December 14, 2021

The word peculation has largely been forgotten since it was used in the 18th century and beyond when the likes of Warren Hastings, the ruler of British territories in India, were busy defrauding the public purse. It means monetary misappropriation, especially of governmental resources — and perfectly captures an affliction at the European Union’s core.

For decades, the EU has been providing heroic floods of funding for peculators, perhaps the greatest such flows the world has seen. From 2014 to 2020, the bloc spent €960 billion, and to 2027 has plans for €1,820 billion more. Of these scarcely fathomable sums, around two-thirds goes on various forms of regional and industrial support.

Estimates in the relatively well-policed UK suggest you can expect anything from 2% to 10% of project money to be syphoned off via fraud, collusion, or bribery. But Brussels has long been reluctant to exert central control over its cascades of cash. Only this year has it established a European Public Prosecutor’s Office to pursue malfeasance: despite a tiny budget, in its first few months EPPO has accumulated more than 300 cases. Yet the value encompassed, €4.5 billion, is microscopic compared to the scale of the problem.

This is largely a result of the lack of central oversight, which means you can’t disaggregate skewed spending from theft. You’ll never tally which eye-watering sums have been misallocated, misappropriated, or simply stolen. The best you can do is survey the mechanisms that foment intellectual corruption, and can lead to all the criminal ills.

Take one of its biggest programmes: agriculture, fisheries, and environmental good works, which account for €774 billion of the 2014-27 totals. Leave aside, if you can, the “small scale” rural defraudations over many decades, which by now must total many billions. It’s the essence of the EU’s rural policy that’s obscene, for it’s built on tariffs around food that are passed onto the consumer. Development economists will tell you that, even as latterly reformed, this costs Europe’s consumers over €20 billion a year. This number is a good surrogate for the income denied annually to the poor farmers in the global South who would love to feed the EU’s people.

Astronomical sums are also spent on space, where the EU works with outfits such as the European Space Agency. The numbers here are deliberately obscured, but in recent years, upwards of €36 billion has been budgeted. The EU’s space policy amounts to a me-first system of outdoor relief for a charmed circle of giant French-controlled firms, with others involved for cosmetic decoration. Step forward Arianespace, run by Airbus (France-Germany-Spain) and Safran (France). Offshoots of Leonardo (Italy’s state-run defence champion) and Thales (France) are also prominent. The Union’s space trajectories reached their apogee with the Galileo scheme to send GPS satellites whizzing above the earth. As far as the numbers tell you, this wheeze has so far absorbed over €10 billion. The bizarre rationale was to rival the perfectly adequate American system, which reserves its tightest accuracy for military use by the US and its allies. Was the EU expecting America to invade? In a further moment of madness, the Chinese were asked to join, though they were later disinvited. After Brexit, Britain was scandalously expelled, though non-EU members Israel, Norway and Switzerland are kept in.

Also among the big boondoggles are central allocations to R&D under programmes dubbed Horizon. From 2014 to 2027 they will total €176 billion. Here, too, the beneficiaries are mainly an established club of “Old EU” companies in France and Germany, plus selected chums in academia. (Britain was a major taker until it left.) The in-built bias was underscored during the latest seven-year spending round, when the newish 11 members in Central and Eastern Europe, despite having a fifth of the EU’s population, were vouchsafed a mere 5% of the largesse available. Meanwhile, famous EU states such as Israel and Switzerland received much more. And has anyone monitored the real-world sales and profits resulting from all that spending? What do you think?

Ensconced in Luxembourg is the European Investment Bank. This is a huge machine for channelling financial subsidies to the Union‘s banks and projects. The EIB does this by borrowing ultra-cheaply on the back of guarantees from the member states. As of the middle of this year the EIB had €179 billion out to financial institutions and €342 billion to other borrowers. The EIB is forever trying to reconcile bankerly professionalism with massive political pressures. It often fails. It’s especially lax in its subsidies to financial institutions, as the modus operandi is to offer overall funding lines that the entities in question use to on-lend at will. Full disclosure: I spent some time as a Head of Division at the EIB, and saw the political machinations first-hand.

Many peculative possibilities come from the plethora of mainstream EU schemes for regional and industrial spending. Even when the goal is a worthy hospital, road, railway or factory, abusive opportunities abound. Start with the local or central governmental satrapies which sponsor many of the projects. They have an inherent tendency to over-specify (the EU’s grants are “free”, after all) and to mismanage the implementation. Greedy advisers and construction firms egg them on. Contractual fiddles can cut links between performance and payment. Central governments (which provide counterpart financing) and EU bureaucrats are complicit, as it’s in everyone’s interest to get the money out of the door. As we’ve seen, when it’s embroiled, the EIB is often swayed by the politicians too.

Yes, public tenders are stipulated by the EU for most procurement: there are €1,900 billion-worth each year. But it’s easy to fiddle the specifications and the criteria for selection. In particular, Italy, Austria, Spain, Greece, and Portugal have long had poor reputations with their public tenders. In recent years, Hungary, Cyprus, Romania, and Bulgaria have come galloping up the track, and are poised to overtake. Hungary has already won some sort of prize, as PM Viktor Orbán notoriously rewards his chums via hand-steered EU contracts; the country is to receive €22 billion in regional funds to from 2021 to 2027, and more in post-Covid aid.

For decades, the resultant cases of waste and theft have been scattered across Europe. Among the thousands of suspect schemes, notable clumps are in southern Italy, Spain, and in Germany’s once new Länder. A classic of over-investment is Spain’s high-speed rail network. It has absorbed €56 billion over the past 35 years, €14 billion from the Union, but remains chronically underused. One external report put the inappropriate allocation of public funds (to 2016) at €26 billion. The euphemistic plea was voiced for “Transparency in hidden agendas behind public works”. Compared with such herculean Hispanic achievements, the case of Berlin’s new airport seems modest. Supported by the EIB, its cost has exploded from €2.8 billion to €10.3 billion or more. Finally open after 14 years, it’s still not fully functional.

The cases keep coming. Just the other day, the Financial Times revealed to a shocked German railways and to bemused German public prosecutors that the prized scheme for rebuilding the central Stuttgart station, part-funded by Brussels, was allegedly riddled with peculative ills. The original cost, €2.5 billion, has more than tripled to €8.2 billion (and counting). The FT suggested that much of the inflation was due to glaring mismanagement and corruption, one source putting the scale of the peculation so far at €600 million.

Until EPPO came along the Union’s only policeman was the notoriously feeble control body OLAF, which was supposed to work with another weak entity, the European Court of Auditors. They might as well not have bothered: last year, OLAF itself recommended recoveries of a paltry €293 million. However glaring the case, OLAF was duty-bound to pass it to the given country’s justice system. And all too frequently, local jurisprudence has proved ineffective. This is down to incompetence (Germany) or design (the newish East have underinvested in their legal systems, in many countries prosecutors and courts have been suborned).

From now, EPPO will have criminal law powers while OLAF will concentrate on administrative ills. But don’t expect them to do more than dent the peculation that travels along with the Brussels money juggernaut. They are a mere few hundred-strong. And the vested interests are simply too great, the huge sums of money too tempting. When, in the 19th century, Lord Acton famously said that power corrupts but absolute power corrupts absolutely, peculation was still in common use. In today’s EU, a variant of this still holds true: lack of control over spending corrupts, absolute lack of control can cause absolute corruption.