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Europe's Subsidy Catch-22. The EU is currently sitting on €80 billion in unused structural funds. Now what?
Wall Street Journal Europe, Opinion, February 6, 2012
By Carl-Johan Westholm

The European Union is currently sitting on €80 billion in unused structural funds, the spending instruments used to finance development in the EU’s poorer regions. With 23 million Europeans unemployed right now, that’s about €3,500 in dormant EU money per jobless person.

Under present rules, each national government must match any money it receives from the structural funds with money from its national budget. But national coffers in Europe are hardly well-stocked. Therefore countries in need are stuck in a catch-22: They must spend money to receive money, and because they do not have their own money to spend, structural funds that have been allocated to them cannot be accessed. Greece, for example, has around €15 billion of unused funds from the 2007-13 EU budget.

European taxpayers pay into the EU structural funds. The easiest way to eliminate the surplus would be to return to every government its share and let each government do with it what it deems best. But why do things simply, when you can make them complicated?

So there are various ideas for what to do with the structural-funds surplus. Some are focusing on what is called “smart austerity”—cutting budgets, but not in areas where investment is critical. That means defense and some social spending.

Others want money set aside in the EU’s long-term budget to help bring poorer countries’ infrastructure up to EU standards. In a letter setting out their aims for the Jan. 30 summit, France and Germany raised the possibility of pooling up to 25% of unused money from 2011 in a special growth fund.

Austrian Chancellor Werner Faymann has proposed using €10 billion in dormant EU social funds to help put young people to work. European Commission President José Manuel Barroso wants to give money to banks to make it easier for them to lend to small and medium enterprises.

All these suggestions are made with the best intentions. European policy makers feel that they must do something to solve the problems their citizens are facing. To be passive would leave them open to accusations of irresponsibility.

But it’s time for Europe to also rethink its long-term strategy on these subsidies. Activate the dormant funds with the likewise dormant and still valuable rule of subsidiarity. Let every government decide if its taxpayers’ contribution to any EU policy or program, including the structural funds, ought to be used in that country. If a country’s voters decide against the program, the EU would have to pay back that country’s share of the program’s cost.

This would be an improvement over the present system for many reasons—not least that no nation should be forced to accept a subsidy of any sort. Nations that abstained would lay bare how much they are net payers into a system with which they don’t agree.

Subsidy-hungry nations might lose their appetites for handouts if their trade partners were not subsidized. It would be easier to convince farmers in France, for example, that they do not need such large subsidies if they have fewer subsidized competitors in other countries, thereby allowing them to become more competitive the old-fashioned way: by doing things better and more efficiently. A virtuous cycle could be created.

I remember a headline in the Journal sometime in the early 1990s: “East Germans Wanted Jobs, Got Subsidies.” Subsidies are not a remedy for any country today, either.

Mr. Westholm is vice chairman of the Collegium for Inventions and former chief executive of the Swedish Federation of Trade.