Failure to collect EU subsidies harms economy

As European Commission (EC) and internal audits continue to reveal financial inconsistencies - either resulting from incompetence or corruption - in the use of European Union funds by Czech ministries, the EC is shutting off the tap in some cases. With an uncertain economic outlook ahead in 2012, some are warning swift action is needed to ensure the already stretched state budget isn't left with the bill.

In recent months, the EC has heavily scrutinized the spending of EU money on infrastructure, environmental and educational projects. Some funds were halted because of suspicious or disorganized accounting, as in the case of the 1.2 billion Kč ($63 million/47.7 million euros) in suspended payments to the Education Ministry. Other ministries are facing the prospect of having to pay back large sums that have already been spent, as is the case with the Transport Ministry, which may have to pay back up to 15.6 billion Kč, according to estimates from the European Accounting Court. Meanwhile, the Environment Ministry is criticized for simply not being organized enough to draw more than a fraction of the funds earmarked for its programs, a problem it shares with several other ministries.

"We get plenty of money from the EU, but the problem is utilizing that money well," Vladimír  Špidla, a former European commissioner and Czech prime minister, told The Prague Post.

Since the beginning of the year, Špidla has been warning politicians and ministers about the urgency of the problem.

"There is a threat drawing funds from the European Union will cease due to flaws in the system of auditing," Špidla said. "The head of the operational program acts at the same time as head auditor, so control is not independent."

The National Economic Council has also warned that preservation of EU funds is vital for the economy, since the Czech Republic currently accounts for just 2 percent of the EU's GDP, but receives nearly 8 percent of its resources through the cohesion policy. While the government is grappling with a budget deficit of around 100 billion Kč and in the process of implementing austerity measures, it is unlikely there will be enough money in the state coffers to finance many of the planned projects, leaving EU structural funds as the last source of cash inflow for infrastructure projects that could boost domestic demand.

"The potential for damage is very high - in the tens or dozens of billions of crowns," said Arnošt Marks, the former director general of EU funds at the Regional Development Ministry who now advises on EU affairs.

Marks said the fundamental cause of the disorganization at the ministries, which can lead to corruption as well, is a lack of stability of the Czech civil service in general. He says the regular turnover of high-level ministerial officials leads to intense politicization of the ministries and a lack of expertise, especially when it comes to the management of EU funds, which can take several years to plan. At the Education Ministry, for example, five people have occupied the post of head of the ministry's section for EU operational programs in just 18 months.

"These projects take years to prepare, and when they keep kicking people out of the ministries - and they kick people out again and again - then you get the results we've seen with these ministries that may have to repay money," Marks said. "Nobody manages the civil service properly. It's a problem unique to the Czech Republic."

Despite myriad problems with drawing and appropriately allocating EU funds, thousands of projects have been implemented since 2004, and Marks said there are examples of success within the country's borders to look to.

Marks said Brno, the Czech Republic's second-largest city, is the envy of the rest of the country, including Prague, when it comes to success in implementing transparent and effective projects.

"The big success of Brno has been to draw EU money for research and development through the Education Ministry," Marks said. "They were successful because they were really serious about the preparations. They didn't just talk about it, and they spent their own money to prepare."

Emily Thompson can be reached at
ethompson@praguepost.com