Will Lithuania survive without EU structural funds?

DELFI / Mindaugas Ažušilis

In the 2014-2020 period, Lithuania will receive about 7.2bn euros of support from the EU’s Structural Funds and Cohesion Fund. Between 2007 and 2013, the EU’s support to the country totalled over 6.9bn euros.

After 2020, as the country’s GDP is expected to surpass the 75 percent of the EU average threshold, these funds will not be as readily available to Lithuania. While the country could maintain its currently strong economic growth rate, there is also a risk of stagnation. Economist say that those sectors that currently heavily rely on EU support might be most affected.

Cause neither for drama nor optimism

All experts interviewed by LRT.lt agree that the cut in EU support will not be fatal for Lithuania. However, they add, unless the country puts effort into preparing for the shock, there is a chance that economic growth and income rise will stop.

“It should not have a negative impact on Lithuania’s economic growth: the EU support does not account for a big percentage of our GDP. However, unless we ’employ’ the support we get, our economy will not grow, Lithuania will risk remaining in the backwaters of Europe where wages and GDP per capita are, like now, among the lowest in the EU.

“There will be no cataclysms, but if we stay where we are now, it will be a problem. We must push ourselves up,” says Žygimantas Mauricas, economist at Nordea bank.

Lithuania must put effort, he insists, because it will have to upkeep all the infrastructure built on EU funds on its own budget. If this investment fails to translate into tax revenue, the state will have to cut expenses some areas. “It is therefore likely that retirement pensions will stagnate as will pay for teachers, doctors, etc.,” he says.

Romas Lazutka, professor at Vilnius University’s Faculty of Economy, notes that the Lithuanian economy has developed and grown stronger over the decade of EU membership, which gives good cause to expect that the country will make do without or with significantly less support.

“Over the ten years in the EU, Lithuania’s economy grew stronger. I don’t believe there should be any dramatic consequences of the EU cutting support. Unless there are other big shocks, we should not worry too much. In fact, if we collected our taxes more efficiently, we could do without EU support even today,” he said.

Gitanas Nausėda of SEB bank is even more optimistic. The economist notes that Lithuania’s GDP was growing even before the start of EU structural support, which indicates that the economy can sustain growth after it ends.

“We might be doing too much scaremongering about how bad it is going to be or how unprepared we are. The economy was growing before we started using structural funds, it should continue so after the period ends. After all, our support will be cut precisely because we are going up – we have reached 75 percent of the EU average and are therefore in the category of average-developed EU countries.

“In the end, our businesses and other players successfully adapt to changing circumstances. I don’t think this will be an exception. We should start intensive preparations for less generosity from the EU in 2017-2018. I don’t think we will be living in delusion until the very last day and only then will we start thinking what to do,” Nausėda says.

Big state companies on tax payers’ shoulders

Mauricas notes that one has to look at the most prolific users of EU support to see who will be worst off without it. These include Lithuania’s big companies that are using EU money for infrastructural projects.

Lietuvos Geležinkeliai, Lithuania’s state-owned railway company, is the biggest beneficiary.

“The future of this company, which is significant to the Lithuanian economy as a whole, will depend on how efficiently it will use the funding,” according to Mauricas.

“As an example, take the Rail Baltica railway track that has received massive EU investment. However, it will depend mostly on us whether we will be able to use it efficiently, to make shipping volumes to Western and Nordic Europe grow, or whether that infrastructure will be a burden for Lithuania.”

According to the economist, Rail Baltica – a European-gauge railway that will connect the Baltic capitals together – will have to generate sufficient revenue, as otherwise Lithuania will be worse off with it than without it. The challenge, Mauricas says, will be to attract enough foreign and domestic investors.

“Another good example is what is happening right now in the gas market. A lot of funds have been invested into the LNG terminal, EU money is used to build gas interconnections with Poland, Latvia, within Lithuania.

“The question is, however, who is going to use all that gas and infrastructure? If heat producers make a switch to biofuel and there are not many companies using gas, then taxpayers will have to shoulder all this infrastructure. It is one more puzzle: how will businesses be able to make use of the infrastructure that the state or Lithuania’s big corporations built with EU money,” Mauricas insists.

Signal for research institutions

Another group of enthusiastic EU support users are research institutions.

“A lot of the funding is directed towards developing research infrastructure. In five years, there will be much less of that money available, so I wonder how we will be able to use the infrastructure without the EU funds.

“In order to make good use of it, we need to attract talent to create new patents, inventions, innovations, turning Lithuania into an innovative country. If we succeed in doing so, we will have accomplished a huge leap and we will not feel any shortage of EU money,” Mauricas says.

Fountains without water

A sizable share of EU support have also gone into environment projects, including renovation of streets and town squares.

“The faces of our towns and villages have truly changed to the better over the recent years. I wonder if they will not revert back to the previous state once the money dries out. On the other hand, the funds were used for environment management projects that will require just a little upkeep in the future,” Nausėda, of SEB bank, says.

Even though there have been some controversy about spending EU money on tiles and fountains, this kind of spending does not create addiction and hard withdrawal once the money is gone, according to him.

“The more you spend on a facelift, the fewer competitiveness challenges you experience. In terms of competitiveness, the use of these funds did not make us work on a different paradigm. It means that we are essentially ready to play on the level field even without these structural funds,” Nausėda says.

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