Italy's Central Bank Admits Wealth Redistribution Leads To Corruption

Authored by Kai Weiss via The Mises Institute,

The EU’s Common Agricultural Policy (CAP), the farm subsidies which currently account for 39 percent of the EU budget (and accounted for almost 70 percent in the past), has been subject to much criticism over the years — and rightfully so.

It is surely one of the most abominable government policies in the world, propping up farmers who would have gone out of business long ago, sending immense amounts of money to large farm corporations and rich landowners (which still includes the Queen), and hurting African farmers by the obvious overproduction, making them uncompetititve.

In the drama surrounding the CAP, one could almost forget about the second larger redistributive program of the EU (leaving the euro out of the picture for this article): the Cohesion Policy, or properly called, the European Structural and Investment Funds (ESIF), which accounts for close to another third of the budget. To let the European Commission explain what this fund is:

[This] Regional Policy targets all regions and cities in the European Union in order to support job creation, business competitiveness, economic growth, sustainable development, and improve citizens’ quality of life. In order to reach these goals and address the diverse development needs in all EU regions, € 351.8 billion — almost a third of the total EU budget — has been set aside for Cohesion Policy for 2014–2020.

The Cohesion Policy is the closest the EU gets to direct redistribution from some countries to others. Now, it may be true that all member states receive substantial amounts from this redistribution, as the following chartof the European Parliament Research Service shows:

But when taking another step closer and only looking at the Cohesion Fund (CF), a sub-fund of the ESIF, the redistributional element becomes even more clear-cut. While in the ESIF at-large Germany and France, for instance, still rank number five and six (though this calculation doesn’t adjust to size of the economy or population, so both countries are much farther behind in reality), larger economies with a high GDP per capita are not even eligible for the CF, which has as its explicit goal to achieve the goal of “convergence,” meaning helping that poorer countries, predominantly in Eastern and Central Europe, catch up to the leading economies, predominantly in Western Europe. It is here where large quantities of money are sent from one side of the continent to the other, as this graph depicts :

The results of these gigantic structural funds are spotty. A study on South Italy, a large recipient of funds (almost all of the 43.8 billion euros which Italy receive goes straight to the South), concluded that “the ability of these funds to offset the negative consequences of the economic crisis seems to have been limited.”

Overall, it seems as if the funds, especially the Cohesion Fund, do have a positive effect on economic performance, but the effect is quite small. Similar to the Marshall Plan, throwing vast amounts of money at poor regions will help — it would be shocking if it didn’t, but what in the end is necessary to actually be highly successful is good policy, i.e., little regulation, low taxes, and safe private property rights.

Meanwhile, studies have found that what is commonly called “social capital,” i.e., cooperation and trust among the population, might decrease thanks to the EU’s cohesion policy.

But the newest insights on the detrimental effects of the redistributive policies of the EU comes from the central bank of Italy. In a new working paper titledOn the unintended effects of public transfers: evidence from EU funding to Southern Italy,” three scholars of the Banca d’Italia look at the effects the Cohesion Policy has had on the south of Italy, and find that corruption has actually increased thanks to the fiscal transfers:

Our estimates suggest that EU funds’ disbursements significantly increased the number of white collar crimes in the recipient municipality in a given year. In particular we find that the disbursement of EU funds to municipalities in southern Italy was associated with an increase of about 4% in the average number of white collar crimes per municipality and year.

This should be of little surprise. After all, it is hard to believe that in this large transfer system, where money is handed out by Brussels — i.e., from Belgium, and then trickles down to the localities — for instance, to an area in South Italy, no government employee will have the idea to use the funds in a way it isn’t supposed to be used. Indeed, OLAF, the investigatory body of the EU, found that criminal activities in the amount of over 600 million euros took place in 2016 (in 2015 it was almost one billion), and wrote that “the structural funds sector remains at the core of OLAF’s investigative activity.”

This is actually the nature of bureaucracies and state activities overall, since it’s tough to hold anyone accountable. “Corruption is a regular effect of interventionism,” wrote Ludwig von Mises in his magnum opus Human Action.

Thus, the central bank of Italy provides just another reason why (steep) cuts on the Cohesion Policy need to be taken. It redistributes immense amounts of money from rich countries (or, better said, their taxpayers) to poorer ones, with little economic benefits, a deterioration of civil society, and an increase in corruption. The discussion on the next long-term budget of the EU, going from 2021 to 2017, is in full-fold right now. The only recommendation to Brussels should be: slash those funds. The recommendation for policymakers in general should meanwhile be: whatever one thinks of redistribution in theory, it might have some significant unintended — and clearly negative, consequences.


lisa.roy39 Arne Saknussemm Thu, 08/09/2018 - 03:35 Permalink

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In reply to by Arne Saknussemm

Fireman Arne Saknussemm Thu, 08/09/2018 - 03:45 Permalink

Like the infamous "Marshall Plan" before it, a scam to foist NATO and Gladio on the witless Europeons, the so-called "Cohension Fund" is no more than the pay off to unleash the diseased North Amerikan Terror Organ on Russia by corrupting the Eastern Europeon buffer tribes.


Marshall Plan

In reply to by Arne Saknussemm

JailBanksters Thu, 08/09/2018 - 03:56 Permalink

It doesn't take a Highly paid Money Changer to work that out.

This does show that the Jig is up for Central Banks and there just playing the Blame Game Now.

That is, blame everybody else.


land_of_the_few Thu, 08/09/2018 - 04:21 Permalink

Someone needs to take a look at their own maps and consider what is sctually going on. If the EU wants to help bedraggled ex-commie areas to at least become liveable and mostly non-hazardous then by all means why not. What's wrong with things like fixing up decrepit 1970s freeway bridges so that they don't drop multi-ton chunks of concrete with rusted-out rebar on cars? Or so that pedestrians don't fall through dissolved-out walkways into rivers, and so on.

It wouldn't get fixed in 100 years otherwise. They-have-no-money to fix things, okay?!! All maintenance stopped in 1991, unless the EU does some now, which it is doing.

The same thing was done for Ireland when it was poor, then some funding got cut off once its economy had improved. Same thing probably happens to Poland and any other early recovery countries.

The interesting thing though is why someone doesn't like this. Competitor? Not able to organize this kind of recovery process in their own rustbelt areas? 

Or perhaps it's a "treat them as feudal slave provinces" while making use of them,  kinda thing?

hooligan2009 land_of_the_few Thu, 08/09/2018 - 05:52 Permalink

Civex is a large recipient of EU tax payers funds.

though how much has been spent and what has been acheive is impossible to find from EU Commission websites.

and they are struggling to replace funding from the UK.

two thirds of EU budget spending in Poland of 16.2 billion has gone on "Citizenship, Freedon, Security and Justice" - i.e. CIVEX.

can you point out how that has directly benefitted polish citizens and not simply bureaucrats?

one third of the 16 billion went on "Regional Policy" that includes spending on public transport in Kielce, a science park for 16 companies in Podkarpackie, putting in sewage treatment in Świętokrzyskie and a biomed research facility in Warsaw.

all laudable enterprises. but do you know how much has gone on white collar crime? or more accurately, what is the difference in cost between what it should have cost and what it actually cost?

who works those numbers out? answer= no-one. this is what is meant by unaccountable bureaucracy.

aggregate this up from local level to national level to regional EU level and then ask yourself why the EU Commission books are never successfully audited.

the EU claims success in fighting white collar crime, bringing it down to 600 million. this is exactly the kind of false unaccountable logic that led soviet union factories to always meet quotas set by a politburo. they always made their targets and always missed them, right?

In reply to by land_of_the_few

Watson Thu, 08/09/2018 - 04:45 Permalink

The Cohesion Policy is simply a generalisation of the Common Agricultural Policy.
Both are devices by which German taxpayers pay, out of a sense of guilt for WW2 that the German state tries to instill into children from their birth, reparations to other European countries for that war.

However the rise of AfD, from zero to official opposition today, suggests that this ridiculous situation is coming to an end.

IMHO it is difficult to see what will happen first:
1. Merkel in power: Italy defaults on external debt, and even Merkel can't persuade German taxpayers to pick up their share of the resulting tab, resulting in a collapse of the EUR-system, taking much of the European banking system with it; or
2. Merkel not in power: First rumblings of an Italian collapse cause the Bundesbank to activate the contingency plans to re-introduce a new-DEM (perhaps a linked currency with Austria/The Netherlands). As before, with Germany out of the EUR, the EUR-system collapses.


WallHoo Thu, 08/09/2018 - 04:46 Permalink

Out of the 351.4 billion dollars budget theres alleged corruption of 600 millions??Yeah the end is coming...


Trillions were found out of thin air for the royals but when peasants get some funding for roads and infastracture(that btw the peasants will almost never use due to exhausting hours at work etc..) "scholars" from the central bank of italy(in effect ECB) blame the fund for corruption...


Im not a eu or eurozone luckey,far from that i want the unio to brake,but this is bullshit...


What do this scholars say about bank bail outs??Surely the all hight and mighty honorable germans can take care of deutche...


The only mistake that eastern europe did was to either join the eu or adopt the euro...Instead of having theire own currencys and decide for themselves what goes where...


Oh and lets not forget,fuck austrian shitheads.

XWeatherman Thu, 08/09/2018 - 06:08 Permalink

The Fed, the MIC Death-Merchants, and the Corporate-Oligarch owned government is doing the same (Wealth Redistribution) here in the USA by different means and the results are similar (Corruption). Here, the corruption of the political system is an integral part of the process and a large part of the ways and means to the end.

Robin Round Thu, 08/09/2018 - 06:30 Permalink

I will not argue the obvious fact that EU CAP is a big corruption factory.

But in a world with around 10 millions death for hunger, tens millions of children are undernourished, I find difficult to accept that reducing food production could be a good thing. (Source:… ). We should focus on stop destroying EU overproduction and send it where it can be used. IMHO.