Posts Tagged EU finances

Copenhagen climb-down

Posted by Stephen Gardner in Environmental armageddon on September 11, 2009

A general scaling-down of ambition in tackling global heating is taking place ahead of the COP-15 – the Fifteenth Conference of the Parties to the United Nations Framework Convention on Climate Change, in Copenhagen in December.

First, it seems clear that the European Commission has, under pressure from member states, moderated its plans on financial assistance to developing countries to help them deal with climate change. The Commission first published proposals in January for total assistance to developing countries of €175 billion annually by 2020, but this had by yesterday (Sept. 10) been reduced to around €100 billion, of which up to 40 percent could be from the poorest countries themselves, while the largest emerging economies such as China and India will also be required to chip in, based on their share of world GDP.

Green MEPs strongly criticised the revised plans, but the British and German governments put out statements saying the Commission had got it about right, so it seems fairly clear where the pressure came from to cut the financial pledges back.

The centre-right Swedes, meanwhile, seem to be taking a highly politically-pragmatic view. Swedish environment minister Andreas Carlgren, who will be a key negotiator in Copenhagen, has all but dropped mention of mid-term targets (ie greenhouse gas cuts to be achieved by 2020), speaking instead about “credible pathways” towards longer-term goals. This falls in to line with the US, who so far are happy to make promises to be achieved by succeeding generations (ie. goals for 2050), but who will only envisage very moderate cuts in the medium term.

Todd Stern, the US special envoy for climate change, stated clearly the American position yesterday (Sept. 10), in front of a House of Representatives committee. He suggested US negotiators at Copenhagen will stick to the mid-term cuts outlined in draft US legislation – cutting US emissions by 17 percent by 2020 from 2005 levels, or by around four percent relative to 1990 levels. Stern said he was working on “imparting a sense of reality” to the EU and others who want steeper cuts. “They are not going to get more than that [what is on the table at the moment from the US], so let’s get real,” he said.

He also said that any deal at Copenhagen must “combine a sense of what science says is required” with “a sense of pragmatism” – a strange statement seeming to mean “we will look at what science says is necessary, then do less.” What will prove right in the end, I wonder, political pragmatism, or scientific facts?

Or as Lemmy from Motorhead once said, “I don’t understand people who believe that if you ignore something it will go away. That’s completely wrong – if it’s ignored, it gathers strength. Europe ignored Hitler for years…as a result he slaughtered quarter of the world!”

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EIB: funding development through tax havens

Posted by Stephen Gardner in EU Insider on August 25, 2009

The European Commission and big member states like France and Germany are planning a crack down on tax havens (while Britain is pretending to). So it might come as a surprise that the EU’s house bank, the European Investment Bank (EIB), is busily lending to companies established in tax havens.

Particularly notable is EIB lending for supposed development projects in poor countries. In reality, this ‘development assistance’ is a way to channel low-cost public capital to private equity firms that look for projects with juicy returns of 20 percent or more, before remitting the proceeds to low or no-tax and minimum transparency jurisdictions such as Mauritius.

For example, the EIB has recently (16 June) agreed a $15 million loan to Shorecap International Limited, a private equity outfit specialising in microfinance. The firm, which boasted in its 2007 report of an average 23 percent rate of return, is incorporated in the Cayman Islands.

Another beneficiary is Africap, a Mauritius-based investment company, which received €5 million from the EIB in 2007. Mauritius, a tiny Indian Ocean island with 1.3 million people, is a favourite haunt of so-called development funds, including Adlevo Capital, Africinvest Limited, GroFin and Leapfrog Investments. These firms alone have shared €65 million of EIB money in the last 12 months. Mauritius is the source of an extraordinary 44 percent of foreign investment in India – underlining the extent to which development assistance has become a tax avoidance scam.

The EIB also during 2008 agreed loans totalling €53 million for funds run by Aureos Capital Limited, also Mauritius-registered. Until it was sold to its managers at a knock-down price (an issue covered extensively in Private Eye magazine), Aureos was a joint venture between CDC (the UK’s development finance institution) and Norway’s development fund Norfund, which has imitated CDC’s strategy of channelling public money to funds registered in tax havens.

The difference between CDC and Norfund, however, is that the Norwegian government has now told Norfund to stop investing in tax havens. Counter Balance, a campaign group that has analysed EIB lending to tax dodgers, noted that Norway finally came round to following “the logic that development funds should not support tax evasion.” When will Britain, and the EIB, take the same approach?

Note: a version of this article was originally published in Private Eye. The Counter Balance group is campaigning for more openness on the part of the EIB, which remains a relatively non-transparent EU institution.

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Structural funds cashback

Posted by Stephen Gardner in EU Insider on July 16, 2009

The European Commission yesterday (15 July) rather quietly slipped out its 2008 report on protection of the European Communities’ financial interests – in other words an assessment of whether or not the money is going to the places it should be going to. Last year there was a press release and announcements in the midday press conference. This year it was all a bit hush-hush, with a small mid-afternoon briefing attended by just a handful of hacks.

Is there something in there this year they want to hide, I wonder? Well, if so, I haven’t found it yet. The report itself is a digestible 30-page affair, but it is accompanied by two hefty annexes that will take a while to chew through.

Figures on Structural Fund irregularities make interesting reading though. These are sums of money committed to projects by authorities in member states, that later realise they shouldn’t have committed them. This can be for many reasons: incorrect paperwork, projects that later turn out not to be eligible, simple mistakes. “Irregularity” can also cover fraud, though this is only demonstrated in a very small number of cases.

Once member states spot an irregularity they are first required to tell the Commission, then they must get the money back. This is where problems start. Getting the cash back can take time, but if member states fail to recover it within two years, they must pay the money back to the Commission anyway, and the taxpayers of the country in question end up footing the bill.

So one could argue that member states have an interest in declaring a relatively low “irregular” payments amount, so that they are less exposed to losses later on. This certainly seems to be the case with France, which consistently declares unrealistically tiny numbers: for the Structural Funds, €4.6 million in 2007, and €5 million in 2008.

Compare this with 2008 figures for Germany (€20.9 million), the Netherlands (€28.7 million) and Italy (€74.9 million). Either the French are amazingly good at dotting the i’s and crossing the t’s on EU-funded projects or there is some under-reporting going on somewhere.

However, if a low number for irregular payments indicates competence on the part of the member state authorities that manage EU funds, then the champions of incompetence must be the British (though of course one can also argue they are most rigorous in declaring irregular payments). In 2007, for Structural Funds, the UK declared €161 million of irregular payments (more or less 10 percent of the UK’s Structural Funds pot for that year). In 2008, the figure was €123 million.

The UK has form for “significantly higher” than normal error rates in Structural Fund payments, especially when it comes to paying authorities in the north of England. Last year, for failings in the north-west of England, around €25 million had to be paid back to the Commission.

Surely there is a case here for some cross-border good practice exchange that will deepen EU integration: send the Mancunians and Liverpudlians to Paris for a bit so they can learn how it should be done!

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