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The NYT article exposes the limits of the EU’s powers to oversee issues which fall under national competence, such as land ownership, sales and leasing

 

The CAP’s area aid payment scheme has come under fierce criticism in recent days in a widely-cited New York Times exposé of corrupt misuse of CAP funds in some Central and Eastern European countries – and especially Hungary.

 

Yet in reality the article exposes the EU’s inability to discipline rogue states who are openly dismissive of the rule of law as much as it critiques the CAP. And it also points to the problems of overseeing a policy which, in response to political pressures, is now more decentralised, and its administration more devolved, than ever before.

And the limits of the EU’s powers to oversee issues which fall under national competence, such as those relating to land ownership, sales and leasing, are also made uncomfortably clear.

The New York Times article focuses primarily on Hungary, a country with large expanses of rich, fertile farmland, which acceded to the EU in 2004. A painstaking investigation by a team of journalists revealed how a large proportion of the roughly €1.3 billion a year that the EU pays in direct aid to Hungary ends up in the hands of a few individuals with close connections to the country's autocratic prime minister, Viktor Orban.

According to the article, Orban has conducted a deliberate policy of selling or leasing state-owned farmland to his cronies, under conditions of less-than-exemplary transparency. This has clearly reinforced the prime minister’s power base in Hungary and deprived ordinary farmers of some of the opportunities to develop which CAP funding might otherwise have offered.

Farm splitting to get around ‘degressivity’ ceilings

One of the most serious criticisms levelled at the CAP by the investigation is the allegation that the Hungarian landlords have obviated the per-farm ‘degressivity’ rules by splitting their holdings up into smaller units which fall below the aid cap limit.

On paper, as the New York Times notes, Hungary applies the “seemingly progressive policy” of an absolute cap on aid payments of €176,000 per farm – i.e. with 100% degressivity beyond that level. However, this policy has long been criticised on the basis that large landowners could skirt around the limits by simply sub-dividing their holdings to bring each unit below the ceiling level, and there is evidence that this has happened in many places in Hungary.

The reform proposals for the current CAP would see this limit reduced to €100,000 per farm - but a clause allowing farmers to exclude farm salary payments from this ceiling is already expected to seriously reduce its impact.

However, much of the CAP is reliant on national governments administering the rules in place in a fair, equitable and competent way, and in a situation like Hungary, where the government publicly celebrates its notorious philosophy of “illiberal democracy” and uses this as a basis to manipulate national land markets, the EU has very limited recourse.

The advent of CAP Strategic Plans for the new 2021-27 CAP will concentrate even more power over policy administration and implementation in the hands of national capitals, for better or for worse.

Article 7 investigations

The EU is currently investigating Hungary’s government under procedures set out under Article 7 of the Lisbon Treaty, accusing the Central European country of eroding democracy and “failing to uphold fundamental European Union values”. The probe was launched last September by a vote in the European Parliament; a first ‘preliminary hearing’ on the issue was held this September.

If found guilty as charged, the EU would be empowered to sanction Hungary by withholding CAP and other EU payments, but the Commission is clearly in no hurry to take such a politically inflammatory step unless it has no alternative. 

However, it could be argued that the root of the problem in Hungary, and elsewhere, is that under the CAP, the subsidies “follow the land” - in the words of the New York Times article.

As long as subsidies are made on a per hectare basis, then those who own large areas of land, whoever they may be, will receive large subsidy cheques from the EU.

This is the simple reason why the CAP is transparently failing in its treaty-enshrined mission to ensure “a fair standard of living for the agricultural community”, and why the EU has been unable to make any inroads into the politically-embarrassing statistic that 80% of CAP subsidies still go to just 20% of farmers.

As IEG Policy suggested recently, there are now the first signs of some momentum in support of a shift away from area-based payments and towards a more outcome-based system of support for EU farmers and rural communities.

But any such changes, if they do come, will not take effect before 2028 at the very earliest, leaving the field open in the meantime for the oligarchs of Central Europe to cash in.

 

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