Frozen Funds

Economic News

22 Jul 2010
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Questions have been raised as to just how much progress Bulgaria has made since EU accession, with the European Commission (EC) making the unprecedented move of cancelling some funding due to the country's failure to deal with corruption.



In late November, the EC announced it would withdraw some 220m euros in EU funds. The decision comes just as the head-on effects of the global financial crisis are beginning to be felt. The amount of money lost is small compared to the 11bn euros in EU funds that the country stands to receive until 2013, but the EC has warned that irregularities will not be tolerated. The move is a condemnation of Bulgaria's efforts to address fraud, corruption and conflict of interest allegations that have plagued the distribution of EU money.



The 220m euros were initially frozen after the EC released its July report entitled "Report from the Commission to the European Parliament and the Council: On the Management of EU-funds in Bulgaria." The funds are part of the PHARE programme, one of the pre-accession instruments designed to help Central and Eastern European countries in their preparations for joining the EU, and the Transition Facility programme, meant to aid institutional reforms necessary for the absorption of much larger amounts of EU assistance.



The report praised some "corrective steps" taken by the Bulgarian government, including procedural and legislative changes and high level appointments, such as the appointment of Meglena Plugchieva as both vice-prime minister, responsible for the coordination of EU funds, and head of the Bulgarian Anti Fraud Coordination Service.



Despite this progress, the report warned that the country still needed credible, structural reforms to address high level corruption and organised crime, which have crippled the country's already weak administration and judiciary.



To ensure progress on these issues, following the release of the report the EC withdrew the accreditation of the two agencies responsible for the distribution of EU funds - the Central Financing and Contracting Unit and the Implementing Agency at the Ministry of Regional Development - thereby freezing any funds that had not already been earmarked for projects. As the final contracting deadline was set for November 30, the two agencies proved unable to regain their accreditation in time to earmark the funds, thus losing 220m euros.



Reactions to the news have been mixed. Government officials expressed disappointment and emphasised that while Bulgaria still has a long way to go to meet the EU's requirements, the decision does not adequately recognise the reform measures already taken by the cabinet. Prime Minister Sergei Stanishev and Plugchieva have called the decision unfair, with Stanishev alleging that the commission has treated Bulgaria differently from other EU member states similarly struggling with corruption.



As the newest members of the EU, Bulgaria and Romania have been subjected to a scrutiny that other nations with similar problems have not experienced. By the time Romania and Bulgaria joined, the EU was already experiencing significant expansion fatigue and euroscepticism. Critics of further expansion use the problems with Bulgaria and Romania as an argument against EU accession for other countries, such as Turkey, Ukraine, Croatia and Serbia.



In addition to having broad international political implications, Stanishev noted that the loss of funds could affect Bulgaria's internal political situation, especially in regards to next year's general election for parliament. Already, the right-wing opposition in parliament has called on the government to resign, with the group Democrats for a Strong Bulgaria calling for early elections ahead of the 2009 regular elections for parliament. While such a dramatic move seems unlikely, the government is under increasing domestic and international pressure.



Pressure might be just what the Bulgarian government needs to start enacting substantive legislation on corruption. "It is disheartening that rapid progress has not been made in a number of identified areas," Geoffrey Van Orden, European Parliament rapporteur to Bulgaria, told OBG. He added that in many respects Bulgaria's progress post-Communism has been inspiring, but that change and greater commitment are needed to make a real difference.



Similarly, at a regular briefing in Brussels, Krisztina Nagy, spokesperson to EU Enlargement Commissioner Olli Rehn, acknowledged Bulgaria's recent steps, but said many of them are only "promise of future action and have not yet delivered concrete results."



While Bulgaria has been chastised for its failure to adequately address its problems with corruption, it may be just what the country needs to produce more fruitful results.

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