Czechs jittery about frozen EU funds

When an envelope with a Brussels stamp landed on the table of the Bulgarian Prime Minister Sergei Stanishev three years ago, what was inside the envelope quickly turned into a nightmare for him. Auditors had confirmed their suspicions that the EU funds flowing into the country by the billions were disappearing into the pockets of local politicians and the mafia. The message from Brussels had a ruthless ring to it: all the EU subsidies were being stopped indefinitely.

Reporters from all over Europe began to stream into a Bulgaria shocked by the bad news to send home wondering reports on how anything goes in the "Wild East". No one thought at the time that seemingly the exact same scenario would play out in the Czech Republic only a few years later.

Bulgarians have yet to recover even today from the total shut-down, and a substantial part of the funds have been cut off for good. The grant programmes to the Czech Republic were frozen in February this year, and for the time being their future remains uncertain. But the answer to the question of whether the Czechs will suffer the same fate as the Bulgarians is beginning to emerge.

Aboard the Monday flight from Brussels to Prague this Monday, next to the tourists and businessmen, sat a group of stern-faced men and women bringing evidence from the European Commission. Their path led from Ruzyne airport straight to the Czech Ministry of Finance and from there to their final destination: Usti nad Labem, the capital of Northern Bohemia. Here the EU inspectors would spend the week chasing down one goal: to determine how deeply the “Bulgarian scenario” had already penetrated the Czech Republic.

Swingeing cuts and tax hikes

Brussels did not chose the Ústecký and Karlovy Vary regions at random for its audit of the subsidies. The local media had described in detail local hospital contracts that had been overpriced several-fold, and a recently completed independent audit by Deloitte had reported that of 35 selected projects worth four billion crowns, at least every third one was not above board.

The man towards whom this avalanche is rushing – along with the growing number of other cases of embezzled eurofunds à la David Rath, the former governor of Central Bohemia, now in prison – gives a notable impression of calm. Miroslav Matej is the Deputy Minister of Finance, and the full audit of eurofunds falls under his watch. “A lot of people are doing a great deal of good work here with the funds,” he says. “To cave into the feeling that all the hands are dirty would be a huge shame,” he adds, shaking his head.

The fact is that he and his subordinates are now openly talking with journalists, and Matej himself has a good reputation in the field – he worked for several years with the European Court of Auditors as an auditor of large development projects of the Union. What’s key now is whether the delegates from Brussels who arrived on Monday will believe the Czechs are truly trying to sort out the problem – and whether the others who will come in July will believe it as well. Lastly, there will be a final inspection of the Czech efforts at redress scheduled in Brussels itself for the first month of the summer holidays.

Public works contracts from 1 June will fall under a new and stricter regime. The motivation to sort out everything has, in any case, a precise value now. About 60 billion crowns [€2.35 bn] are sitting frozen in Brussels at the moment, money the Czechs handed over this year in the expectation that they would be returned with a matching amount from the Union. If the payout does not get underway by year’s end, the figure will reach an estimated 100 billion [€3.9 bn], and that means one thing: that the doubling of this year’s debt in the Czech Republic, due to cuts by the Petr Necas government, will bring in its train long months of swingeing cuts and tax hikes.

Growing independence

It may in any case be too early for the frightening “Bulgarian scenario” mentioned in the introduction. Some of the money apparently was stolen, and the threat that Czechs will not be getting any more is real. A significant part of the problem is that the Czechs are only just learning how to distribute public money by European standards. And not just the Czechs. Over the past year Brussels has significantly stepped up the severity of all its audits, and the effect can be seen. The stricter standard has quite understandable causes: big donors to the EU budget, like Germany, are pressing harder for stricter controls of spending.

If Brussels does decide in the coming months to resume the billions in pay-outs, the Czechs will not be in the clear by any stretch. At least four major grant programmes – including the biggest, for the construction of highways and railways – will stay in limbo because of suspicion of massive corruption and overcharging.

There is another way of looking at the situation, though. The case of Usti nad Labem mentioned at the start, where it was the public prosecutor who was the driving force behind the inquiry into the David Rath affair, is not just the first step towards exposing cases of wrong-doing. It’s also a show of the growing independence of key players in the Czech public arena. For Brussels, the independent work of the police and prosecutors brings the hope that, in concert with the Commission, the Czech side will also increasingly be pushing for a fairer pay-out of the subsidies.