'Erm...Brussels we have a problem' (Or "If EU did satellites..." Part III)

This week has seen the latest farcical episode in the EU's foray into space. The independent European Space Agency (ESA), which is based in Paris and is building the so-called Galileo satellite navigation system for the EU, was left with egg on its face after the two latest satellites for the system were launched into the 'wrong' orbit. In total, the project has now launched six satellites - two are in the wrong orbit and one, it emerged previously this year, isn't working.

Bad in its own right, but forgivable. We're dealing with some pretty advanced technology after all. Except, as we have chronicled before, this project has been absolutely bedeviled by unfortunate incidents, delays, infighting, poor planning and all sorts of other problems.

To re-cap:

Massive cost-overruns: The cost of completing the project and running it for 20 years (including maintenance) was under the original estimates (from 2000) €7.7 billion, of which only €2.6 billion was to be borne by taxpayers and the rest by private investors. In 2007, following the collapse of the private-public partnership, this cost had risen to € 11.8 billion, all of which was to be borne by taxpayers. In the autumn 2010, leaked information suggested that the cost had risen to a staggering €22.2 billion – again with the entire bill footed by taxpayers. But, it didn't end there…

The Commission all over the place on numbers: In 2010, Industry Commissioner Antonio Tajani denied new cost over-runs, saying “I don't know where these figures come from.” He insisted that the deployment budget (which is only part of the cost) remained at €3.4 billion (not €5 billion as the leaked info suggested). Only a few months later, in January 2011, however, Mr. Tajani and the Commission admitted that Galileo needed not just another €1.5-1.7 billion as was thought in 2010, but an extra €1.9 billion of taxpayers’ cash to cover the booming deployment cost – taking the deployment cost above €5 billion. At the same time, the Commission put the annual operation cost at €800 million (not €750 million as assumed in the 2010 estimate). This means that even €22.2 billion for deployments and running cost was an under-estimate.

Tajani has since announced what he calls “savings” of some €500 million on the huge cost overrun, but frankly, at this point we simply don’t trust any of the numbers coming out of the Commission on this one.

Taxpayers getting hammered: The cost for taxpayers for deployment plus 20 years’ worth of running cost may well have increased by some 750% - from €2.6 billion to somewhere in the region of €20 billion+. Shocking.

Delays: Originally Galileo was to be finished by 2008 – a date that was subsequently pushed back several times due to a series of delays, disruptions and other embarrassments. Between July 2005 and December 2005, the project came to a complete halt as member states and the private investors argued. According to the European Court of Auditors, these six months of doing absolutely nothing added an extra €103 million to the cost of the project. Encouragingly, the project managed to make up some time and the satellites were launched this year. However, with only three of the four previously launched working and this latest setback, the performance of this project leaves a lot to be desired to say the least.

Public-private partnership flawed from the very start: As the European Court of Auditors concluded in a damning investigation, the original public-private partnership proposal was “unrealistic” and “inadequately prepared and conceived.” Symptomatically, the private investors withdrew due to fears over the cost of the project spiralling “out of control” and that they wouldn't outweigh the benefits.

The original estimated benefits delusional: In 2006, the Commission estimated the market for Galileo as potentially consisting of 3 billion receivers and revenues of some €275 billion per year by 2020 worldwide – in addition to potentially leading to the creation of more than 150,000 high qualified jobs in Europe alone. The European Space Agency and others have estimated 3.6 billion users by 2020. These are such delusional assessments that it’s hard to know where to start. Indeed, a 2010 report from the German government admitted that "All in all, it is assumed, based on the currently available estimates, that the operating costs will exceed direct revenues, even in the long term.” And according to American diplomatic cables, released by WikiLeaks, Berry Smutny, the CEO of OHB Technology, a company that has a £475 million contract to build 14 Galileo satellites, is claimed to have said: “I think Galileo is a stupid idea that primarily serves French interests.”

The Indian, Chinese, Russian, Japanese, American markets already crowded: One of the reasons why the idea of “3 billion users” is so ridiculous is that all major players already have, or are in the process of acquiring, their own satellite navigation systems. The newly-redeveloped Russian “GLONASS” system has already been launched, and the Chinese are developing their own Compass/Beidou system (not a global endeavour, but set to deprive Galileo of revenue in China). India’s equivalent technology, IRNSS, will be operational within the next two years. Japan has one too and the US is soon to boast a new generation GPS System (though to be fair, that too seems to be delayed) – GPS being what most people happily use in Europe anyway. Where in the world is Galileo going to get its 3 billion users? Is there a better of example of how the EU is falling behind in the 'global race'?

The Chinese have nicked the frequency: In 2003, China agreed to invest €230 million in the project but pulled out after disagreements. Lo and behold, the Europeans noted that the Chinese government was a little too interested in the security related aspects of the project, and got cold feet. But only after Beijing got its hands on some very useful information. So while Galileo was falling behind schedule, the Chinese were developing Compass/Beidou. Chinese officials told the International Telecommunications Union, the United Nations agency that allocates radio spectrum frequencies for satellite use, that China plans to transmit signals on the wavelength that the EU wants to use for Galileo. In other words, the EU is now in the absurd position of having to ask China's permission to run its secure 'encrypted' signal on Chinese frequencies.

All in all, Galileo has had a sorry history right from the very start. And we suspect we haven't heard the end of it yet...

A triumph for European Parliamentary scrutiny?

As the only directly elected component of the EU machine, taxpayers and citizens have a right to expect that MEPs will stand up for their interests in Brussels, scrutinising the decisions and spending of the other EU institutions.

In recent months, the parliament’s budgetary control committee, marshalled by Monica Macovei MEP, the former Romanian Justice Minister, has been very critical of three EU agencies in particular – the European Environment Agency (EEA), the European Food Safety Agency (FSA) and the European Medicines Agency (EMA) – for “using public money for questionable purposes and for tolerating conflicts of interest in top management”, an an issue we also highlighted in our recent short report on this topic.

Consequently, the Parliament voted to postpone the discharge of the agencies’ 2010 budgets, a strong signal of disapproval by EP standards. However, as the Parliament magazine reported yesterday, German socialist MEP Jutta Haug, the parliament's rapporteur on the EU agencies in the committee - the very person who should be taking the lead on this issue - wrote to the agencies telling them they did not need to co-operate any further with MEPs. In the letter to Catherine Geslain-Lanéelle, director of the FSA, she wrote that:

"I am of the opinion that during the during the 2010 agencies' discharge procedure, the committee has exceeded by far its competences… Consequently, I should like to invite the FSA not to reply to inquiries beyond the comments voted in plenary." 

Could you imagine a UK MP undermining their colleagues by writing to the head of a public body urging them not to co-operate further with a parliamentary investigation into how they spend taxpayers' money?
  
Undermining even this much welcome, even if relatively modest, attempt by MEPs to inject greater scrutiny and transparency into EU spending will surely only further exacerbate the disconnect between what is happening in the real world and the EP bubble.

Germans hit out at the EU's "debt treaty"

Angela Merkel has grounds to be glum

Most recent headlines concerning opposition to Merkel’s eurozone policies have focused on the anti-austerity positions of Hollande and his supporters, and at the more dramatic end, Tsipras and the radical Greek opposition.

However, recent developments on the home front are interesting as well, with domestic opposition to Merkel’s policies gaining focus and momentum, albeit targeting the taxpayer-backed bailout element of the package as opposed to the austerity one. Yesterday saw the launch of a new pressure group called Allianz gegen den ESM (Alliance against the ESM), comprising a coalition ten MPs, business groups and civil society organisations. The group have a (pretty basic) website setting out their five main objections, which are as follows:

1. The ESM is to be permanent, with member states having no right to leave. 
2. The ESM Board of Governors, comprised of member states’ Finance Ministers, would wield decision making powers over policy and instruments. 
3. The Bundestag will have few opportunities for participation and control. The total size of the ESM “mega bank” will be €700bn, more than five times the size of the EU budget. Finance Ministers could agree on an indefinite increase. 
4.  Member states have to pay €80bn in an-front cash contribution to the ESM, of which Germany’s contribution is around €22bn. Any losses will be borne by taxpayers as the participation of banks and other private creditors is not mandatory. 
5. The ESM has no mechanism for debt restructuring and can therefore not be considered to be a form of emergency assistance. 

The group have also put out a slightly dystopian video warning of the dangers of a Europe built on debt.

The group’s 12 o’clock press conference yesterday prompted Handelsblatt to lead with the headline: “High-noon for Merkel’s euro policy”. The paper also very helpfully compiled a ‘rogues gallery’ of the key players. While many of the MPs are long standing critics of the ESM and the bailouts, such as the CDU’s Klaus-Peter Willsch or the FDP’s Frank Schäffler, linking up so clearly with other groups allows their message to be heard more widely beyond the Bundestag. Other participants worthy of note are:

Marie-Christine Ostermann, Federal President of the Association of Young Entrepreneurs, who warned that:

“With ever larger rescue mechanisms, for which the liability is borne by others, Europe is moving ever further down a blind alley.” 

Lutz Goebel, Federal President of the Family Business Association, who in the past has compared the eurozone bailouts to the voyage of the Titanic, and urged the Bundesbank to seize the wheel of rescue before it was too late.

Karlheinz Däke, President of the German Association of Taxpayers, who argued that:

“The subsidising of the distressed eurozone countries, especially by the German taxpayer cannot be the answer to the debt policy of recent decades. The euro has only a future with individual liability and responsibility.” 

John Hüdepohl from Bündnis Bürgerwille (Alliance for Citizens’ will) which campaigns for more input and involvement from ordinary citizens in the eurozone bailouts.

Ultimately, despite Handelsblatt’s dramatic headline, this group and other similar constellations are not in a position to pose a serious threat to Merkel's policies at the moment. However, it shows that German domestic opposition has the potential to be uniting and organising itself, giving it a much better capacity to campaign for alternative policies. If Merkel appears to give in on ‘red-line’ issues such as eurobonds or greater ECB intervention, or if the eurozone is plunged into even deeper crisis – for example if there is no breakthrough in Greece’s re-run elections – expect such campaigns to pick up momentum.

So will German taxpayers have to fork out for Messi and Ronaldo?

So the eurozone crisis has made it to the one place where it is guaranteed to hit home - the sports pages. The main page of the sports section in yesterday's Bild ran with the headline, "Will German taxpayers eventually have to fork out for Messi and Ronaldo?"

The fear, said Bild, is that the Spanish government is about to authorise a 'debt amnesty' for Spain's professional football clubs - including Barcelona and Real Madrid. A "crazy idea", said the paper, as forfeiting money owed to the Spanish government by various football clubs, could further increase the country's already pretty scary deficit. This should worry readers of the sports section, the paper continued, as should Spain hit the iceberg and be forced to seek a Greece-style rescue package, then German taxpayers would effectively, albeit indirectly, be bailing out Barça and Real.

Far-fetched? Most certainly, but the story caught our attention for four reasons:

• Over at Open Europe, we have developed a slight obsession with Bild (the best barometer of German public opinion)
  

• That Germany's largest-selling newspaper includes, in its sports section, a line on the recent discussions over Spain's deficit targets shows that the euro crisis is now as much of a household issue as they come
  
  
• If Madrid was to cancel all or part of the money that Spanish football clubs owe it, that could actually leave a hole in Spain's public finances, given the size of the balance sheets of some of these clubs (which are notoriously over-leveraged).
  

• Closer to home (which at OE includes Newcastle, Wisla Krakow and Napoli), the move could, shock horror, also give Spanish football clubs an additional advantage over European clubs
  

As expected, after a bit of fact-checking and cross-checking with the Spanish press, it turns out that Bild's story is largely a matter of 'lost in translation'. Here's what we've got:

• Following a parliamentary question by Caridad García, an MP from the Izquierda Unida (United Left) party, the Spanish government has recently revealed that Spain's professional football clubs owe an impressive €759 million to the country's Tax Agency - of which almost €490 million is owed by clubs in the Primera División (the Spanish Premier League).
  
  
• Asked how the Spanish government was planning to address the issue, Sports Minister Miguel Cardenal said that a plan is currently being put together to "make this debt disappear (hacer desaparecer esta deuda, in Spanish) within a reasonable time frame". Now, we suspect that this is where misunderstanding arose.
  
  
• Though subject to dispute, Don Miguel may simply have meant that, in a way or another, football clubs will have to pay their debt quickly, or face sanctions, such as loss of points in the league table, forced relegation, and so forth. During the same interview, he made clear that "football clubs' debt will be paid by football clubs". Again this morning, he insisted that "no debt will be forgiven" for Spanish football clubs.

In other words, Bayern Munich and Borussia Dortmund's fans can sleep peacefully. They are not going to foot the bill for The Flea and CR7's multi-million wages...

So where does EU money come from?

Ahead of our impending paper looking at the effectiveness or otherwise of the EU’s structural funds (watch this space) we came across this timely comment from Hungarian PM Viktor Orban - who has been subject to some (ehum) controversy over recent weeks (he took a roasting in the European Parliament on Wednesday).

During an interview with German tabloid Bild, he was asked that given Hungary’s economic crisis, with the country trying to obtain a “safety net” from the EU and IMF, was it right that Hungarians enjoyed a 16% tax rate on their income while Germans had to contribute up to 47% of theirs - which is sort of a silly question.

When Orban pointed out that Hungary didn't owe Germany any money, the interviewer asked about the €2 billion Hungary receives from the EU’s structural funds every year. Orban’s answer:

“Correct, but this money does not come from German taxpayers, but from the EU. This money is available to us as a member of the EU.”

Hello Mr Orban. Where does "EU money" come from?

Here at Open Europe we argue that less wealthy member states such as Hungary should continue to receive EU structural and cohesion funds (though the funds need serious reform). But the money doesn't come from the EU’s magic plant, but from taxpayers - and around 1/5 of the EU's budget just so happens to be financed by German ones.

Incidentally, in our forthcoming paper, we'll present a solution that will make both Hungary and Germany fare better from the EU budget.

Just to whet your appetite.