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EU funds 'the largest source of corruption in Central and Eastern Europe'

A significant fact lies buried inside MEP Richard Sulik’s report on how subsidiarity could save the European Union: EU programs are reinforcing the very Communist-era behaviors they are intended to eradicate. Taxpayer-funded grants from the European Union are fueling cronyism and corruption, especially in its newest and most vulnerable member states.

EU funds inflict the worst corrupting of the political process in former Communist countries, Sulik, an MEP from Slovakia, writes:

Despite the good intention, European funds have become the largest source of corruption in Central and Eastern Europe, from the local level up to the political elite. Due to corruption, resources within the EU are reallocated through the funds in a very inefficient way.

His report highlights two continental programs, in particular: the European Structural and Investment Funds (ESIF) and the European Fund for Strategic Investments (EFSI).  

The ESIF is supposed to drive and direct investment throughout Europe as part of its €351.8 billion “cohesion policy,” which turns most of Eastern Europe into net beneficiaries of EU largesse. But Sulik notes:

The problem with this idea is that every single euro invested by ESIF funds into the economy must first be taken out of the economy through taxes. The private sector is then left with fewer resources for its own investments. Decisions on investments from ESIF funds, including those going into the private sector, are made by bureaucrats in the ministries, which leads to distortions of the market environment, selective favouritism of selected companies, and considerable inefficiency in spending. (Emphasis added.)

In a similar vein:

The EFSI destroys competition on the market, it cannot and does not create new investments and does not support the private sector as a whole. It merely diverts investments, which would have otherwise been created by the private sector, to areas chosen and approved by bureaucrats.

Thus, contract-seekers strive to sway government administrators and, human nature being what it is, they do not always limit themselves to legal or ethical methods.

The ground for bribery is never more fertile than when one’s survival, and that of one’s family, depends upon the sufferance of politicians, bureaucrats, and functionaries.

Sulik’s findings corroborate numerous other studies about the role EU funds play in enhancing graft and bribery. For instance, the Corruption Research Centre Budapest (CRCB) found in 2013 that “EU funds in CEE [Central and Eastern Europe] deteriorate the quality of government and increase corruption.” Transparency International discovered that, while corruption is rare in Western Europe, bribery rates range as high as 42 percent in Moldova, 34 percent in Albania, 29 percent in Romania, and 24 percent in Lithuania.

As a result, taxpayers in all 27 EU member states shoulder a heavier tax burden than necessary. The Economist reported that corruption increased the cost of EU contracts by $5 billion a year.  That further diverts productive capital – or family savings – away from useful (and self-directed) goals. It takes money from struggling families or communities and places it into the pockets of the well-connected.

However, corruption’s greatest toll is extracted from the justice system. Susan Rose-Ackerman has written that, in a crony or corporatist system of government, “[o]nly those who already have a close trusting relationship with government officials and politicians may enter the bidding.” (Quoted in A Theory of Corruption by Osvaldo Shenone and Samuel Gregg.)

Thus, EU funds have the opposite of a democratizing effect. They act as a magnet, enticing government figures to engage in bribery with vendors (or vice-versa) in exchange for contracts. Naturally, this violates numerous scriptural injunctions against bribery, as well as classical notions of justice. (For more on the latter, see Shenone and Gregg.) Favoritism violates that Biblical precept that all human beings are endowed with equal dignity and thus deserve an impartial rendering of justice based on their actions.

Yet Sulik’s conclusion will be familiar to those from nations, like his own, that so recently labored under the yoke of Marxism. The greater the level of government intervention in society, the more the weak must curry favor with the powerful. In a Communist system, where the State directs all economic activity, corruption becomes pandemic.

The ground for bribery is never more fertile than when one’s survival, and that of one’s family, depends upon the sufferance of politicians, bureaucrats, and functionaries.

“Communism created structural incentives for engaging in corrupt behaviors, which became such a widespread fact of life that they became rooted in the culture in these societies,” according to a 2005 article in the International Review of Sociology. “The transitions toward democracy and market economies have not yet erased this culture of corruption.”

Far from eliminating this blight, the EU’s pursuit of an “ever-closer union” is making things worse.

(Photo credit: Paul Sableman. This photo has been cropped. CC BY 2.0.)


Rev. Ben Johnson is a senior editor at the Acton Institute. His work focuses on the principles necessary to create a free and virtuous society in the transatlantic sphere (the U.S., Canada, and Europe). He earned his Bachelor of Arts in History summa cum laude from Ohio University and was inducted into Phi Beta Kappa.