More EU fraud

The European Union has discovered another source of fraud within one of its byzantine bureaucratic layers. Its system for doling out farm subsidies, long a political sacred cow, has been improperly milked by EU farmers and exporters, unsurprisingly enough.

According to a report released last week by the European Court of Auditors, this subsidy fraud has cost EU taxpayers at least $3.15 billion between 1971 and 2002. The court found that not only did EU officials award subsidies improperly (and, presumably, unwittingly) when those payments were determined to be “irregular,” but it also found that the union’s recovery efforts were unimpressive. During the 31-year period, 83 percent of all payments found to be irregular were never repaid.

“If this is ‘cracking down’ then it hasn’t been very effective,” noted David Bostock, the U.K. member of the Luxembourg-based court. Indeed. European Commission officials should try to sharpen their skills, since the union admitted 10 new members in May that will be receiving farm subsidies.

Farm aid accounts for nearly half of this year’s total EU budget. And agriculture accounted for half of the 5,724 cases of new payment “irregularities” uncovered last year.

The subsidy fraud is yet another symptom of a larger EU problem — an unwieldy bureaucracy that has long made corruption difficult to contain. The huge amount of EU annual subsidies, more than $100 billion, provides ample opportunity for fraud. EU officials are trying to step up efforts to crack down on subsidy fraud by taking satellite imagery of farms to determine their size and to ensure subsidies aren’t paid out twice for the same farm.

A better idea would be to significantly limit the subsidies, which cause distortions in the global agricultural market and thereby cause problems for farmers in the developing world. Although EU officials have reformed the criteria used to award subsidies, the union has not reduced their overall level. U.S. officials have pledged to make proportionate cuts in U.S. farm subsidies, in tandem with Europe and other big subsidizers. The billions of dollars of subsidy fraud in Europe should provide another reason for reducing the agricultural payments.