Czech Republic’s Financial Balance with the EU in 2004

Worse than expected

On May 13, 2004, the Finance Ministry had yet expected a net profit of €413 billion, with contributions of €560 million and revenues €973 million[2]. „The worse-than-expected results are due the delays in the Commission’s approvals of applications for subsidies,“ the Ministry argues today. Another reason was a methodology change in calculation of GDP, which is the basis for determining the basic contribution to the EU. Based on an EU regulation, GDP came out about 10 per cent higher. As a result, our contribution to the EU increased accordingly.

Payments to and revenues from the EU in 2004 (million €)

Payments to EU

Revenues from EU

444.7

157.1

50.6

90.8

29.6

161.6

5.7

31.8

132.0

9.3

data not available

332.3

Source: Ministry of Finance of the Czech Republic and the Czech National Bank

Nevertheless, the Finance Ministry still does not mention the customs paid by Czech citizens to the EU in the prices of goods, the paying-up of capital to the European Investment Bank, and the payments to the European Central Bank.

Concealed customs

Until the country’s accession to the EU, the state had collected about €35 million a month on customs. After the entry people continue paying customs, but the money is now missing in the Czech national budget, flowing instead to the budget of the European Union. The overall financial position of the Czech Republic with regard to the EU should thus naturally include customs as well.

We will probably never know the exact figure; what we know is the volume of customs paid by importers since our accession in 2004 in the territory of the Czech Republic (€132 million). However, the amount of customs paid by our citizens in the prices of goods that importers cleared at the external borders of the European Union remains unknown. As the tariff burden imposed on import in the EU is about the same as that of the Czech Republic before accession, and since even before membership, almost all the customs revenues from import came from countries outside today’s EU (thanks to the association agreement with the EU and to the Central European Free Trade Agreement – CEFTA), it may be presumed that from May to December, we paid roughly €35 million a month on customs – but this time to the EU coffers.

Paying up the capital of EU institutions

Customs are not the only EU payments which are missing in the balance published by the Finance Ministry and which serve to finance European institutions.

Based on a decision by the European Central Bank[3], the Czech Republic had to pay its first instalment of €5,680,860 to the ECB as on May 1 2004. The ECB can thus use this amount, for instance, to build a new splendid headquarters in Frankfort. We are obliged to make this contribution to the ECB regardless of whether we use the euro or not. Another European institution, the European Investment Bank (EIB), requires the Czech Republic to pay €62.9 million in subscription to its capital and €158 million in reserves, paid up in nine instalments until 2009.[4] This bureaucratic institution, where the salary of the Czech government’s representative in the EIB Board, Ivan Pilip, alone costs €220.000 a year, made the Czech Republic pay its first instalment of €29.6 million in September 2004.

Gloomy future

The year 2004 was probably the last one in which our EU membership came at a relatively low cost. Our budgetary compensation will be diminished this year and come to a complete halt next year. At the same time, customs will be paid to the EU in all 12 months of the year; in January alone the Finance Ministry sent the European Union 1 billion CZK in customs for the goods cleared in CR. The subsidies from the Phare fund will cease altogether. Our payments to the European Investment Bank are to continue until 2009; in the period from 2007 to 2008, they will even double. In addition, we will have to contribute to the European Research Fund for Coal and Steel, another useless EU institution.[5] By 2009, the total of four different instalments made to this institution will reach €40 million.

Other mandatory payments to certain European institutions (million EUR)

Source: Accession Treaty

The government hopes that in the years to come, it will obtain large amounts of subsidies from the Structural Funds. But even these may easily slip away, if Europe ratifies the new Constitution that drops the right of veto in decisions on the redistribution of our contributions to the Structural Funds.

Dubious use

Taking into account all the above-mentioned payments, it becomes clear that the first year of membership in the EU was not a net gain for the Czech Republic and that in the following years the situation is likely to get even worse – not to mention the taxpayer money that the Czech government has to spend on collecting taxes for the EU and on operating costs of the government agencies responsible for the distribution of European subsidies. An example is the administrator of EU Leonardo da Vinci program, Czech National Education Fund, where the amount of money spent on salaries and operation exceeds the volume of distributed subsidies.

There is another, even more serious question concerning the way the money received back from the EU has been spent. Has it always been to finance the priorities set by the state and municipalities? Is it a reason to cheer that the money returns to the Czech Republic only to pay for intervention purchases that raise the prices of sugar and corn? Aren’t the Czech people better qualified to decide on how to spend their 1 % of GDP than the machinery in which the money travels from the Czech taxpayer to Prague, from Prague to Brussels, and from Brussels, based on approved applications and having fed all the bureaucrats participating in the process, back to the Czech Republic to finance dubious projects?

Pay nothing and ask nothing back

For the Czech government, a sensible step to take would be to try to negotiate an exemption. We would give up all EU subsidies (which do nothing but ruin both market environment and morals), and the EU would, in return, relieve us of paying any contributions. Even then we would still pay a substantive membership fee through customs.

The idea is not as hopeless as it may seem at first sight. The EU is full of exemptions of all kinds. In 2004, among other things, the Czech Republic paid €50.6 million to the EU to finance the British rebate, which is a compensation paid by other Members States to the UK in order to balance the costs and benefits of its membership. Prior to accession, the Czech Republic itself had also managed to negotiate partial compensations for the first three years of membership (so called budgetary compensations), which means that the EU sends part of the contributions immediately back to the Czech national budget.

If the Czechs come up with such a proposal, other Member States should welcome it, since they believe that they are paying for our membership. And the idea could later inspire other members, leading to a gradual transformation of the EU into a non-bureaucratic, free trade area.

[1] MF CR Press release Feb 8, 2005

[2] MF CR Press release May 12, 2004

[3] ECB Decision 2004/10 of 23 April, 2004

[4] Accession Treaty – Protocol on the European Investment Bank

[5] Final Act of the Accession Treaty