Wolf Richter: EU Bureaucrats Don’t Follow Own Austerity Prescription, Siphon Off EU Money

By Wolf Richter, San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.

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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  1. Gerard Pierce

    “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.”

    So we have a number of possibilities: The Commission may be correct in deciding that enforcement would have bad consequences. Or the Commission may have been captured by the companies it is supposed to be regulating.

    Perhaps some companies are cronies of the Commission members and are are being given an undeserved break while other companies are about to be destroyed by regulations that were not very well thought out in the first place.

    (That seems more likely to me than simply assuming that they are all greedy bastards – although that is also a reasonable conclusion these days).

    In other words:

    Some sheep are goats and some goats are sheep and none of the guys “in charge” can tell the difference.

    Back in the days long ago when I played bridge, we sometimes had situations where the bidding broke down and four people were left staring at each other – and the only think we could say was “Who dealt this mess!”

    1. Nathanael

      Putting the EU bureaucracy under the direct oversight of the European Parliament would be an improvement. It wouldn’t be perfect, but the European Parliament actually has legitimacy and has managed to kill a number of the worst Eurocrat eltist bullshit ideas.

      1. Nathanael

        It’s even more important for the European Central Bank to be under direct Europarl control, of course.

      1. Hans Suter

        8 bn admin for a pop of 500 mio and a GDP of 12/13 trn, why don’t you tell me which federal agency in the US costs less ?

  2. The Dork of Cork.

    French bureaucracy only works in France …or at least worked in France before the neo – liberal memes started growing.

    It does not work in the EEC or the EU as it is not a national unit………it is a market state.

  3. AustinF

    They should set up a ‘Pentagon,’ scream about reds/terrorists/narco bandits, and then chuck billions to their mates in the corporate sector via ‘national defence.’ Nobody talks about it, let alone complains. ‘Commissions’ and ‘policy groups’ just don’t cut the mustard in today’s competitive world. it’s way too honest. You’ve gotta wave the flag and scream blue murder, then you can take down the public for as much as you like. They’ll even applaud while you’re doing it. Some people never learn how to milk a sucker…

    1. digi_owl

      There are already attempts at forming a EU Army, tho i think it bumps into a problem with that most EU members are also already NATO members…

  4. Susan the other

    Interesting about Cyprus and hot money from the Russian mob. Who says there is no demand? There still seems to be plenty of demand to launder money! Get it into civilized commerce somehow so it can take big profits by blackmailing governments to cut taxes and services, which extorted tax money will then all be sent to the Caymans.

  5. Cynthia

    The trouble is, many people see that much of the “austerity” checklist is also the playbook of those who would impose a form of corporate feudalism. The “austerity” measures tend to gut the middle class. The poor will remain poor, and the benefits accrue to the rich. By the time any benefits might “trickle down” to the middle class, there won’t be a middle class because they’ll all be poor. Those who have benefited the most from the current fiasco will benefit again, and those who are paying the price will pay the biggest price. It’s only “austerity” for those who have gone along and upheld their end of the social bargain.

    Whether or not you agree with that assessment, that’s how a growing number of people worldwide see it. And that’s why there’s growing resistance. Perhaps an “austerity” that didn’t target the middle class, and affected all levels of society equally relative to their means would be less unpopular.

  6. Pepy Sakellariou

    “Reliable” Union in what concerns policies for the people!! I wonder how can these bureaucrats want to give lesson to Greece for not being able to have revenues and supervisory control, while they totaly have failed to these fields!

    I can’t help myself wondering how these unelected people decide to put up with companies not paying their debts and condemned states on which they have forced private debt to become public …

    Too bad !! EU could be an effective shift towards to ecumenical (I prefer this greek word as it expresses in its right context the meaning of globality) society of people…


    1. Nathanael

      If the EU were run by the European Parliament, there might be a chance. Europarl is actually elected according to a system which is reasonable.

      Of course every effort has been made to keep power out of the hands of the Parliament. I wonder why?

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