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How the European Union Corrupted Eastern Europe

May 26, 2014 in Economics

By Dalibor Rohac

Dalibor Rohac

Thanks to the funding from the European Union (EU), the countries of Eastern Europe are an increasingly attractive destination for cyclists. In the Czech Republic, hundreds of millions of Euros, predominantly from EU’s structural funds, have been used to create a network of some 25 thousand miles of cycling trails. In Slovakia’s Northern region of Orava, a brand new network of 155 miles of cycling trails set in a picturesque countryside connect the local villages with those in neighboring Poland.

While a boon for cyclists, the inflow of EU money into Eastern Europe is playing a more questionable role in narrowing the gap that new member states in Eastern Europe and the more affluent parts of the EU. Critics of development aid, such as William Easterly of New York University, have long argued that foreign aid directed to badly governed countries in the developing world can worsen corruption and cronyism, and foster authoritarian rule. Although the magnitude of the problem is different, EU funds are exercising a similarly nefarious effect on governance and politics in Eastern Europe.

The inflow of EU money into Eastern Europe is playing a questionable role in narrowing the gap that new member states in Eastern Europe and the more affluent parts of the EU.”

Between 2014 and 2020, the EU is planning to spend over €350 billion to help narrow the disparities between member states. It does so through several ‘funds’: the European Regional Development Fund, which is the largest of them and which supports the building of infrastructure and job-creation; the European Social Fund, which purports to help the unemployed and the disadvantaged, mostly by providing training programs; and the Cohesion Fund, which was set up in 1994 to provide funding to the poorest member states.

The inflow of EU money into new member states has been estimated at around 4 percent of their GDP. It is not a free lunch, however. European countries are co-financing the projects and provide the bulk of the administrative support to the program. Slovakia’s Institute of Economic and Social Analyses (INESS) estimated in 2011 that each euro coming from EU’s structural funds is matched by up to 90 cents coming from the national budget.

The economic effects of such aid are not obvious. Even if one believes that the inflow of funds helps stimulate aggregate demand, “it is unclear whether the EU funds are crowding out …read more

Source: OP-EDS

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