Why Europe’s recovery plan won’t work — unless it tackles corruption first 

Ioana Petrescu is a senior fellow at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School and a former Romanian finance minister.  

Plans cooked up in Brussels tend to be ambitious and have pretentious titles. NextGenerationEU, the recovery fund aimed at countries hit hardest by the pandemic, is no different.

The €750 million fund, along with the next EU long-term budget, is designed to create jobs, boost productivity, improve education and advance green and digital projects.

Or at least, that is Brussels’ plan. If history is any guide, that money may never be put to its intended use.

Too often, EU funds are wasted on pointless projects — or simply stolen. In a report released earlier this month, the EU’s anti-fraud office OLAF estimated fraudulent use of European funds in 2019 amounted to €485 million.

The creation of the European Public Prosecutor’s Office — which will investigate and prosecute crimes against the EU’s financial interests starting in 2021 — and the use of individual European Delegated Prosecutors to work within member countries are necessary measures for curbing corruption. But they are hardly sufficient. Europe’s member countries will have to pull their weight.

National governments urgently need to step up efforts to ensure EU money is not spent on useless programs that don’t advance key policy goals. One way to do so is quality audits of projects funded by EU money. Instead of focusing exclusively on bureaucratic details — checking how payroll was done, whether documents were delivered and deadlines met — authorities should focus on the quality of the output and whether the goal of the project was achieved.

Another way to ensure EU funds are spent wisely is to move away from the smallest-price rule in procurement. According to the Single Market Scoreboard, in Slovakia 95 percent of proposals were awarded solely because they were the cheapest. In Lithuania, that number was 94 percent; in Romania, 92 percent. Governments should hire and train procurement and audit personnel to take quality into account when awarding contracts. This would go a long way toward improving the quality of the final product and making sure that the ultimate goal of the project is met.

We also need more competition. In many EU countries, a large proportion of contracts are currently awarded to companies that were the only ones to have had bid on it. The countries with the most contracts awarded in this way are Poland and the Czech Republic with 51 percent, and Hungary with 40 percent, according to the Single Market Scoreboard.

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These high numbers raise questions about competition, bureaucracy, and ultimately, corruption. The European Commission has recommended a number of fixes, such as setting up an ex-ante evaluation mechanism for large-scale infrastructure projects and making national review systems more efficient, and provided guidance on fighting collusion in public procurement. National governments urgently need to take these recommendations on board.

Digitalizing the process of public procurement and of accessing EU funds is also a key way to prevent this money from falling into the wrong hands.

As well as ticking the green and digital boxes that are part of NextGenerationEU’s official objectives, making the funding process truly digital would increase transparency and reduce opportunities for corruption.

Since the start of the pandemic, EU countries have relied on simplified procurement procedures to speed up the acquisition of equipment, services and works. In April, the Commission even issued a guidance on how the existing public procurement framework can be used during the pandemic, emphasizing flexibility for the purchase of the supplies needed to address such a medical crisis.

This type of flexibility, while it may have been necessary at the height of the health emergency, created a number of gray areas, allowing governments to discard open procurement procedures to ones negotiated behind closed doors. When it comes to spending NextGenerationEU funds, member countries must ditch this flexibility in order to prevent fraud.

Financial transfers from Brussels to member countries will always be a leaky bucket. But when it comes to combating fraud, it is better to prevent than to treat. Stolen money is hard to recover: According to a report of the European Court of Auditors, only €2.6 billion out of €8.8 billion lost to fraud between 2002 and 2016 was eventually recovered.

If we want to ensure that the NextGenerationEU fund leaves the next generations of Europeans with more than just a big bill to pay, we have to take proactive steps now to make sure the money goes where it’s intended so that the recovery fund can meet its goals.

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