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EU: Study Finds Easterners May Be Net Payers Into Budget

Research by an expert at the Vienna Institute for International Economic Studies has come to the surprising conclusion that the Eastern candidate countries may become net payers into the European Union's coffers the moment they enter the EU. This runs contrary to the general anticipation that the Eastern candidates will benefit financially from various EU grants and subsidies, thus justifying the long years of preparation for membership. An EU spokesman in Brussels, however, denies that newcomers will be made to pay into the budget. RFE/RL correspondent Breffni O'Rourke looks at how the Vienna study reached its startling conclusion.

Prague, 26 March 2002 (RFE/RL) -- Sandor Richter, a senior researcher with the Vienna Institute for International Economic Studies, has been making calculations on the financial links between the European Union and the Eastern European candidates due to start joining in just two years' time. And he has come up with some remarkable results.

Using figures published in part by the EU's executive Commission, Richter calculates that the group of new members -- expected to number up to 10 countries -- may end up owing 400 million euros ($350 million) to the EU budget for the first year of membership, 2004, alone. And that, he says, is an optimistic estimate.

Such a situation could deal a political blow to the governments of the candidate states, which have told their public that the arduous road toward EU membership is worthwhile because of the benefits to be gained in the form of EU payments and subsidies.

In Brussels, the European Commission is strongly denying that it will be receiving net income from the newcomers, whose standards of living are mostly well below that of the EU member states. It says that any net payments into the EU budget will be compensated for by special cash funding.

So Richter's calculations would appear to be purely theoretical. But the commission does not dispute the general accuracy of the figures, which could be useful in that they highlight serious deficiencies on the part of some candidates.

In explaining his findings to RFE/RL, Richter first describes the situation: "The potential new member countries receive pre-accession aid today, and they will receive it to the last year before membership. This is a one-way street, because they get [financial] transfers from Brussels and they don't have to pay into the EU budget. After membership, the situation changes. There will be potentially much higher exchanges available from the EU budget, but they will [also] have to pay their contribution to the EU budget. And that is what changes the situation decisively."

Richter says that the key factor in his calculations is the ability of the newcomers to meaningfully absorb and utilize the routine financial transfers which Brussels is prepared to make to them as members, particularly under the headings of regional funding and agriculture.

"For example, Poland, in the year 2001, could absorb only 28 percent of the theoretically available pre-accession resources, so that's a bad success-failure ratio. And Poland and all other countries must work very hard to increase this rate [as much] as possible, especially during the very first year of membership. It is not so easy because everything is new. The experiences relating to pre-accession aid are useful, but not necessarily sufficient to get all the resources that are theoretically available."

What Richter means is that if Poland, hampered by administrative blockages and inadequate infrastructure, can use only 28 percent of the EU money being offered before it becomes a member, there is little reason to expect it to be able to handle more after it joins the union. Inefficient absorption, therefore, could mean that the country concerned will become a net payer to the EU budget.

"One main message from the estimation results is that absorption capacity is decisive. The future new members of the European Union will have to do everything to improve this, because that is a decisive factor influencing the net final position of the countries after enlargement."

Not all the accession countries are as weak as Poland, however. Using what he calls an "optimistic" variant, Richter calculates that the overall absorption rate across the 10 front-running candidates could be about 75 percent. Even so, that would theoretically mean the new members would collectively owe the EU 400 million euro ($350 million) for the first year's membership.

The word "theoretical" is used because the European Commission says that won't be allowed to happen. Jean-Christoph Filori, the spokesman for Enlargement Commissioner Guenter Verheugen, says: "We [at the commission] propose that -- in order to avoid [the new members] becoming net payers -- they get these compensatory payments, which remain to be negotiated. Commissioner Verheugen has made it clear 3 billion times that it is out of the question that they become net payers the first year. It is out of the question."

Filori acknowledges, however, that the timing of regular EU funding may leave recipients waiting for some time to receive their money. But, he adds, such delays will only have an impact during the first year following accession, and in any case will be compensated by other budgetary transfers.