A raw deal

There are three important points I would like to make in this contribution. First. On Wednesday, March 3, 1999, Opposition Leader Alfred Sant had correctly predicted in Parliament during an EU debate that Malta's net benefit from the EU in its financial package was likelier to be circa Lm20-Lm30 million p.a. than the Lm100 million promised by the Nationalist Party during the run up to the 1998 general elections.

Second. That during the current financial year the Maltese government will be spending a total of Lm21.984 million on NPAA (National Plan for the Adoption of the Acquis) and EU-related matters.

Third. While according to the pro-EU Centre for Economic Reform the EU's lack of generosity will make the deal harder to sell in the 2003 referendum campaigns, the accession countries may not be able to use all the project-linked money allocated to them in the EU budget by 2006.

Dr Sant had commented as follows during the debate referred to:

"The Europeans are already making it clear that the funds that will be made available to the Maltese government will not be in the form of cash aid but will instead be project-linked. They will also need to be co-financed by the Maltese government. Such aid will be in the region of Lm20 million-Lm30 million rather than the Lm100 million mentioned during the last election campaign..."

It is ironic indeed that Labour was able to make a fairer and more accurate assessment and prediction from the Opposition benches on the EU financial package than the Nationalist Party was able to both before and after the 1998 general elections.

Which brings us to the circa Lm22 million spent by the Maltese government on EU-related matters which one comes across in the Estimates for 2003:

While Poland delayed the conclusion of negotiations by ten hours, Malta had already thrown in the towel many hours before. I understand that it was around teatime on December 13.

What is interesting is that while the bulk of Malta's financial package remained project-linked, Poland's success was in having the EU transfer money from regional aid to cash in a manner that will certainly help its budget.

This 'success' is underlined by the fact that according to the CFER even existing member states often have problems finding enough viable projects to use all the regional funds they have been allocated. They forecast that the new members may face an even greater challenge since they are still getting used to the complex requirements for qualifying for funds.

While Poland's deal was considered good for farmers and bad for taxpayers, the Union was reported to have refused to improve on its offer to the candidate countries on direct payments. All this at a time when the EU's gesture involved little extra money from the EU budget either, as the EU merely decided to reclassify one billion euros earmarked for regional aid as a straight cash transfer to placate Poland.

The bargaining at Copenhagen was essentially about shifting money around from one part of the EU budget to another, as the EU offered little new money.

For regional aid, the candidate countries would have to find suitable projects and money for co-financing, which makes it difficult for them to qualify for all the structural funds that they have been allocated. Now the money will simply be loaded onto their treasuries' balance sheets.

The EU came out as the net winner of the Copenhagen summit since several attempts among the candidates, especially the so-called Visegrad Four to co-ordinate their positions failed.

So each country had to fight for itself in the end.

It is being predicted that as the new year unfolds the eurosceptics in candidate countries - Poland included - will start to examine the deal in more detail which will leave them with much fodder to make political capital out of the EU's lack of generosity.

The Centre for European Reform is predicting in its recent briefing note that budgetary troubles loom ahead in the sense that several of the candidates will face considerable problems with public finances in the first years of EU membership.

It is being predicted that "their finance ministers will take a triple whammy when or if they join the EU":

1) EU-related spending will increase as they implement the more expensive parts of the EU's rules and regulations in order to meet the promises they have made in negotiations. It is being anticipated that in Poland's case this will add up to an increase of between 5-15% to EU-related expenditure.

2) The new members' finance ministries will have to find more money to co-finance infrastructure projects to qualify for EU budgetary transfers.

3) At the same time, the new members will be trying to qualify for monetary union, so they have to trim their budget deficits down to 3% of GDP.

This will be very hard, given all the additional expenditure, if growth rates do not increase dramatically.

No wonder that any government among the accession states that will be seeing its country into the Union can start counting its remaining days in power.

Leo Brincat is Labour's main spokesman on the economy and finance