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posted on June 2, 2004 at 9:30:00 AM CET European Union funds and hidden costs
Robert Micallef
The aim of this article is to outline the direct and indirect
costs of EU membership. It is essential that this issue is
clarified and understood as it affects all levels of society.
Overlooking these issues could have negative impacts on the
economic development.
In 1999 the budget for the EU enlargement process was set
up. At the 2000 EU Berlin Summit, the 2000-2006 accession
budget was endorsed. At that time the European Commission
assumed that by 2002, the EU would be enlarged by six new
member states. In the end the EU was enlarged by 10 new member
states but the initially agreed upon budget remained the same.
In setting the budget the European Commission made concrete
assumptions. It was assumed that acceding new member states
should not be made worse off than they were in pre-accession.
In this context, new member states were not meant to be in
a position to pay out to the EU fund more than it would be
receiving in return.
Similar to other international institutions, EU member states
contribute to the European Union fund. The amount paid out
by each member state is a function of the country’s
GDP. The total amount going to the fund is thus a percentage
of the total amount of goods and services domestically produced.
Also with the new membership, Malta is now obliged to make
a new budget contribution. These are for the European Central
Bank and the European Investment Bank.
Conversely money from the European Union is channelled to
member states by three means. The so-called budgetary compensations
are lump sums that form a constant source of income for the
state budget.
EU structural funds are funds that are linked to specific
projects. These projects maybe for private sectors, individuals
or companies, are public projects, going for development of
towns for example.
Finally, money is channelled to promote projects in research
and development sectors, environment and culture. In comparison
to the previous two forms of EU funds, the latter are financially
smaller and are usually linked to a particular EU programme.
Nevertheless, the European economic outlook, due to several
global economic trends, is facing several constraints. This
is not only affecting individual member states but has an
impact on the whole European Union. In the light of current
realities, new measures have been introduced to re-structure
the channelling of EU funds.
Under new systems, the way economists calculate member states’
GDP has been revised. This could have indirect adverse affects.
The higher the GDP of a country the higher the percentage
being paid out to the fund.
On the other hand, a higher GDP reflects greater economic
development in a country, which in turn leads to a cut in
the structural funds. Structural funds are aimed for the less
developed member states.
Malta would thus be competing for structural funds with the
less developed economies of Central Europe. At the same time
the government budget should not underestimate the amount
to be paid to the EU fund as this could lead to unnecessary
budgetary constraints that effect the national economic development.
There are further indirect costs that the Maltese economic
sector will have to adapt to in order to be able to function
in the European Union economic framework. Production quotas,
production standards, and work related norms will all eventually
come into place, even if some are subject to a transition
period.
In order to survive and thrive in the market, companies will
have to budget for these changes. It is also important that
correct information measures are put into place for suppliers
of goods and services to know what new regulations are to
be implemented.
In conclusion, it is crucial to realise that Malta should
have the ability to rely on itself in the face of the payments
that need to be made out for the EU and the funds that are
channelled to it.
Realistically it cannot be expected that the EU alone will
provide solutions for the Maltese economy. It is pertinent
that Malta creates a dynamic economy within the membership
scenario, making the most of its existing abilities, developing
new opportunities and looking at new markets.
The government lacks planning and leadership capabilities
in this field. This does not augur well for a successful EU
membership.
Robert Micallef MBA, MA, DSS (OXON) was employed as an economist
with the European Commission and worked for the EU Delegation
to Malta. He is an MLP candidate for the European Parliament
Elections.
