Global Economics

Can't Spend All That EU Money


When the Czech Republic entered the European Union, it received more euros in structural funds than it has been able to spend. But it's learning

In March 2006, Radko Martinek went running off to Brussels. Martinek, who at the time was the Czech Republic's regional development minister, had some explaining to do.

He had to tell the European Commission why his country had distributed only 18 percent of around 2 billion euros in EU structural funds halfway through the 2004-2006 application window.

His message to Danuta Hubner, European commissioner for regional policy: We've had a slow start, but we're going to do better.

Seventeen months later, Martinek has been replaced by Jiri Cunek following elections earlier this year, and the 2004 -- 2006 distribution period -- essentially the practice round for the 10 countries that joined the EU in 2004 -- has ended.

In that time the Czech Republic has been branded the laggard in structural fund management among the Class of 2004, and indeed its track record hasn't exactly been stellar. Back when Martinek made his rush visit to Brussels, only Cyprus had paid out less money. And in the real world, an 18-percent distribution rate translates into projects being stalled or grounded: a road not being built, a university department not getting additional funding to continue research and development, or an entrepreneur being denied start-up capital.

To most people, this would probably seem baffling. It'd be like going through the trouble of applying for a grant, getting the money -- but then not spending it.

The state has taken most of the blame, with applicants bemoaning the government's application process as mired in bureaucracy. In May the mayor of one south Bohemia town that wanted to use EU money to upgrade its canal system and rebuild its firefighting museum, told a Prague newspaper that "ordinary towns don't stand a chance."

Now, as the final round of structural fund distribution finds the Czech Republic with 26 billion euros to hand out, it's time to revisit Martinek's promise of improvement.

LEARNING HOW TO SPEND

Things aren't as bad as they seem, and there's even cause for optimism.

Indeed, the Czech Republic has come a long way since March 2006. To date, 51 percent of the money has been distributed. (Payouts continue until 2008, with the final tallies calculated in 2009). This places the Czech Republic within the 50 percent to 65 percent average among the 10 countries that joined the EU in 2004.

These days, it's becoming much more common to hear structural fund success stories. One example is Central Bohemia, which is receiving millions of euros in EU funding for road and bridge repairs and an Internet-for-free project.

The Czech Republic "is moving up quite quickly," says Charles White of the European Commission's Directorate General for Regional Policy in Brussels. And considering the two central problems of the country's structural fund administration in 2004 -- 2006 -- the stiflingly complicated application process and the government's inefficient approach to distributing the money -- White continues, "they've done rather well to get to 51 percent."

Sure, Slovenia is at 86 percent, but its allocation is smaller, meaning it can hand out a greater percentage of the money with fewer approved projects. It's also worth noting that the Czech Republic didn't have a stable government for much of the first distribution period, a clear impediment to managing the money.

Not only does the Czech Republic have a government now -- shaky though it may be politically -- it has made the process easier for those who apply and those who are approved.

In August Regional Development Minister Cunek announced a new unified application to be available on the ministry's website from 15 September. Brussels is hoping this will streamline an application process that saw some documents exceeding 100 pages and spurred a new industry, Structural Fund consulting.

The government has also abandoned the so-called "back reimbursement" system that forced successful applicants to finance projects themselves before receiving aid, a financing structure that begged the question: If applicants already had the money, why would they come to the government?

Now approved applicants will receive money either in advance or as they go, a change many in Brussels see as pivotal to the success of the upcoming period.

To be sure, there is still room for improvement. Brussels wants a central monitoring system allowing applicants to track their progress at one website and thinks the Czech Republic's management structure for the funds is too fractured among different authorities. Even the new applications and the financing system are in question, as they're still untested.

But with all that money at stake over the next seven years -- in fact the largest allocation per capita in Europe -- here's hoping the Czech Republic has learned from its mistakes. If not, Commissioner Hubner might be getting another surprise visit from a Czech regional development minister in the near future.

Provided by Transitions Online—Intelligent Eastern Europe

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