In the following commentary LFMI’s Senior Policy Analyst Ramunas Vilpisauskas doubts whether the payments from the EU budget will have a lasting impact on the country’s economy. He believes that more important benefits for Lithuania being in the EU are the institutional reform and a possibility to be heard.
On the weekend of December 12, 2003, a summit of European Union (EU) took place where Lithuania and other future member states participated as well. Although various issues were discussed at this summit, attention was focused on the debates over the EU Constitution. To be more precise, the debate ended before the key issues regarding the reform of the EU institutions and voting procedures were even started to be considered.
It was obvious that the positions of the countries – Poland and Spain – as compared to those of many other countries were overly different. As a result, the governments of the member states did not approve the EU Constitution which was crafted with a view to ensuring a more effective functioning of the EU after the accession of the new members.
We can analyse this unsuccessful attempt at reforming the EU institutions and its consequences to a further development of the EU after its enlargement in various aspects. This commentary will be restricted to one subject – linkages between the Constitution and payments from the EU budget.
Both at the EU intergovernmental conference in autumn 2003 and more recently, the politicians from Germany (who pays the largest contributions into the EU budget) and some other from the richest countries of the EU contemplated the need to trim the EU budget expenditure during a new financial period of the EU after the enlargement (the year 2007-2013).
Taking into account the political background of these contemplations, many analysts did not hesitate to conclude that this was how the larger EU states attempted to push Poland and other countries that were blocking the adoption of the Constitution to approve the Draft Constitution more quickly. To put it in simple words, if you keep being “stubborn” about the provisions of the EU Constitution that narrow down your powers in the EU institutions, you will be punished with smaller benefits from the common budget.
Some analysts also rushed to highlight that many of the EU future members, including Lithuania, kept aside from the “stubborn” Poland just because their feared possible financial sanctions.
It is obvious that any politician of any EU member state would deny such linkages between the EU’s institutional reforms and payments from the EU funds. Beside that, the EU payments are allocated on the basis of programs, therefore the funds intended for financing the same goals are usually distributed among various EU states, regions and groups of society.
However, it has been quite explicitly proven that up until now, the EU often remunerated with financial benefits those countries which blocked integration just because they supported specific integration projects. A typical example is an increase of the EU structural funds, the major share of which went to Spain, Portugal and other countries of South Europe for their approval of creating a monetary union. So we should not rule out a possibility that the argument of financial benefits can be exploited not just as a “carrot,” but also as a “stick.”
In such a case, the main and most relevant question for us is how Lithuanian representatives should act when the discussion evolves around the issues that are important, technical and boring though, for long-term national interests such as voting procedures and when there is a possibility that an overly “stubborn” country may be reminded about the cutting of the EU payments?
In other words, what is more important for us in the EU – benefits from its budget or other things such as, for instance, non-discriminatory participation in the EU’s internal market, better representation at the EU institutions and the like?
It seems that until now Lithuanian politicians and diplomats saw the EU funds as the central point regarding the EU, while the rest was of minor importance. The emphases of the EU referendum campaign, Lithuania’s participation in the debate about the EU’s future priorities and a passive position about the reform of the EU institutions are a glaring comment on that.
Such position is upheld most likely because the non-financial issues (institutional, in particular) are less comprehensible; in addition to that, they are less attractive to voters. Nevertheless, such position is not just economically undefended but it may also have disastrous political consequences.
Let’s discuss the economic benefits of the EU funds in the first place. We may justly say that the “EU fund fever,” lately prevalent in Lithuania, will sooner or later disillusion a number of entrepreneurs and will be less beneficial for the country’s economy than expected altogether. It is not just because probably not all of the EU funds agreed during the negotiations will be appropriated in Lithuania due to the co-financing or, what is even more important, not because of the lack of the ability to write proper projects, implement them and account for them.
The EU funding, in general, has the underestimated effect of distorting business expectations. Currently, a lot of attention and money in Lithuania is allotted focusing on how to “appropriate the EU funds,” not on how to develop business and to use the EU funds only as a potential secondary means for solving specific business issues (the lack of qualification, marketing skills, etc.). By the way, only a small share of the funds will be used for business support because one third of the money will go to the agriculture and another big share, to finance the infrastructure and environmental projects.
In economic terms, the supply of the EU funds distort the motivation to invest, which is likely to result in a contracted general return on investments and their benefit to the overall economy of the country. It should be noted that even in those cases when the EU support is provided to the business sector, it is likely to prompt negative side-effects – the distortion of competition. But will those market participants who will manage to get the EU funds and those who won’t use them at all will compete on the even playing ground?
Evidently, the benefits of the EU funds are not that obvious as some may think. Of course, those who will take the advantage of this support will enjoy a direct benefit. Yet, the impact on the country’s economy and the society is by far unambiguously positive. The EU support would be welcome if it was intended (and actually used) for financing the most needed but unfinished reforms in Lithuania – the reform of education, health care, and social security, as well as for maintaining the internal order. Not for financing short-term goals or supporting the most influential groups of voters and sponsors, but for the reforms that would bring positive long-term results for the entire society. For those areas that some people call public goods and which are usually forgotten as soon as the money is split, or “dividing of the pie” begins. However, for various reasons, the EU funds are not intended for these purposes.
As regards the ambiguous impact of the EU funds, it is difficult to justify the significance attributed to it as compared to the list of Lithuania’s interests in the EU. If compared with the issues of the institutional reform that have a long-term impact on the voting power of the country, and the possibilities to be heard, the EU payments often have but a demonstrational and short-lived impact. The EU payments should at best be ranked third among Lithuania’s priorities, giving ground to the institutional issues and the possibilities of free trade and movement in the common EU market.
