Blog Post

Give the EU budget a chance

A version of this p-ed was also published in Kathimerini The recent Commission proposal for the next multiannual financial framework (MFF) dedicates surprisingly little attention to the role of the budget in times of crisis. Given that the EU budget is the only item that EU member states have truly in common, the message behind […]

By: Date: July 1, 2011 Topic: European Macroeconomics & Governance

A version of this p-ed was also published in Kathimerini

The recent Commission proposal for the next multiannual financial framework (MFF) dedicates surprisingly little attention to the role of the budget in times of crisis. Given that the EU budget is the only item that EU member states have truly in common, the message behind is probably that Europe is still not ready to recognise that the only definitive solution to the debt crisis is some form of socialization of the costs of the crisis.

One does not have to go that far, anyway. The EU budget can still serve an important function in the current situation, with or without a Greek default. The wise use of EU funds looks like the only type of socialization one can think of as being politically realistic in the present time.The EU budget can play both an indirect and a direct role in crisis management and resolution. As to the former, it should be reminded that the EU is providing lending to non-euro and euro-zone countries under the Medium-Term Financial Assistance (MTFA) facility by collecting capital on financial markets under implicit EU budget guarantee. Moreover, there is extensive scope for using the Budget to leverage the financing of long-term investment projects by the private sector. This is one point the Commission has stressed throughout its Communication but it is indeed a timid and only indirect use of EU resources. The European Investment Bank (EIB), which provides loans also to match co-financing of EU-funded projects, has not exhausted its lending capacity. Some member states have used EIB loans more than others (e.g. Spain). On the other hand, Greece is amongst those that have only moderately applied for EIB loans.

As to the Budget’s direct function, EU funds need to be utilized to finance strategic investment and growth-enhancing structural reforms, priorities should be carefully selected and the pace of absorption of this money accelerated, no matter what it takes. EU Member States have still large amounts of unused Structural and Cohesion Funds from the current financial perspective running from 2007 to 2013. In the case of Greece, unused funds are in the order of 7% of GDP out of an initially allocated amount equal to about 9% of GDP. There are different reasons behind the country’s low absorption capacity ranging from poor management to the incapacity to match co-financing, which for each public authorities sponsoring the project would imply a disbursement that can vary between 15% and 50% of the project’s total costs, depending on the type of project.

Whatever the reason behind low absorption, it is time to take action. We suggested a few months ago that a special fund is created to revive the economies of problematic countries[1]. President of the Commission Barroso has recently suggested to allocate to Greece 1bn euros out of the unused EU funds that have been already allocated to the country at the beginning of the current financial framework. Apparently, co-financing may come at a later stage. In tandem, the Commission will provide technical assistance in the preparation of the projects that will be financed in this way. It is de facto a special fund for economic revival. It will be effective only if managed by the Commission, possibly with the support of an executive agency as in the case of the Trans-European Networks, and jointly with public authorities.This modus operandi seems more apt for the financing of large infrastructural projects from transport, to telecommunications and energy but it is not to be excluded that EU funds allocated in this manner – the initial 1bn euros and whatever follows after that – are used for smaller-scale projects aimed at improving regional competitiveness.

Greek public authorities should not miss the opportunity of engaging in a rapid absorption of EU funds with the support of the Commission so as to soften the recessionary effects of the upcoming austerity package and send a message of optimism to the national public opinion.


[1] Benedicta Marzinotto (2011), A European Fund for Economic Revival in Crisis Countries, Bruegel Policy Contribution, March.


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