Not just austerity

In the rising debate about what Europe could do to boost growth, a better use of the European Union structural funds has been suggested to help ease the pain of austerity. But the funds take time to work and their record is patchy so far. Even if they are put to better use, the immediate benefit would be more symbolic than economic.

The three structural and cohesion funds were designed to promote growth and reduce inequality across the EU, for example by funding infrastructure or research projects. Some Euro 223 billion have yet to be paid out to member states for the years 2007-2013, of which about Euro 80 billion haven’t been allocated to specific projects, according to one person involved in the funds. Some of that could be redeployed for new initiatives to boost growth, for example by funding education or combating youth unemployment. A further Euro 336 billion is slated for 2014-2020.

The first problem is that the funds aren’t for the euro zone only. They play a crucial role in helping poorer countries, particularly in eastern Europe. Only about a third of the current programme has been allocated to Spain, Italy, Greece, Portugal and Ireland.

And the funds take time to work. Countries may struggle to co-finance the projects, which can get stuck in local bureaucratic quagmires. In Italy, only 25 per cent of funds for 2007-13 have been paid out.

Finally, the funds’ record is patchy. A 2006 report found them ineffective on average, in spite of some success stories. A recent audit of 27 seaports funded in Spain, France, Italy and Greece between 2000 and 2006 found the projects lacking in planning and surveillance. Four of the ports weren’t even in use at the time.

Funds could become more effective in future. The European Commission has reduced co-financing needs, and is helping fund projects through the European Investment Bank. It is working with member states to make use of the funds better and faster. Using funds for multi-national schemes may overcome regional problems.

The funds also bring a more subtle benefit. They don’t boost growth massively in the short term but provide tangible evidence for taxpayers in peripheral economies of the benefits of being part of Europe. They will not make austerity more agreeable but may help limit euro-bashing populism.