Brexit has saved Britain from Brussels’ worst blunder yet

Britain has had a lucky escape avoiding Brussels’ disastrous, profligate mess

Source - Daily Telegraph - 13/04/24

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A billion here, a billion there, and pretty soon you’re talking real money. At the time these words are thought to have been uttered, concern was mounting over federal spending – in particular the 9pc of GDP going towards US defence.

But the American military of 1962 may soon have a genuine rival for profligacy: the European Union’s mammoth Covid recovery fund, designed to reboot the Continent’s southern economies and finally forge a full-blown fiscal union.

It is becoming painfully clear that the huge amounts of money Brussels borrowed is being wasted, with an investigation into fraud underway, accusations of corruption, and misallocation of resources.

In reality, Britain had a lucky escape from the whole sorry mess – and while we may have failed to seize many of the opportunities from Brexit, staying out of this disastrous fund was one of them.

It was launched with huge fanfare. At the height of the pandemic, the leaders of the EU created a €723bn programme designed to help the Continent’s economy recover from the pandemic.

To finance it, the EU for the first time borrowed on its own account. The money would be distributed mainly in southern states that had fallen badly behind ever since the single currency was created, and would be used to help kickstart the transition to net zero.

It was hailed by its cheerleaders as the moment when the EU transformed itself into a genuine fiscal union, issuing its own bonds, and spending money that would even out the differences in growth between regions.

It was a “turning point”, according to the economy commissioner Paolo Gentiloni, while the EU’s hyperactive President Ursula von der Leyen described it as “Europe’s moment”.

Well, perhaps. Where the money has been claimed, the EU has managed to issue the bonds, and raise the cash in the markets. Investing it well, however, has proved more difficult.

Earlier this month, Italian police arrested more than 20 suspects from across the bloc, at the request of EU prosecutors, over a suspected fraud of more than €600m. During the raids, police seized Rolexes, gold jewellery, Lamborghinis and Porches, which gives us an idea of where at least some of the cash went.

It does not stop there. Last week, the website Politico reported that the authorities are investigating the way that €2.5bn of Covid recovery funds earmarked for Greece had been awarded to a small group of telecoms companies in the country, with offices raided by the Greek competition commission, and an investigation opened by the European Public Prosecutor’s Office.

It is too early to speculate on the possible outcome of these investigations. But the suspicion must be that this is just the tip of the iceberg. Consider how the fund’s biggest project, a bridge linking Sicily to the mainland, has yet to break ground. Despite the words of gushing EU bureaucrats, there was surely always a risk of fraud and corruption in handing out such vast sums.

The EU now faces two huge problems. First, unravelling what has happened to all the money will take years of painstaking investigations, and the bulk of it may never be recovered.

There may have been a short-term boost to growth in Italy and Greece where the money was correctly allocated – though this is to be expected when large amounts of cash are thrown around. But how much will go into the kind of productive investments that will strengthen economies in the longer term?

Next, there will be an inevitable political backlash. The billions borrowed will have to be repaid at some point, and mostly by German and Dutch taxpayers, and the EU is already discussing extra taxes it may need to impose on the bloc to meet those bills. If it was spent wisely, voters might begrudgingly accept it. If it has simply been wasted, the response will likely be very different.

To its advocates, the common borrowing was going to be just the start of a whole series of bond issues to pay for climate change, an industrial strategy, and rebuilding defence. Amid an avalanche of fraud scandals, none of that will be possible. The EU won’t be able to borrow again.

In reality, the UK had a very lucky escape. Had we stayed in the EU up until the point where the fund was launched, and as one of the largest net contributors to its budget, we could have been on the hook for billions.

Take a look at the tax rises and spending squeezes necessitated by our own borrowing. Now consider the damage that would have been done by adding the EU’s Covid fund to the total.

We have so far failed to make much of our departure from the EU, with little in the way of deregulation, and higher taxes and bigger government crushing growth. But we did at least stay out of the mess it has made of its own borrowing, and remain shielded from the fiscal union some in the bloc are pushing for.

The Covid recovery fund is turning into a catastrophe from which the EU may never fully recover.