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percent in Sweden, 34.5 percent in France,

nology and education. Since many of the EU

and 19.2 percent in Britain, despite increased

development projects require domestic co-

use of satellite photography to spot fraud."93

financing (i.e., 40 percent of the money for

new highways has to come from domestic

sources), the European financial transfers

Conclusion

may necessitate tax increases and contribute

to the general misallocation of resources.

Third, European trade policy, with its

The relationship between the rise of pop-

complex system of tariffs, quotas, and subsi-

ulist parties on the one hand, and corruption,

dies encourages rent-seeking behavior among

government spending, and overregulation on

European producers. Those producers, be

the other, is complex. Many factors need to be

they Italian shoemakers or French farmers,

taken into consideration in order to properly

then tend to defend their protected status

interpret recent developments in Central

and the subsidies they receive by voting for

Europe. This paper offers one interpretation:

economically illiberal political parties. That

the spread of corruption in Central Europe is

can make economic reform all the more diffi-

linked to government interference in the

cult. Estonian consumers, for example, had

economy, which, in turn, has led to the dis-

benefited from a free trade regime prior to the

crediting of the ruling class and the rise of

country's accession to the EU. EU member-

populist politics.

ship could change the dynamics of Estonia's

Economic liberalization in Central Europe

political economy by creating a voting bloc

remains unfinished. The business sector has

opposed to future reforms.

reacted to the distortions caused by excessive

The above consequences of EU member-

government spending and regulation by

ship are likely to contribute to perpetuating

adjusting its behavior. Since the regulatory

the culture of corruption in Central Europe.

environment is too complex and costly, busi-

After all, it is mostly due to concerns over cor-

nessmen get around it by resorting to corrup-

ruption that the European Court of Auditors,

tion. Since governments in the region spend a

which oversees European spending, routinely

lot of money and crowd out private invest-

refuses to certify EU accounts. In its 1999

ment, businessmen have begun to cater to

report, the EU auditors found that fraud cost

their needs and started to compete for govern-

the EU about 5 percent of its total budget. For

ment contracts. In doing so, they found will-

example, "farmers claimed subsidies for olive

ing collaborators among thousands of power-

trees that did not exist and companies

ful bureaucrats, many of whom pursue careers

claimed [payments] for food deliveries to the

in public administration in expectation of

poor which never arrived." In addition to

unearned monetary benefits.

farm fraud, the auditors discovered "badly

The public, which bears the heaviest bur-

managed regional aid and foreign policy pro-

den of a corrupt, inefficient, and overbear-

In time, the

grams, as well as misuse of research project

ing state, has exacted the only available pun-

funds."92 Four years later, the Court found

ishment on their rulers--kicking them out

public in Central

of office. Since many of those disgraced

that the EU "is failing to keep track of huge

Europe may well

politicians publicly espoused the virtues of

annual subsidies, and 91 per cent of its bud-

come to find that

liberalism and of the free market, liberal

get is riddled with errors or cannot be veri-

parties have suffered some loss of populari-

fied." The Court found that agricultural sub-

their new rulers

ty as well.

sidies were the biggest contributor to corrup-

are just as

That does not mean that liberalism is

tion. Accordingly, "Checks on subsidy claims

dead, however. In time, the public in Central

for suckler cows found that 50.2 percent of

corrupt as those

Europe may well come to find that their new

animals in Portugal and 31.2 percent in Italy

who preceded

rulers are just as corrupt as those who pre-

were false. The `error rate' in forage and crop

them.

ceded them. Since the populists are unlikely

acreage was 89.7 percent in Luxembourg, 42.9

19