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EU Candidates: Spare Some Cash?

Risto Karajkov, Florence, Italy, September 1, 2006

European leaders attended a two-day summit on regional security and further EU enlargement in the southern Croatian town of Dubrovnik in July: (left to right) Montenegrin Prime Minister Milo Djukanovic, Albanian Prime Minister Sali Berisha, Georgian President Mikhail Salikashvili, Croatian President Stipe Mesic, Croatian Prime Minister Ivo Sanader, Croatian Parliamentary President Vladimir Seks, Bosnian Prime Minister Adnan Terzic, and Romanian Prime Minister Calin Popescu-Tariceanu. (Photo: STRINGER / AFP-Getty Images)

On July 14, the European Union's Council of Ministers adopted a new framework for providing aid to candidate countries and would-be candidates.

Called the Instrument for Pre-Accession Assistance (I.P.A.), it aims to consolidate several aid programs, thereby increasing efficiency, and better targeting the funds. It sounds like a sensible idea, but it could be a mixed bag for the official candidate countries — Croatia, Macedonia, and Turkey — as well as candidate-hopefuls Albania, Bosnia, Montenegro, and Serbia.

The I.P.A. replaces five existing financial instruments for pre-accession assistance: PHARE (Poland and Hungary: Assistance for Restructuring their Economies), I.S.P.A. (Instrument for Structural Policies for Pre-Accession), SAPARD (Special Accession Program for Agriculture and Rural Development), the Turkey pre-accession instrument, and CARDS (Community Assistance for Reconstruction, Development and Stabilization), and has long been in the works. It is due to come into effect on Jan. 1.

To date, the EU's substantial financial aid has been distributed through a variety of often-overlapping programs created in an ad hoc manner over a number of years. This system resulted in cumbersome and complex procedures and requirements for the management of the EU's assistance. The objectives of the different programs were often aligned neither with each other, nor indeed with EU core policies. Now the EU wants to streamline its aid and increase its effectiveness. It also wants it to reflect more directly its policy priorities in external relations.

The Catch

The I.P.A. will run from 2007 to 2013 and will provide 11.5 billion euros for the Balkans and Turkey, which due to its size will get the lion's share of the funding. The I.P.A.'s overall amount still falls short of the 14 billion euros originally recommended by the European Commission in 2004, but last year's row over the EU budget has left its traces.

Experts hope some of that shortage can be recouped in the midterm review of the EU budget in 2009. The European Parliament's rapporteur on the I.P.A., Istvan Szent-Ivanyi, said it was "not good news" that the I.P.A. got 2 billion euros less than requested and that he was "very unhappy with what we have now."

It is not just the shortage of cash but also how it is divided that has raised eyebrows. The I.P.A. includes five components: transitional assistance and institution building, regional and cross-border cooperation, regional development, human resources development, and rural development. The first two are open to everyone while the remaining three are reserved for candidate countries. But it is precisely these three components that have the strongest impact on a country's economic reform, according to the European Stability Initiative (E.S.I.), a Berlin think tank. In E.S.I.'s view, these injections of aid allow candidate countries "to begin to engage in a much more intensive way with the challenges of economic and social development."

E.S.I. argues that the discrimination between candidates and potential candidates would aggravate the disparities in the Balkans, something the EU says it wants to avoid. E.S.I. recommended last year that the I.P.A. be changed to open all components to potential candidate countries. Otherwise, "the gap between the potential candidates in the Western Balkans and their neighbors will widen considerably over this seven-year period," an E.S.I. brief titled "Why the I.P.A. Should Be Changed" concluded.

The European Parliament's I.P.A. rapporteur, by contrast, does not think this is discrimination.

"It simply reflects that [these countries] are in a different phase of the accession process," Szent-Ivanyi said.

Although the E.S.I. brief stirred debate, the distinction between candidate and non-candidate countries remained, with a somewhat verbose and diluted provision that under certain conditions eligibility for some programs and actions may be extended to potential candidates.

"I think that appropriate incentives must be provided for potential candidate countries to reach the status of a candidate country," Szent-Ivanyi said. "This distinction might well serve this purpose."

But the numbers are clear enough. If candidates Croatia, Macedonia, and Turkey (for which there will be a gradual increase) receive 27 euros per capita annually, which was the level of funding made available for the previous candidate countries and corresponds to a declared commitment by the EU, the amounts left for potential candidates will come out at less than 13 euros per capita annually.

These amounts, however, are determined through the EU's annual budgetary procedures. Szent-Ivanyi expects them to be below 27 euros for candidates, at least initially.

Spending It

It is one thing to receive funding; can these countries also spend it?

Macedonia's European Affairs Secretariat has been pointing out that Macedonian institutions will have to prepare for accessing the new funding.

"All we know is that we have to prepare for a system which is much more complex than the previous CARDS one," Mjelma Mehmeti, an official from the secretariat, told local media.

The challenge stems partly from the fact that there is no previous experience with the I.P.A. that candidate countries can learn from. In addition, it will require precise planning well ahead of time.

"We will have to know exactly what our budget will be over the next three years, exactly how much we will get from the I.P.A., and exactly what for," Mehmeti said. "In order to achieve all this, we have to change our way of thinking.   If we are building a road, we will have to know in advance what the revenue from it will be, if there will be pay tolls and how much they will yield, how long it will take for the loan to be repaid, and so on."

The awareness that capacity is needed to make good use of the EU aid is shared across the region.

"If we fail to create a modern public administration, which will be capable of acting as a partner to Brussels, we will not be in a position to use these funds," Gordana Lazarevic, Serbia's assistant minister for international economic relations, told a recent preparatory meeting on using the I.P.A. held in Belgrade.

The EU's new member states also faced the problem of not being able to use all the EU pre-accession funding they were entitled to, due to complex and demanding criteria. All of them went through the frustration of not being able to reach for the monies set aside for them. But this is how EU aid used to work: the I.P.A. will change that, according to Szent-Ivanyi, who pointed to the flexibility of the new instrument.

"That means that if one country has not used its money under one component, it can be reallocated to another component, for rural development or human resources … If one country cannot use the money, another country can go for it," he said.

This is indeed a welcome change from the past. Szent-Ivanyi's country, Hungary, lost some of the funding it had failed to use in time, and no one else could bid for it.

This new flexibility introduces an element of competition among the countries, which Szent-Ivanyi says will provide an incentive for coming up with strong projects.

On the Web

"EU Programs Introduction," Delegation of the European Commission to Bulgaria, 2005

The I.P.A. puts the emphasis for potential candidate countries on strengthening democratic institutions and reforming their public administration. For candidate countries, the assistance aims to support the implementation of all the required EU laws and regulations. That is why the three components open only to candidates are modeled after the Cohesion Fund, European Regional Development Fund, and the Common Agricultural Policy, which are available only to member states. By using the respective I.P.A. components, the candidates are trained to one day access member-state funding.

But despite this flexibility, the E.S.I. criticizes the I.P.A. as a passive approach toward the Balkans that will simply cement the status quo and deliver less aid. It points out that all countries of the region will receive less, with the exception of Bosnia (whose assistance has already been reduced to this lower level). The decline in aid will be particularly steep in Kosovo, according to the E.S.I.

Szent-Ivanyi concedes the point.

"I have always argued that the credibility of the EU's commitments toward the Western Balkans can be maintained only if sufficient resources are allocated to the I.P.A.," he said. "The seven-year financial perspective for the period of 2007–2013 is significantly lower in allocations compared to the amounts proposed by the Commission. I admit that currently there exists an enlargement fatigue in the EU, and no further commitments can be expected on the EU's part in the near future."

He rejects accusations of passivity, however, which "simply does not match the facts."

Whichever view one takes, the previous programs of EU assistance will be phased out soon and the I.P.A. will kick in. Recipients need to brace themselves to make the best of it.

This article first appeared in Transitions Online.

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