Europe’s profligacy

The European Union pools cash from member states, then hands it out to worthy projects. But are they worthy? Or just a waste of money? Simon Wilson investigates.

The European Union pools cash from member states, then hands it out to worthy projects. But are they worthy? Or just a waste of money? Simon Wilson investigates.

What are the EU's structural funds?

Structural funds' is European Union jargon for the huge investment funds designed to promote development in the EU's poorer regions (eg, southern Italy, west Wales, most of eastern Europe) and to promote "balanced" development and "solidarity" across the EU.

The biggest funds are the European Social Fund (ESF) established in 1958, the European Regional Development Fund (ERDF) established in 1975, and the Cohesion Fund established in 1994. There are also several smaller funds with a range of specific objectives.

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Taken together, the structural funds' accounted for €347bn during the EU's 2007-2013 budget period or 35.6% of the entire EU budget.

During the 2014-2020 period, during which time the funds are supposed to be more specifically targeted at fostering economic growth, they are slated to account for €366.8bn so about €52bn (£44bn) a year.

Where does the money come from?

The funds are part of the political' aspect of European Union a recognition that the European Community was conceived not just as a free trade zone, but as a political project aimed at "ever closer union".

As Jacques Delors, then-president of the European Commission, put it in 1988: "Cohesion is not simply a matter of throwing money at problems: it implies rather a willingness to act at Community level to redress the disparities between regions and between different social groups."

In practice, this means the richer countries pay the most in, and get the least back. Britain, for example, contributes a little more than £4bn a year, of which (on the 2014-2020 figures) about £1.37bn will be sent back to UK regions by Brussels.

Who qualifies for the dosh?

About 80% goes on "economic convergence" going to areas of the EU where GDP per head is lower than 75% of the EU average. Much of the rest goes on promoting "regional competitiveness and employment" including innovation, entrepreneurship, and environmental protection in regions that don't qualify under the "convergence" criteria.

All structural funding is co-financed: in other words, the member state stumps up some cash too (normally at least 25% of the cost). In the UK, Wales gets by far the most (per head) €2,145m to 2020. Scotland will get €796m; Northern Ireland €457m, and England €6,174m.

What's it all spent on?

Here's what annoys EU critics. Open Europe, a think-tank campaigning for EU reform, notes that "project selection... is driven more by the fact that there is a pot of money that has to be spent, and less by the existence of a genuine economic case".

One example is the island of Madeira, where an EU-funded splurge of road and infrastructure spending has had no clear economic effect. In Britain, a case highlighted by The Sunday Telegraph, that of the Canolfan Cywain heritage centre in North Wales, also seems a prime example of unfocused profligacy.

What happened?

The centre, opened in 2008 with the aid of a £900,000 EU grant, was to bring together "art appreciation, agricultural education and Welsh heritage", allowing "all sectors of the community to participate in the economic and social development of the area". Instead, it failed to attract visitors, shut down in 2012, and lies empty, ruined and overgrown with weeds.

Other controversial projects include a replica of a Roman village, built in Perl-Borg, an affluent small town in western Germany, with the help of a £1.8m EU grant and a "Beach City" in the Hungarian countryside, complete with a fake Venetian Bridge of Sighs, which received £4.5m.

But doesn't the EU fund important things, like roads?

New roads in many parts of southern Europe are certainly one of the most visible signs of EU regional spending. Between 2000 and 2013, the EU spent €65bn co-financing the building and renovation of roads, according to the EU's Court of Auditors.

But even on the EU's own analysis (of 24 specimen projects in Germany, Greece, Poland and Spain), "insufficient attention was paid to ensuring cost-effectiveness", with most projects "affected by inaccurate traffic forecasts".

The wrong' type of road was often chosen, so that "14 out of 19 projects recorded less traffic-use than expected". And "due to the lack of appropriate indicators (such as actual employment created, share of new transit traffic, number of new enterprises in the region), it is not possible to assess whether the funded projects actually generated the expected economic impact".

Critics would argue that if even spending on such flagship projects cannot be accurately assessed, it's time to radically cut back member states' contributions to structural funds' and instead keep the money to spend at home.

The case against structural funds

Structural funds are a bad way of allocating resources, as they tend to underplay the pockets of poverty that exist in wealthier nations. In an enlarged EU, poor areas in the older, richer member states (such as the UK) will be the biggest losers.

Moreover, the arcane system of allocating funds to deprived regions throws up bizarre anomalies such as the £10m paid to subsidise Facebook's massive new server plant in northern Sweden.

It is one thing to spend British taxpayers' money on helping to improve the infrastructure of rural Ireland or southern Italy or Poland. It is quite another to be subsidising one of the world's biggest companies with money that it could readily have raised from private investors.

Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.   

Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.