The European Commission’s handling of bailouts for countries hit by the financial crisis was “generally weak” and inconsistent, the European Union’s Court of Auditors (ECA) said on Tuesday (26 January).
The Luxembourg-based ECA, an EU institution in charge of auditing how the EU budget is spent, analysed the bailouts for Ireland, Portugal, Hungary, Latvia and Romania, all of which are already completed.
The report found that the Commission was unprepared for the magnitude of the crisis. This largely explains the significant initial weaknesses in its management processes, some of them still persist.
Nevertheless, the rescue programmes met their objectives, because they reduced deficits in the targeted countries and prompted structural reforms.
However, “the auditors found several examples of countries not being treated in the same way in a comparable situation,” the report said.
“In some programmes, the conditions for assistance were less stringent, which made compliance easier,” the auditors said, while “the structural reforms required were not always in proportion to the problems faced, or they pursued widely different paths”.
The ECA noted shortcomings in the work of the Commission, which has been in charge of the financial assistance.
“The review of key documents by the Commission’s programme teams was insufficient in several respects,” auditors said.
They also noted the “weak monitoring” of the programmes’ implementation by the Commission and “shortcomings in documentation”.
“The Commission used an existing and rather cumbersome spreadsheet-based forecasting tool,” the report said, while “even for the most recent programmes some key documents were missing.”
The auditors concluded the Commission must strengthen its procedures for the management of financial assistance.
However, the auditors did not analyse the bailouts for Greece, on which they will issue two separate reports later this yaer, or Cyprus – because the programme is still ongoing.
And Spain was not looked at, because the bailout from the intergovernmental eurozone fund included no EU money.
Commission spokesperson, Annika Breidthardt admited that “there were weaknesses in the management in these early programmes.” But she added that “most of the shortcomings that are identified [in the report] have already been fixed”.
Breidthardt stressed that the Commission would take the recommendations made by the auditors “very seriously”, and will consider further changes on top of those already made. The report recommended:
- the establishment of an institution-wide framework allowing rapid mobilisation of staff and expertise if a financial assistance programme emerges;
- a more systematic quality control of its forecasting process;
- enhance record keeping and pay attention to it in the quality review;
- ensure proper procedures for the quality review of programme management and content;
- include variables in the memoranda of understanding which can be collected with short timelags;
- target the truly important reforms;
- formalise interinstitutional cooperation with other programme partners;
- make the debt management process more transparent;
- further analyse the key aspects of the countries’ adjustment after programme closure.
The financial crisis hit the European Union in 2008, starting with non-euro zone countries like Hungary, Romania and Latvia which received EU help from the Commission's balance of payments facility. This facility was eventually raised to 50 billion euros.
For eurozone countries, such as Ireland and Portugal, the Commission had 60 billion euros in the European Financial Stability Mechanism (EFSM) , which was all but exhausted in these two bailouts.
Eurozone governments provided an additional 440 billion euros in their European Financial Stability Facility (EFSF) bailout fund.