Structural Funds: Time to Cure the Cancer

Within 4 months after the beginning of the next EU’s financial framework, the eight member states from Central and Eastern Europe will celebrate their 10th anniversary in the Union. With three of them – Slovenia, Slovakia and Estonia – being already now a part of the Euro Area, and with the Czech Republic exceeding in terms of affluence such old members as Portugal and Greece, it’s high time to call an end to the accession period. We all know that the EU membership has been a good thing for us. If we want it to be equally beneficial in the future, we should think in terms of European rather than national interests. This applies, among others, to the design and operation of structural funds.

The main political objective for the next decade is completing a genuine “union between people”. Without it, Europe will not regain ground on the global stage and will forever remain dependant on the slowly declining American power. If so, the structural funds should be seen as yet another instrument of consolidating the Union. Their present use in this capacity is not impressive. New roads on the Portuguese island of Madeira and swimming pools in eastern Poland have certainly improved the comfort of living of local communities, but their contribution to the process of European integration could be only indirect, depending on the visibility of construction signs showing the share of cost covered from the Union’s budget. And, due to the principle of co-financing, such investments can hinder rather than boost local potential for development: the rates of credits drawn to cover the state’s own contribution need to be paid. In the period of economic downturn this might be painful: “We have built a better school. Now we need to lay off teachers so that we can pay back the debt!”.

The good news is that the problems faced today by European regions and communities which used structural funds contribute to our understanding of economic processes: infrastructure proves a necessary, albeit not sufficient condition for growth. We have also learned a lesson on externals: yes, you will get useless airports in the middle of nowhere if it costs too little to construct them. But, are those lessons really worth the money we have paid?


The answer is obviously “not”, but with the current legal and institutional structure of the Union such outcome was inevitable. In the absence of genuinely own resources, the EU budget is made of semi-voluntary contributions of the member states. Not surprisingly, each of the national governments strives to get out of the common pocket at least as much money as it had put into it. Part of the funds come back as the Common Agricultural Policy, the rest – disguised as “structural” programs which in reality cater to local or  national investment needs. For a time being, the poorer countries are allowed to draw more from the budget than they chip in, but this is not supposed to last long. Once the level of affluence is more or less the same all over EU – which is an implicit goal of integration – the net transfers will disappear and the whole regional policy will boil down to jointly managing a tiny fraction (ca. 0,5%) of the European GDP. In their present form, the structural funds are, thus absurd and transitory. The case of Facebook can serve as another example of extravagance. In 2011, this American company, valued at some 75 billion euro and having no difficulties with securing private money for new investments, received a €10m subsidy to build its new server centre in the northern Swedish city of Lulea. This came from the Regional Development Fund aimed at supporting backward and furthermost regions. The subsidy was obviously a good thing for Lulea (and even better for Facebook), but it’s doubtful whether it was any good for Europe. With millions of users across the continent, the company had to put its servers somewhere on this side of Atlantic and it would have done so also without taxpayers’ money.

The “social capital” and “innovation” components of structural funds are similarly misguided. Since the beginning of the century when the Lisbon Strategy promised to make it “the most competitive and dynamic knowledge-based economy in the world”, the EU has tried hard to become more innovative. To this end, small and medium enterprises have been encouraged to come up with plans for developing new business activities, for which they would get EU financial support. Unfortunately, while it is by definition impossible to precisely describe an invention before it is made, it is necessary to precisely specify on what and under which conditions public money can be spent. The outcome of this patent paradox is easy to foresee: European structural funds remain difficult to access for real innovators yet widely open to copycats who only modestly contribute to scientific and technological advancement.

The alternative approach to structural funds is not difficult to formulate. The establishment of genuinely own resources (i.e. a European tax) will end perennial haggling over how much each member state pays in and how much it gets back from the common budget. Deprived of the possibility of vetoing the financial perspective unless their demands are met, the national governments will be in a weaker position to lobby for projects and programmes which do not benefit the Union as a whole. Thanks to it, we ought to be able to achieve much more with the same amount of money.

The development of the paneuropean connections should be given priority. Some parts of TEN (Trans-European Networks), such as railroads and motorways between big cities in adjacent member states, are still missing. We also need to fully integrate the energy grids: electricity, gas and oil. The money which is currently spent on “innovative economy” should be channelled into teaching English throughout the continent (it’s naive to believe that any other language can be as widely spoken), and the Socrates-Erasmus scheme should be strengthened: why not study in another EU country for more than one year, with financial support of the Union? This is the physical and human infrastructure which Europe really needs.

As regards research and scientific development, we should stop pretending that any significant progress can be achieved by sowing a few thousands euro here and there. The car and the plane were the last innovations made by small entrepreneurs, and both happened more than one hundred years ago. The next big inventions, nuclear energy and Internet, appeared in a highly centralized research environment (in fact – military). If Europe is serious about being knowledge-based and innovative, it should channel the relevant funds into two or three serious and large-scale projects which would, for example, secure its energy independence or provide cure for cancer.