A boost of EUR 167 billion of EU funds for the CEE region

The total amount of structural and investment funds for the period 2014-2020 stands at EUR 351.9bn, which is 1.3 per cent higher than in 2007-2013. CEE-6 countries were allocated about half of the total EU funds pie, to the tune of EUR 167.1bn, which is 11 per cent more than in the period 2007-13, according to Jan Jedlika, Head of EU Office.

2014-03-12 12:32:33

On top of that, the autonomous Connecting Europe Facility (CEF) will additionally support strategic projects in transport, energy and telecommunication infrastructure. The facility will enable the implementation of several significant projects in individual states, with cross-border impact and total approved allocation volume of EUR 33.3bn.

Golden rule: the more developed, the less money

In general, the more developed a country economy, the less money it will receive from EU structural and investment funds. However, Romania and Bulgaria, as the least developed members of the EU, were allocated a lower total amount of EU funds than they should have been. To balance that, the two countries will also receive financial assistance from other European programs, such as the Common Agriculture Policy. These policies combined should provide them with a sufficient amount of subsidies.

Significant room for improvement in absorption rates-excessive bureaucracy is major hurdle
Among the CEE-6 countries, only Poland managed to draw two thirds (67.9 per cent ) of its EU funds allocated for the previous 2007-2013 period as of the end of 2013. The Baltics are regional champions in EU funds utilization. Hungary (59.3 per cent ), Slovakia (52.6 per cent ) and the Czech Republic (51.1 per cent ) managed to absorb more than half the EU funds they were allocated while Romania lagged behind with 37.8 per cent of funds utilised. However, the country is still a newcomer, as it joined the European Union only in 2007. "Romania poor absorption track record could be caused by the lack of experience and weak performance of the public administration.

European Commission should regularly disclose improvement in absorption rates

In order to prompt CEE countries to make full use of the EU funds in 2014-2020, the European Commission should start playing the "blame and shame" game. Although the EC gathers all relevant information regarding absorption rates in individual member states, it does not go on to publish the findings on regular basis. The EU Office finds that publishing the absorption results on a regular and frequent basis would increase public pressure and determine countries to tackle their obstacles more effectively.

"Many CEE countries have a lot of operational programs run by too many authorities – this makes the whole system too complicated for final recipients and discourages some of the potential applicants. This could be improved by a fair and more transparent distribution of funds," states Jedlika. In countries like Poland and Slovakia, highly bureaucratic procedures associated with the projects are probably the most common disincentive to start the application process in the first place. The long periods of time spent on project assessment and contracting is another challenge for some CEE countries (mainly Romania) for the future programme period 2014-2020. CEE countries that find themselves facing similar obstacles should intensify regional cooperation by sharing best practices or benchmarking.

Romania: The total allocation from EU funds is EUR 22.99bn, resulting in annually EUR 164 per capita and 2.5 per cent of GDP. The biggest share of the pie will go to environment and transport (over 20 per cent each), but less than 8 per cent was earmarked for education. According to Erste analysts, education and health are two key areas that should benefit from more funds, as those two sectors are heavily under-financed. Medical services are in a poor condition struggling, caused by brain drain and a lack of medical equipment in public hospitals. As for education, an increasingly higher number of primary schools in the rural area are being shut down, which increases dropout rates. Higher and more efficient funding for health and education should be key priorities, given that Romania needs to increase its R&D spending from 0.5 per cent of GDP in 2012 to 2 per cent of GDP by 2020.

CEF Program: The rail project Arad-Brasov-Bucharest-Constanta that will connect the western border of Romania with the Black Sea coast on the eastern border would make a major contribution to economic growth. Reduced transportation time for freight and passengers should encourage foreign investors and local entrepreneurs open new businesses in Southern and Eastern Romania, areas that were somewhat neglected until now due to poor infrastructure. At the same time, this could be an important step in the strategy of the Romanian government and private business sector to revive tourism on the Black Sea coast and improve the service balance in the current account.