Friday, March 9, 2012

ACRN BLOG: Economic Crisis and Anti-Corruption in the EU

In this blog post ACRN contributing editor Patrycja Szarek Mason examines the European Union’s anti-corruption policy in light of the unfolding economic crisis. She gives us an understanding of the context in which the EU’s anti-corruption policy has developed, the measures taken so far and the gaps that still remain in ensuring that anti-corruption can be a safe-guard against future economic crises.
Please note that views expressed in this blog post are those of the author alone and do not represent the position of The Anti-Corruption Research Network, Transparency International, or any of its affiliates. To comment on this post or to contact Patrycja, please log into ACRN. 

The European Union anti-corruption policy in the times of economic crisis
By Patrycja Szarek Mason, University of Reading School of Law; Contributing Editor, Anti-Corruption Research Network
The current economic crisis within the Eurozone has many causes, but it would be wrong to underestimate the role played by widespread corruption. Within the European Union (EU) corruption costs an estimated 120 billion Euros per year[1]. Moreover, there is a link between high levels of corruption and the poor economic performance of some Member States. For instance, Italy and Greece, two Member States which are on the verge of bankruptcy, also rank among the most corrupt Member States within the EU[2]. In seeking a solution to today’s woeful economic situation, more attention needs to be paid to the relationship between the corruption that is commonplace in many areas of public life in these countries and the poor state of their financial institutions.Systemic corruption pervades the regulatory, policy and legal institutions and will surely inhibit efforts to recover from the present financial crisis. It corrodes the trust in the public administration, contributes to investors’ growing fears and, more generally, weakens the economic outlook. There is a growing risk that the financial assistance and Eurozone bail-out packages will be lost to fraud and corruption within the recipient Member States. If this was to happen, the public support for the continuing financial aid to some of the Member States might be even further challenged. As a result, the whole EU integration project will be put in danger.
The policy so far
Although corruption has been on the EU agenda for quite some time now, the EU has not developed a coherent policy against corruption within its borders. Broadly speaking, corruption has long been treated as a domestic matter to be tackled individually by each Member State. There were three main factors behind this approach. Firstly, the EU does not have clear power to pursue a comprehensive policy in this area, and any progress depends entirely on the political will of the Member States. Although the EU has adopted anti-corruption instruments, the poor implementation of those instruments to date shows the lack of a necessary political will to institute an effective policy. Secondly, a comprehensive anti-corruption strategy pertains to many sensitive spheres of public administration and national governments have been unwilling to give up control in these areas. Thirdly, for quite some time it was the Commission’s view that the existing pan-European anti-corruption frameworks run by the OECD and the Council of Europe were sufficient, and there was no need for the duplication of these efforts at the EU level[3].
As a result, EU anti-corruption policy has been largely limited to developing legal texts that focus on the criminal acts of corruption in the public and private sectors across the Member States. Other anti-corruption reforms have been neglected. The EU has not addressed crucial areas such as ensuring transparency in the public administration, regulatory processes and funding of political parties across the Member States.
Beginning of change
The EU approach to corruption was transformed as the EU expanded to include countries from Central and Eastern Europe in 2004 and 2007[4]. Before this expansion could occur, the EU was compelled to embark on the enormous task of preparing for the accession of ten post-communist countries, most of which had serious problems with endemic corruption. For the first time, the EU had to learn how to draw anti-corruption recommendations for a number of countries and monitor the national governments’ progress in implementing them.  The existing international anti-corruption framework was no longer deemed effective enough to deal with the high levels of corruption in future Member States.
As a result of this process, the EU gained the necessary understanding of how to promote and evaluate anti-corruption success among countries. While the EU did not have any coherent policy against corruption within its long-standing members, it set a catalogue of very strict and far reaching anti-corruption criteria in its policy towards the candidate countries. However, this policy of double standards raised many political difficulties and could not bring long-lasting effects, not least because the policy ended on the day a country became a member of the EU[5].
In reality, for the new Member States that joined in 2004, accession to the EU meant deterioration in their anti-corruption standards. Once a country joined the EU, it was no longer bound to conduct anti-corruption reforms. This led to a change in policy at the next round of enlargement in 2007, when the EU tried to retain some leverage over the candidate countries Romania and Bulgaria. The rampant problem of corruption in these countries, which was clearly not eliminated before they acceded, forced the EU to devise a special monitoring mechanism to evaluate these countries’ efforts in combating corruption after their accession. This evaluation will continue until the Commission is satisfied with the progress made by Romania and Bulgaria.
This is the first time such a mechanism has been used in EU history. Its major weakness lies in the fact that it singles out two Member States and requires them (and only them) to undergo an intrusive evaluation of their institutions and policies. It is unfair and highlights double standards within the EU. How can the Commission legitimately demand compliance with the anti-corruption benchmarks from Bulgaria and Romania and at the same time tolerate similar problems of corruption in other Member States? Another shortcoming is that this anti-corruption monitoring is limited to only a number of areas and therefore is not sufficient to guide these countries through a coherent anti-corruption reform. It therefore comes as no surprise that nearly five years since its establishment it has brought very limited results[6], and as a result Bulgaria and Romania’s accession to the EU’s border-free Schengen area was recently postponed.
New dawn in EU policy?
First, it was the accession of countries with rampant corruption that put the EU policy to the test; now it is the economic crisis that poses an additional challenge to the EU anti-corruption policy. In June 2011 the Commission proposed to reform the existing policy in the new Communication[7]. In particular, it proposed that for the first time ever the national anti-corruption policies of all the Member States are to be scrutinised at the EU level.  The EU Anti-Corruption Report identifying trends and weaknesses in combating corruption across twenty seven countries will be published every two years, starting in 2013.
The new EU Anti-Corruption Report should deliver a fair estimate of the achievements, vulnerabilities and commitments of all Member States as well as promote peer learning and exchange of best practices in the area of anti-corruption. By identifying the failures and vulnerabilities across the 27 Member States, this report can potentially help to reduce the risk of future outbreaks of economic crises such as those witnessed in Greece and Italy. In the words of the Commission, the new mechanism will “act as a ‘crisis alert’ to mitigate the potential risks’ of deeply-rooted problems which could evolve into a crisis”[8]. In the face of the current financial crisis, the EU should not wait until 2013 and start collecting the necessary data for the Anti-Corruption Report now.
EU financial assistance should be coupled with rigorous anti-corruption demands. The European Commission has already started the process of collecting information on the costs and prevention of corruption in Public Procurement involving EU funds across the Member States[9]. The monitoring efforts should further focus on areas such as judiciary, the agencies responsible for administrating public finances, tax systems and political financing. It should also be the EU’s priority to push for thorough transparency reforms across the public administrations in the Member States with the goal of improving audit and accounting standards. The focus of the existing EU policy should shift towards tackling high-level bribery, influence trading and lobbying to prevent private companies from influencing national policy making and regulations for their own benefit. All these reforms would help to restore the public trust in the institutions responsible for the distribution of public money, a crucial step in restoring investor confidence and moving the EU towards a path of sustainable economic growth.
Will it work?
The planned changes in the EU anti-corruption policy can potentially lead to a transformation of the policy in this area. The current economic crisis could prove an important catalyst as it highlights the interconnected nature of all countries’ financial systems and will require a greater degree of cooperation among the Member States in order to reach a sustainable solution. Critically, the crisis focuses minds and should generate the necessary political will to act. Accelerating the adoption of the mechanism discussed above would be an important first step in developing a more comprehensive anti-corruption strategy.
More can and should be done. The ongoing turmoil in financial markets requires bold action from EU policymakers. However, they should focus not only on what to do to stem the present crisis but also seize the opportunity to implement bold and comprehensive structural reforms to improve prospects for economic growth.  A strategy to tackle corruption must be among the most vital reforms, and it so happens that the economic crisis coincides with the launch of a new far-reaching policy from the EU to fight corruption across the Member States. The continent’s political leaders must summon the political will to bring this new more ambitious anti-corruption agenda into life. In other words, the financial crisis can and ought to have a transformative effect on EU policy against corruption within its Member States.
NOTE: This blog post was first published on the Anti-Corruption Research Networks blog. 

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