goldman Sachs. In other words we are occupied by the American Empire. Tiny Tim (Geitner) pops over to tell us what to do. It does not seem very likely to me that a strong EU and Euro is in America's best interests long term. Europe has been subverted politically by American interests and is actually occupied by US troops. I don't notice French and British bases on US soil.
All this endless stereotyped political debate about "privatization" and "socialism" and "bureaurocracy" and "Big Government" is a Pavlovian response triggered by The Ayn Rand Corporation Department of Political Indoctrination ("Woof! Woof!). When I look in their eyes I see CNN where the pupils used to be.
The important question for Europeans is how to get the hijackers off the ship before they sink it.
November 8, 2012 | Unregistered CommenterRoger Yates
Great discussion. Thanks everybody.

I particularly like the various distinctions and similarities between Brussels and Washington. I should make a list of them and publish it. Come to think of it, if I get enough good ones, I'll do it.... With your permission (if you don't want me to, or if don't want me to attribute it to the name you used here, let me know).
November 8, 2012 | Registered CommenterWolf Richter
@Rami Eskola I recommend a few months on $ 1.30 a day, Rami, to cure your enthusiasm for the economic betterment of the world's masses.
In what sense is "Capitalism" responsible for these improvements? Is this correlation or causality? Maybe Capitalism is responsible for the safe rising of the sun. There is nowhere on this planet that we have Capitalism, least of all in the US. States intervene in markets in a massive way to prop up tyrannical power structures and class interests.
I agree with you about the present Wall Street Elite control of the EU and its undemocratic invasion of states like Greece.
If you want to live in a place with small government and low regulation on your $ 1.30 a day might I recommend a nice little hacienda 100 miles from Mogadishu, or a cottage in Eastern Congo, or perhaps a residency in Liberia.........not a lot of Government there, opportunities abound, arms shipments, diamonds, rear earth minerals, one would soon be a true Capitalist success story. Roughly the US business model is it not?
November 8, 2012 | Unregistered CommenterRoger Yates

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