EU in dispute about project financing

Tony Barber

Western, eastern and southern European Union countries were at loggerheads about how and where to spend scarce EU funds on energy and other infrastructure projects to help pull Europe’s economy out of recession.

The dispute arose at a meeting of EU foreign ministers that also saw shadow-boxing about how to finance an “eastern partnership” initiative designed to promote closer ties with six former Soviet states wedged between the EU’s eastern borders and Russia.

Plunging economic growth rates, currency turmoil, large current account deficits and banking system weaknesses in various eastern European countries, inside and outside the EU, are causing concern among the bloc’s richer western European states, which fear instability may spread to their economies and financial sectors.

But participants in the meeting made clear there had been no agreement on a European Commission proposal to spend up to €5bn ($6.4bn, £4.4bn) on energy and other infrastructure work, much in east Europe. “More work is needed to fine-tune the list” of potential projects, said Alexandr Vondra, Czech deputy premier for EU affairs. “Time is of the essence here.”

By the Commission’s proposal, the €5bn would form part of an EU-wide €200bn fiscal stimulus package, of which about 85 per cent is to be provided by EU national governments.

Bulgaria, Greece, Portugal and Spain led a southern European bloc that criticised the Commission’s list of proposed projects for favouring eastern Europe at the expense of the rest of the 27-nation union.

At the same time Germany – biggest contributor to the EU budget – led a cost-conscious bloc including Austria, the Netherlands and the UK in opposing the Commission’s suggestion the €5bn should come from unspent money in the EU’s 2008 budget.

Similar difficulties surrounded the question of whether to offer €350m in fresh aid for the ex-Soviet states of Armenia, Azerbaijan, Belarus, Moldova and Ukraine, all of which are the objects of the EU’s eastern partnership, a plan set for formal launch in May.

France wants to ensure extra funds for the EU’s eastern neighbours will not come at the expense of the bloc’s Union for the Mediterranean, a French-inspired project started last year and intends closer relations with countries in north Africa and the Middle East.

“I am confident the €350m in fresh money will be adopted,” said Benita Ferrero-Waldner, EU external relations commissioner.

But EU foreign ministers warned they might limit Belarus’ participation in the eastern partnership if it were to bow to Russian pressure to recognise the independence of Abkhazia and South Ossetia, Georgia’s pro-Russian separatist regions.

“It would create a very, very difficult situation for Belarus. It would be out of line with the European consensus,” said Karel Schwarzenberg, foreign minister of the Czech Republic, which holds the EU’s rotating presidency.