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The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.
The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.

euro Vice

Wednesday, 17th June 2009

Dr Anthony Coughlan
Edward Leigh MP

How EU corruption, the euro and the Lisbon Treaty are putting the squeeze on Europe


One of the Republic of Ireland's leading EU-critics

Chairman of the Public Accounts Committee

Dr Anthony Coughlan, a Senior Lecturer Emeritus at Trinity College Dublin, is one of the Republic of Ireland's leading EU-critics. And is Director of The National Platform EU Research and Information Centre. This is a think-tank which produces documentation critical of closer European integration on democratic grounds for use by ‘No’ campaigners in the Republic's periodic European referendums.

He regards the growth of EU-critical opinion in the Republic of Ireland to be part of a growing international movement throughout Europe in defence of national democracy and the Nation State and subscribes to the dictum of the late President Charles De Gaulle that, "Europe is a Europe of the nations and the states or it is nothing."

Tony Coughlan was responsible for initiating the 1986/7 Crotty case before the Irish Supreme Court. This judgement laid down that a popular referendum was necessary before there could be a surrender of sovereignty to supranational European institutions, as the people are the repositories of sovereignty under the Irish Constitution, so only they can surrender it. It is because of this judgment that Ireland is required to hold a referendum on the Treaty of Lisbon before it can be ratified.

He is also involved in a number of cases before the Irish Supreme Court to try and ensure that the forthcoming Lisbon II referendum is fair and not distorted by the Irish Government.

Edward Leigh is the Chairman of the Cornerstone Group of Conservative MPs. He has had a distinguished Parliamentary career serving on many committees scrutinising legislation and the government. Since 2001, he has been Chairman of the Public Accounts Committee.

Mr Leigh worked in the private office of Mrs Thatcher from 1976 - 77 as her Private Secretary. From 1990 - 1993 Mr Leigh was a Parliamentary Under Secretary of State in the Department of Trade and Industry; prior to that he was a Parliamentary Private Secretary in the Home Office.

His political interests are; families, foreign affairs, agriculture and defence. Edward Leigh was Chairman of the National Council for Civil Defence and was Director of the Coalition For Peace Through Security.

Speech by Dr Anthony Coughlan

Mr Chairman, ladies and gentlemen, I’m very honoured to have the opportunity of saying a few words here this evening on the Lisbon Treaty first of all and then some points about the euro. I’ve got a document which I’ve handed out, which summarises the main reasons why democrats everywhere around Europe, in Ireland and Britain, France, Germany, Poland and so on should be concerned about this Lisbon Treaty and it elaborates in more detail than I’m going to be able to expand on in the next 20-25 minutes on why the Lisbon Treaty is a bad thing.

I’m sure many of you are well aware of the main points made but somebody the other day compared the whole business of the Lisbon Treaty and the EU Constitution to a Russian doll. In the next two days beginning tomorrow there’s going to be a summit of the EU Heads of State of Government and the centrepiece of this summit are going to be various assurances to the Irish voters who voted no to the Lisbon Treaty on the 12th June last year, that their concerns are being met by various statements and assurances being given by the Prime Ministers and Presidents.

This will take place in the next couple of days, we’ve already got leaked versions of these assurances and as a friend of mine said, its like a Russian doll: on the surface there will be the Irish assurances, which are meant to goad Irish voters into changing their vote in a second repeat referendum on exactly the same Treaty, probably in early October, possibly in late September. Then the next layer of this Russian doll would be the Treaty of Lisbon and then remove that and inside again is the EU Constitution which was rejected by the French and Dutch in Referendum in 2005.

The so called assurances to Ireland would not change a jot or tittle of the Treaty. There will be declarations, statements, political commitments and promises by the Prime Ministers that their successors in a few years time will do such and such but they won’t change a comma of the Lisbon Treaty. In other words the Irish voters will be expected to say yes to something that’s exactly the same as they said no to last year, but the Government hopes that they will concentrate the debate as well as they can on the so called assurances and distract attention from the real content of the Treaty so that last year’s no will be turned into this year’s yes.

And of course if that were to occur and if the German Constitutional Court resolved to adjudicate the under-Treaty, it says its okay on June 30th, well they’ll give their judgement as I expect they will, I don’t think we’re going to be saved from this constitutional monstrosity by some German judges, and then if President Vaclav Klaus of the Czech Republic can no longer keep his pen in the air from signing the Treaty on behalf of the Czech Republic, well then if those things happen the Treaty will come into force on January 1st next, it is hoped before there is a General Election in the United Kingdom which would bring in inevitably it looks like a Conservative administration.

So there’s a kind of race on in time between the ratification of the Lisbon Treaty and the advent of a Conservative Government in Britain, whose official policy is that if it comes into office and the Treaty is not ratified when it comes into office, in other words if the Irish haven’t voted yes or if President Klaus still keeps his pen in the air and the Treaty has not come into force for all 27 States, then the Conservative position is as I understand it, that they will have a referendum in the United Kingdom and recommend a no vote to that.

Obviously it’s very important that we should do our best, we will do our best to defeat the Lisbon Treaty again but the circumstances have altered a lot. Last year when we voted no in the Republic of Ireland there was still an economic boom on, there’s anything but a boom on now, there’s a severe slump and that of course effects the people’s mood, they are much more fearful and timid and the Government would be trying to exploit that. On the other hand the Government is very unpopular in the Republic, this year the Republic Ireland has got another 10% economic decline. Instead of having an economic growth, we’re going to have an officially recognised figure of some 10% decline in output, which is almost unprecedented anywhere for decades and heavy unemployment and a huge public sector deficit and so on, so there’s a very bad economic situation there.

So this is exactly the same Lisbon Treaty and that’s the background against which this Referendum would be held and the campaign will begin more or less, as soon as the declarations are issued in a couple of day’s time.

I’d just like to emphasise what I suggest are the most important elements of the Lisbon Treaty which would make democrats everywhere opposed to it. It’s a constitution revolution in both the European Union itself and in its Member States because for the first time it gives the European Union or what we know as the European Union the constitutional form of a super national federation. Way back in 1950 when Monnet drafted the Schuman Declaration, which gave rise to the coal and steel community which is celebrated on May 9th every year, Europe day of the Schuman Declaration, said it is the first step in the federation of Europe, the federation of Europe, and the last step on the constitutional side would be the Lisbon Treaty, which is of course the EU Constitution in another form, which would in effect establish a legally new European Union, the Constitution new European Union.

Its very different from what we call the European Union at present because the European Union at present does not have legal personality, unlike the community its not a legal person, that would change. So if Lisbon goes through the European Union becomes a legal person, they could sign treaties in all areas with powers and competences with other States, all these States sign treaties with one another. And of course the Member States who are present are at least notionally sovereign, would become as provincial States within this super national European Union federation. That’s a constitutional revolution in every sense of the word.

And angle to that, which I think is not that widely appreciated is that all 500 million citizens of the 27 Member States would become real citizens for the first time of this new constitution European Union. The Treaty of Lisbon proposes that the 27 Member States should be given an additional citizenship, ‘additional’ is the word used in the Treaty, that’s the amendment, additional citizenship on top of the national citizenship. You would still remain a British citizen or an Irish citizen or a German citizen but you’d also be a European Union citizen in a real sense because this would be an entity with legal personality for the first time and you can only be a citizen of a State as you know and at present the European Union is not a State, it doesn’t have legal personality, it can’t have individuals as members of it but that would all change with the Treaty of Lisbon.

You’d become citizens of this new European Union and as a citizen you’d have rights and duties of citizenship. The right to set out in the Charter of fundamental rights of the European Union which would be made legally binding for the first time and which would empower the European Court of Justice to decide what are the rights of EU citizens, of 500 million of them. You’ll still have rights as British citizens or as Irish citizens as the case might be but in the case of any conflict between the rights and duties attaching to national citizenship and the rights and duties attaching to the European Union citizenship, the latter would prevail as being superior in European Union law.

And that is exactly the situation in the United States of America and the Federal Republic of Germany. I don’t know if most of you are aware, but in the USA you’re not only a citizen of the United States of America but you’re also a citizen of California or Texas or Kansas as the case might be. In the Federal Republic of Germany you’re not only a citizen of Germany, you’re also citizens of Bavaria or Baden-Württemberg or whatever. So you’re casting your federal constitution, you have two citizenships, the federal level, which is superior and the local provincial level, which is subordinate in any case or continent. Now that is a constitution revolution which most people are totally unaware of. I’m sure people around this city, very few of them are aware that if Lisbon goes through they’ll be made real citizens for the first time of this new entity. So that’s a constitution revolution by any standard with major implications for our rights and duties into the future if it goes through.

The second thing on the par political side – I mentioned the constitutional side of Lisbon but on the par political side the most important change which the Lisbon Treaty would bring about is that it would greatly increase the power of the big states and above all of the Federal Republic of Germany. At present to have European Union laws, to have East European community laws because the community actually makes the laws at the moment rather than the Union, to have European community laws you must have a majority of Member States and the laws must be passed by a qualified majority voting system, 245 votes out of 355, and each State has so many votes in this system. At present all the big States, Germany, France, Britain and Italy have 29 votes each, the Republic of Ireland has 7, so we have a quarter of the votes of the big States. Under existing European Union law qualified majority voting there must be a majority of States who together have 255 out of 345, each State having so many votes, as I said the big States having 29 votes each.

Now that system is abolished by the Treaty of Lisbon. Under the Treaty of Lisbon European laws in future will be made by slightly more than the majority Member States, 55%, 15 out of 27, 15 out of 27 States can make an EU law as long as they constitute 65% of the total EU population. So there is a shift from each State having so many weighted votes, which has been the system since their old Treaty of 1957, to putting the whole thing on a population basis so that if the Treaty of Lisbon goes through and the EU Constitution which it embodies goes through, European laws in future will be made 15 States would outvote 12 of the 27 as long as the 15 have 65%, just lets say nearly two thirds, of the total EU population. And of course the biggest State is the Federal Republic of Germany so at present the 29 votes each which all the big States have means that each of the big States has 8% of the total votes. Under the new system based on population size, Germany’s relative weight would go from 8% to 17%, so under the Treaty of Lisbon Germany would have 17% of the vote, voting weight. Britain, France and Italy would go from the present 8% to 12% each move up by 50%, Ireland would go from 2 to less than 1 and the middle or smaller States would tend to diminish also. But in par political terms, Germany more than doubles its relative voting weight under the Treaty of Lisbon, which is one very good reason why they would very much want to have it through. And the other big States would increase their relative voting rate quite significantly. Now on par political terms that’s hugely important, 50 over the population basis and so on.

There are quite a lot of other things in the Treaty and they are elaborated on in that document. We hand over to the EU the power to make laws binding in 32 new policy areas such as public services, crime, justice, policing, control of immigration for the EU as a whole as given to the EU on the basis of qualified majority voting. Energy, transport, tourism, sport, culture and so on. The EU would be given power to impose its own taxes for the first time. Now this must be unanimously by the Governments but once they’ve got the new powers I think there would be every incentive to Governments to agree to EU taxes under the ‘Own Resources’ provision of the Treaty, Article 311 I think. They could impose any tax, it must be unanimous, but any tax, an EU tax for the first time and no doubt that will come down the road.

I mentioned earlier the Charter of Fundamental Rights, which sets out all sorts of rights, right to life, right to property, right to free speech and so on but this would be interpreted for EU citizens, all 500 million of them on a uniform base across the EU and that of course has happened in the constitutional development of the United States of America. Many of you will be well aware of the importance that American Supreme Court in laying down a common standard, harmonizing common standard across the various states of the American union and this is envisaged for the Treaty of Lisbon down the road.

Also there is a self-amending clause, Article 48, which allows the Heads of State of Government, the Governments, to agree to shift most areas of the Treaty from unanimity to majority voting without having new treaties or referendums. If they unanimously agree they can shift a policy area that at present requires unanimity to majority voting without having to come back to the people through new treaties which would require Parliamentary ratification, our referendums and so on.

So these are reasons I think why democrats should be opposed to the Lisbon Treaty and why we will do the best job we can in trying to oppose it in our referendum in early October. And any assistance you can give in the form of symbolical solidarity and so on would of course be very welcome because the two things that are likely to hold this Treaty up are a possible Irish no, or Václav Klaus in the Czech Republic refusing to sign the Treaty.

I was in Prague last week and I met some people who were quite close to him and I learned, although I hadn’t known, that there is no time limit on President Klaus having to put a signature to the Czech ratification. As you know the parliament in the Czech Republic has approved the Treaty but I was told that the President is the embodiment of the Czech State and that if the Czechs say just ratify the Treaty Klaus wants to do it by signing his signature and of course repudiating thereby his own position of many years. But there’s no time limit on him doing that. On the other hand if we are bullied and bamboozled into voting yes in October he’d be under enormous pressure to do that, to put a signature and allow this Treaty then to come into force for all 27 States before there is a British Election.

So I would have thought that it makes a lot of sense for people in Britain, who are concerned about this undemocratic development, to encourage President Klaus, should write to him or you know say we want you to stand fast and give us a chance to have a referendum because people all over Europe want referendums on this Treaty. This is the same Treaty as the French and Dutch people turned down when it was called a Treaty establishing a constitution for Europe in 2005. It’s been rejected by the Irish people already. So three peoples have rejected that Treaty and the British people are of course being denied a referendum and so if I was Mr Hague I would write privately to Dr Klaus and say you know you hold your hand in the air until we have a General Election in Britain which would bring into office a Government who is committed to having a referendum. But this I suggest is something that might be worth doing, particularly if the Irish are bullied and bamboozled into voting yes. As far as I can see, those are the only two things that would hold up this Treaty.

Finally a few words about the euro, Irish public policymakers are generally a very unified lot. For years we got heavy subsidies from the European Union because we’re an agricultural section of the economy and that brought a lot of money for Ireland over the years, 35 years now we’ve been a member of the European community and that has generally made Irish policymakers quite unified. But one expression of that was their decision a way back in 1998 to join the euro without the United Kingdom. 160 or 166 members of the Irish Parliament voted to join the euro and to abolish the Irish punt at the time. Even the most Irish economists warned against it because they said hold your horses because you do so much trade with the United Kingdom, wait to see whether Britain is going to join. But the assumption at the time was that the British were going to join the euro within a couple of years and to show how communautaire we were our politicians said well we’ll sign up in advance. So they signed up to the eurozone and they’re now stuck with it.

And it has had two adverse consequences, the most obvious one was that in 1998/9 and of course the euro became common currency then in 2000/2001, we had an economic boom in Ireland, house prices were escalating, we joined the eurozone and we halved interest rates. Now when you’ve got an economic boom and house prices and other things are going up and you halve interest rates you of course increase demand and you just make things boom even more and house prices to rise even more rapidly and that of course is what occurred.

And that is the principle single reason why the Republic Ireland has had the biggest bubble of any of the western economies you might say aside from the European economies in recent years. Now the consequent puncturing of the bubble has been disastrous of course for us but it was significantly contributed to by the adoption of an interest rate regime which was too low for Irish circumstances, it suited Germany and France which were in semi-recession at the time to have low interest rates so we had low interest rates when we joined the eurozone but we actually needed higher interest rates because we already had a boom. So the one size fits all interest rate policy which goes with a single currency – you have 16 States in the eurozone now, they all have the same interest rates and yet they have very different economic circumstances but they have the one interest rate across the board and that certainly didn’t suit the Republic of Ireland and contributed hugely to our boom in house prices and so on which has now burst and is causing great pain.

The second point worth noting about the Irish economy and the euro is that the Republic of Ireland does two thirds of its trade outside the eurozone. Trade, if you take trade as being exports and imports together, we do roughly a third with the eurozone countries, 16 Member States of the eurozone the continental Europe west Europeans, a third with the United Kingdom, Britain and Northern Ireland and a third with the Americans and the rest of the world. That’s roughly the proportion of Irish trade, a third with the eurozone, a third with the British and the United Kingdom, a third with America and the rest of the world. So we do two thirds of our trade outside the eurozone. All the other eurozone countries do half or more of their trade with one another, so we are more exposed to exchange rate movements outside the eurozone than anybody else.

Now Irish economists, I think it’s been fair to say the majority of Irish economists whether academic or – and I’m from an economic background myself, I’m particularly interested in the euro currency project, which is essentially a political project, it didn’t make any economic sense really to have so many different countries with the same interest rate regime and the same exchange rate and so on with such disparate economic circumstances among them, but most of the Irish economists were against that step. Wait until we see what the United Kingdom does, but our politicians were confident the United Kingdom were going to join in a couple of years so we signed up. We had the low interest rates, it certainly encouraged the boom and so on, I made that point, but its now exposed us to the fact that we do only one third of our trade with the eurozone countries, we do two thirds outside it, mainly with the United Kingdom and America and the rest of the world and of course exchange rate movements, the pound sterling had gone down, we’re stuck with the euro so we have shoppers flocking north from Dundalk in the south of Ireland to Newry in the north of Ireland to take advantage of the devaluation of sterling.

The British economy has many problems but at least you held out to the euro currency and of course you have devalued the currency vis-à-vis the euro and its gone down and that has certainly helped British exports and should help them in the future, that’s one of the big advantages the British economy has and of course if we were outside the eurozone we’d be doing the same. We’d be going down with the United Kingdom but instead we’re stuck with the euro and an overvalued and inappropriate exchange rate considering we do two thirds of our trade outside the eurozone.

And if you’re deprived of the right to change the exchange rate of your currency, if you’re deprived of the ability to vary all your prices by changing your exchange rate, well then the only way you can restore it, if you can no longer restore your competitiveness if you’ve got into an uncompetitive situation by altering your exchange rate, the only other way is to cut pay, profits, pensions and social welfare for years on end and that is what’s currently occurring in the Republic of Ireland.

The only way you can restore your competitiveness is by cutting real costs, by cutting pay, profits and pensions and that is happening. We’ve had two bad budgets this year; years of endless paying ahead it looks like, trying to get the Irish economy into a more competitive position because we are stuck with the euro. And of course you’ll be reading these days about how the Latvians have tied their currency to the euro but of course they’re not actually in it but they’re trying to maintain a better exchange rate with the euro currency for political reasons because of course the euro was essentially a political project, for reconciled France the reunification of Germany in 1990 or thereabouts and use economic means totally inappropriate for the project.

So that’s the situation we’re in, we’re experiencing very much the drawbacks of having given up our currency and that’s one very good reason why you could look at the Irish lesson and say, at least thank heavens we’ve held onto the pound sterling and can use currency movements to improve your competitiveness if it gets out of hand.

So those are just the general points I’d like to make. I very much appreciate being able to put some points before you on the Treaty of Lisbon. They are further elaborated on here and I’d be happy to try and deal with any questions people may have. We’d be happy for any moral support you can give us, symbolical solidarity, letters to the Irish media and so on as long as they are well put and diplomatically put that can be quite helpful in the context of our Lisbon debate and I leave you with the suggestion also that maybe people might consider writing to Dr Klaus, Prague Castle, Prague, a very nice place and say that you know history will be going through his pen if the Irish are bullied and bamboozled into voting yes.

I hope they won’t be it’s not inevitable that we will lose the referendum. And I do think the economic decline and the economic collapse are bad situations, the Republic of Ireland would induce people to vote yes this time, it’s not by any means guaranteed, the Government is extremely unpopular. Even though the main opposition parties are broadly in favour of the Treaty of Lisbon, they also know that if the Government loses this vote it will be the end of the Government and they hope to come into office. So there will be interesting inter-party tensions I think in the context of the Irish Referendum and we will be saying we’re the same people that brought you the borrowing binge and the burst bubble and the shattered banks are the same people as are bringing you the Treaty of Lisbon because they are the same people.

Thank you very much.

Speech by Edward Leigh MP

So I’ve been asked to talk to you about fraud and corruption in the European Union and I’d like to add a further topic, financial management. This is quite a sort of complex subject but I’ll try not to make it too dry for you but I’ll have to obviously refresh myself with very detailed notes. It is a very complex subject so sit tight.

As sure as Christmas occurs once a year there is another annual tradition in the Cabinet and that is the qualification of the European Union’s accounts by the European Court of Auditors. Qualification is a sort of technical term but it basically means these accounts we do not accept as reliable.

Last November for the 14th successive year, the 14th successive year, the Court declined to provide a positive statement of assurance on the legality and regularity of the underlying transactions. In effect the Auditor has qualified the accounts. Just as I can guarantee that this December we will celebrate Christmas, I can also guarantee to you that this November the Commission will go a 15th successive year without a positive statement of assurance, which is a fairly extraordinary state of affairs.

Let me set the scene, if you cast your minds back to the 15th March 1999 you will recall that the entire Santer Commission resigned following the publication of a report on fraud, mismanagement and nepotism – yes nepotism – in the Commission by a committee of independent experts. Individual Commissioners were criticised and the Commission as a whole was found by a committee of independent experts to have lost political control over the use of community funds and the appointment of staff, you will remember that.

Following the appointment of the new Commission there was another well reported incident, that of a suspension and subsequent dismissal of Marta Andreasen, Chief Accountant of the European Union, you’ll remember that very well. Mrs Andreasen in 2002 refused to sign off the Commission’s accounts because she believed the accounting system to be unreliable and the finances open to fraud. Well of course she’s just been re-elected hasn’t she to the European Parliament, but I’m not allowed to say anything nice about her because she’s a member of UKIP, God forbid that I said anything nice... this is being filmed, I might be drummed out of the Conservative Party. Anyway I think she’ll make a very good Member of the European Parliament. Am I allowed to say that, oh God I might be in one of the scrutiny committees or something.

And then came the appointment of the Barroso Commission in 2004, spurred by the perceived lack of financial controls, corruption and fraud. President Barroso set his Commission the challenging task of achieving a positive assurance by 2009. Well its now 2009 so what has the Commission achieved?

The Commission working with Member States, I have to say to you, has made an effort, a real significant effort over the recent years to improve financial management of the European Union and my Committee has been putting, as much as we can, pressure and others have as well.

Now some progress is detectable. The Commission has successfully introduced accruals accounting, which is another sort of technical term but we’ve done it in the UK, it’s a sensible way of proceeding. And for the first time the Commission obtained a clear opinion from the Court on the ‘reliability’ of the 2007 accounts, that is the accounts accurately reflected income and expenditure, that’s all it means, the accounts accurately reflect income and expenditure. You would have thought that wouldn’t be a terribly difficult hurdle to meet but it took until 2007 to do that.

But that’s I’m afraid not the whole story at all. On legality and regularity the Court gave a clear opinion on some 45% of European Union expenditure compared to an estimated 5% in 2003, so some progress has been made. Staggering isn’t it, 5% in 2003.

Unfortunately that’s where the positive story ends. As I mentioned in my opening remarks in November 2008 for the 14th successive year the Court did not provide a positive statement of assurance on the legality and the regularity of the underlying transactions. Now just think, in any private sector organisation an external auditor’s refusal to sign off the accounts would be a shock to shareholders. Refusal to sign off the accounts for 14 successive years would not happen, shareholders would have removed the Board long before that, but this has simply not happened.

The qualification of the European accounts year after year undermines public confidence in the financial management of the European institutions and Member States and devalues the significance of the qualification. If you qualify something every year it becomes less and less of an issue and when we get round to November, Christmas as I’ve said, and these accounts are qualified yet again, you know this would not be the front page of The Daily Telegraph, it says well it always gets qualified but actually it is quite a shocking state of affairs.

Qualification should be an exceptional procedure, it shouldn’t be the norm and yet although the Court has noted improvements the same criticisms are repeated year after year and I have to say to you that progress is absolutely glacial.

In 2005 my Committee, that’s the Public Accounts Committee, looked at the reasons behind the Court’s findings. We also looked at them again this year and I’ve encouraged the Committee in its work and we work with the National Audit Office, they’re very good, so we do have some expertise there. We have found again and again the same issues. First and foremost of course is the issue of complexity, complexity in the number of organisations involved in spending European funds and complexity in the rules and regulations governing the way programmes are administered.

Now by the way, I know that there are some people here who are not entirely pro-European so one must be pretty fair about this. Complexity is the devil of this whether you’re pro or anti-European and everything. Any organisation as complex as the European Union probably can never have their accounts... except I’ll give you some examples in a moment, but just so we don’t get all high and mighty about this, our own much beloved Department of Work and Pensions has also had their accounts qualified for 13 successive years so don’t by the way distinguish this as a problem with Europe, I have to make that clear.

Why has the Department of Work and Pensions alone of all these Government departments got such an appalling record, almost as bad as the European Union, because our Social Security is far too complex and Chancellor Gordon Brown has made it infinitely worse with this massive churning which is going on. So it’s not just a European problem but I mean the European is the par excellence in the top of this field of bad boys of Government organisations being qualified, i.e. their accounts not being accepted.

Now I’m going to give you an example of what’s going on and I’ll have to warn you this will confuse you but that’s the whole point because after all we are in Euro land now. The second largest element of European Union budget is cohesion policy. This as you know is designed to reduce regional economic disparities across the EU, I mean I think a lot of it is rubbish but there we are. You know as Chairman of the Public Accounts Committee we have to be frightfully sensible, I don’t get involved in politics so I’ve got to say its fine okay.

In 2007 the Commission spent some €42 billion on cohesion, quite a lot of money, 42 billion. Most projects within this area are jointly funded by the Commission and a Member State. The Commission sets the broad rules by which the expenditure should be made and then the Member State then sets some further rules to ensure it delivers the policy objective and by the way our Civil Service are hopeless, consistently gold plating, we know all the problems, I don’t need to repeat all that. But this happens to a greater or lesser extent across all the Member States.

Now a large number of programmes are funded under cohesion policy and the seven years to 2006 there were some 545 programmes ranging in size from under €500,000 to over €8 billion and the projects within these programmes can range in size from a grant to an individual of a few hundred euros to an infrastructure project of several hundred million euros, this is big time money which of course we’re paying for but I’m not going to get involved in all that, you know all that already.

Some of these projects take many years to complete and that’s where it gets complicated, but every seven years a framework within which the programmes are designed are reviewed. We are now in the 2007/13 framework, but until 2010 – I hope you’re listening carefully – money can still be paid for projects under the 2000/2006 framework and to complicate things further some programmes from the 1993 to the 1999 period are yet to be closed.

Now if that isn’t confusing enough, each of these frameworks has a different set of rules and regulations. You therefore have officials trying to apply several different rulebooks to different elements of the expenditure programme at the same time and don’t forget this is just one of seven policy areas in the European budget. By now you are completely confused which is the object of the exercise because you are just merely taxpayers paying for all this and you shouldn’t really have an opinion at all.

Is it any wonder then that the European Court of Auditors found a high level of error in this expenditure? It estimated that at least 11% of the money spent in the cohesion policy area should not have been reimbursed by the Commission. That is to say at least 11% of the £42 billion expenditure in this one policy area is irregular. 11% of £42 billion expenditure is irregular; I mean it beggars belief doesn’t it. It’s clear that civil servants trying to implement these programmes are grappling with massive complexity.

Our Committee, the Public Accounts Committee recommended in 2005 and again in 2009 that the best way to reduce these errors is to simplify the rules; well it’s obvious isn’t it. To simplify the rules and regulations governing the spending of European funds to make sure one framework is closed down before another begins and the problem with complexity is it’s not limited to the cohesion area. The largest expenditure area is agriculture at over €51 billion in 2007. There are many examples where the complexity of the legislation means that the Commission, Member States and the European Court of Auditors have different views of what the regulation means.

Take late payment legislation in agriculture is just one example. Each year European farmers as you know can claim a subsidy for the amount of land they farm, fair enough, subject of course to certain other qualifying criteria. These farmers must apply to a paying agency in their particular state for the subsidy. If the application is made late the paying agency is obliged by European legislation to withhold 1% of the value of the claim for each day late it arrives. I hope you’re concentrating because it gets more difficult. So if the claim is 10 days late then the claim is reduced by 10%.

In 2007 in several cases paying agencies of the Member States asked the Commission for claim receipt deadline extensions, this sort of thing happens. The Commission granted these extensions, some of these paying agencies then applied the late payment penalties from the date of this new extended deadline. The Court of Audit however in conducting its audit interpreted the legislation differently and suggested that if the new deadline were missed the penalty should be applied from the original deadline. The Commission had not envisaged this interpretation of the legislation. The result of this example is that the Court, the Commission and the Member States are now in discussion about whether any putative action is required and against whom, they just don’t know. Whatever the resolution it will result in some irregularity but you can start to see the devil is really in the detail here.

These issues are not now, I have to say, some abstract debate amongst accountants bearing little relevance to the European taxpayer. I’m not an accountant, I don’t pretend, I Chair the Public Accounts Committee I know nothing about accounts, I’m not interested, I’m interested in the taxpayer, I’m interested in value for money and efficiency and good government and this is not value for money or efficiency or good government. So this is not some obscure accountancy thing, it actually effects all of us.

These problems and these issues impact directly on the money in our pocket. Its easy to think that these errors are made by other Member States and that we in the United Kingdom are somehow better than our colleagues in Germany, France, Spain and the rest of Europe, this is what my farmers tell me in Lincolnshire all the time by the way, you know the argument. But we’re honest, we’re efficient, we do all this right and its all a problem of corruption in Spain and Italy. It’s much more complex actually than that, that’s not quite true; it’s simply not true actually.

When expenditure does not conform to the Commission’s rules and regulations it can impose a financial correction to recover the irregular expenditure. You may not know but in England alone the Department for Environment Food and Rural Affairs included provisions including some £320 million in its 2007/8 accounts for estimated financial corrections. The Department for Communities and Local Government included a provision of some £73 million in its 07/08 accounts for possible financial corrections. Since these accounts were published some £100 million of financial corrections have crystallised in this country. It is unacceptable that the United Kingdom authorities through mismanagement have exposed the taxpayer to this level of recovery. So everything in the European project, I do assure you that we are not whiter than white in this matter if one is allowed to use expressions like that nowadays.

The question must be asked, if the level of error is so high, where is all this money going, is it fraud or is it irregularity. There is an important distinction here, let me explain, irregularities are transactions which have not complied with all the regulations that govern European Union income and expenditure may be intentional or unintentional. Fraud on the other hand is an irregularity that is committed intentionally and constitutes a criminal act as defined by a Court in the Member State. Member States are required to notify the Commission of any irregularities including possible fraud, fair enough.

In 2007 the European budget of €114 billion as you know and the UK made a net contribution, again as you very well know, of €6.1 billion, that’s our bill. If we take the official figures, in 2007 Member States notified the Commission’s Anti-Fraud Office, OLAF, which we have visited two or three times of 11,033 irregularities with a total value of €1.4 billion of which some €297 million was estimated as possible fraud, which is just under 0.3% of the budget. €828 million of these irregularities was in the cohesion policy area, I’ve talked about that, the vast majority. €125 million of the irregularities was in agriculture, I’ve talked about that as well.

Focusing just on fraud for a moment, in 2007 OLAF opened 210 new fraud cases; they closed 232 fraud cases, which left 355 fraud cases outstanding. Of the closed cases OLAF recovered some €203 million of European funds. Looking at country specific information in the United Kingdom we reported 1,666 irregularities including possible fraud valued at some €281 million in the United Kingdom alone. Now this is a bit surprising, this was the highest value of irregularities, the highest value of irregularities were here reported. Now whether you actually believe that they were actually in reality the highest level of irregularities I don’t myself but this was the highest value reported here right.

We were followed by Spain, Italy and Germany. OLAF’s latest published figures for the year 2007 show there are 21 fraud cases outstanding in the UK. As with most statistics however there is a big health warning. OLAF right observes that these data should be treated with caution as they are dependent on the time and accurate reporting of irregularities of possible fraud by Member States. OLAF considers that some Member States – and this is real under-speak but I have to sort of tell you it – OLAF considers that some Member States are under-reporting irregularities and not consistently identifying possible fraud, well you can say that again.

This makes comparisons between Member States I think completely inappropriate by the way, and indeed suggests that the figures for fraud are at best highly uncertain and probably can’t be believed at all, but this is again is Euro land for you. The United Kingdom is consistently near the top of the league table for irregularity and fraud. Does anybody actually seriously believe that the United Kingdom is at the top of the league for irregularity and fraud, I don’t believe it, I’m sure you don’t either; in fact I know it’s not true. I would hope this is because we take seriously the discharge of European funds; we are fastidious in the accurate and timely reporting of irregularities to the Commission more so than some Member States. I’m being very diplomatic. But the lack of reliable data covering all Member States is simply alarming, particularly when we consider what prompted the crisis in the Commission back in 1999.

Now I have to say there’s one thing I have achieved, I think a bit of personal credit for this, I’ve worked with the Controller General, our Controller General, we persuaded the United Kingdom Government to have what’s called a consolidated statement of accounts for the first time ever, so you will know published by the Treasury all the European Union spends and I have been travelling around Europe trying to campaign for this and as you might expect I’ve had success in Holland, in Denmark you know but absolutely complete no success, absolutely not in France, France will not do this. Are you surprised?

It’s not going to happen in France ever. France will never provide French taxpayers and European taxpayers with a consolidated statement of account of what the European Union is spending in France. This is frankly scandalous, there’s nothing we can do about it. To be fair to Gordon Brown he has... I requested him; I wrote to him, he has now done it, so you’ve got to give this poor man some credit but complete non-interest in France. In fact the further south you get the interest seems to get less and less, it’s always the Swedes, the Dutch you know the British. The Germans aren’t that keen, not because they’re against it because they’ve got a federal system blah blah blah, but with the French not.

And so in conclusion, I’m now coming to an end, I hope you’ve been very amused by all these facts and figures but you know if you ask the Chairman of the Public Accounts Committee, you’ve got to have a few accounts read to you, it’s your fault.

In conclusion therefore, the financial management of the European Union has improved, alright; I think we’ve got to accept that under the Barroso Commission to a point, where some 45% of total expenditure is given the green light by the European Court of Auditors so we’ve got 45%. I take heart from the Court’s finding last year that for the first time the European Courts are ‘reliable’ but it is simply unacceptable in conclusion that for 14 years in a row the Court cannot give a positive statement of assurance on the legality and regularity of underlying transactions.

To make progress the Commission needs to simplify the complex rules and all the regulations covering the expenditure areas. Member States including us must do their bit in the areas where they jointly manage which we don’t do and to clearly identify where irregularity and fraud occurs, OLAF and the Commission have to make sure that the Member States report data in an accurate and timely fashion, which they don’t do, and name and shame those who are tarred with reporting what is happening with European taxpayers’ money, which they don’t do. Without these actions and concerted action and effort by all the European institutions I fear ladies and gentlemen that the Commission’s failure to achieve a positive statement of assurance will continue to be as traditional as turkey at Christmas.

Thank you very much.

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