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|Corruption affects all 28 member countries of the European Union and costs their economies about $162.19bn (120bn Euros) a year, according to an European Union report.
The report, the EU’s first on corruption, was issued on Monday by Cecilia Malmstrom, EU Commissioner for Home Affairs, the AP news agency reported.
Malmstrom said in a statement that “corruption undermines citizens’ confidence in democratic institutions and the result of law, it hurts the European economy and deprives states of much-needed tax revenue.
“Member states have done a lot in recent years to fight corruption, but today’s report shows that it is far from enough.”
The report said that an increasing number of EU citizens, who were surveyed as part of the report, thought it was getting worse.
Almost all companies in Greece, Spain and Italy believe it is widespread and, among businesses, belief is widespread that the only way to succeed is through political connections.
Corruption is considered rare in Denmark, Finland and Sweden, according to the report, a finding that reflects the work of Transparency International’s corruption perception index. It named Greece as the worst performer in the EU, sharing 80th place with China. Denmark was seen as the least corrupt.
Construction companies, which often tender for government contracts, are the most affected. Almost eight in ten of those asked complained about corruption.
Overall, 43 percent of companies see corruption as a problem. The cost to the European economy is almost equivalent to the size of the Romanian economy.
Corruption is commonplace
Eight out of ten EU citizens believe that close links between business and politics lead to corruption.
“Europe’s problem is not so much with small bribes on the whole,” Carl Dolan of Transparency International in Brussels, told Reuters. “It’s with the ties between the political class and industry.”
“There has been a failure to regulate politicians’ conflicts of interest in dealing with business,” he said.
“The rewards for favouring companies, in allocating contracts or making changes to legislation, are positions in the private sector when they have left office rather than a bribe.”
The European Commission recommended better controls and a redoubling of enforcement.
The report was published shortly after Romania’s former prime minister, Adrian Nastase, was sent to jail for four years for taking bribes. He was the first prime minister to be put behind bars since the collapse of communism in Europe in 1989.
The EU has repeatedly raised concerns about a failure to tackle corruption at high-level in Romania and Bulgaria, the bloc’s two poorest members. They have been blocked from joining the passport-free Schengen zone over the issue since their entry.
In October 2012, former European Health Commissioner John Dalli was forced to quit after an associate was accused of asking for 60 million euros from a tobacco company in return for influencing EU tobacco law.
Europe is recovering, right? Wrong. As Nigel Farage raged last night, things are not what they seem and even the IMF is now beginning to get concerned again (especially after Lagarde’s call yesterday for moar from Draghi and every other central banker). As Bloomberg’s Niraj Shah notes, it’s not just the PIIGS we have to worry about (or not), Denmark, Finland, Norway and Poland have been added to the IMF’s list of countries with the potential to destabilize the global economy.
Via Bloomberg’s Niraj Shah ( @economistniraj ),
The IMF’s decision means the four nations will be subject to mandatory financial sector assessments. The total number of countries on the list has risen to 29 from 25. The IMF’s decision may further undermine the safe-haven status of the Nordic nations, where rising household debt imposes a financial risk.
Ballooning Household Debt
Household debt and government-imposed austerity measures are deterring consumers from spending in the Nordic region. Denmark’s financial regulator is considering curbing banks’ lending policies to address the record household debt load. Danish households owe creditors 321 percent of disposable income, the OECD says. Norway’s household debt reached a record 200 percent of disposable income in 2011.
Austerity Triggered by Rising Government Debt
Finland’s debt-to-GDP ratio will almost double to 60.5 percent by 2015 from 33.9 percent in 2008, the IMF forecasts. The fund estimates the Finnish economy shrank 0.65 percent last year. Polish government debt reached 57.6 percent of GDP last year. A clause in the country’s constitution states that breaching a 55 percent ceiling triggers mandatory austerity measures.
Competitiveness at Risk
Denmark has dropped to 15th place in the World Economic Forum’s global competitiveness report from third in 2008. Labor costs rose 9.1 percent between 2008 and 2012, compared with an EU average increase of 8.6 percent in the period. Norway has the highest labor costs in Europe at 48.3 euros per hour in 2012, compared with 30.4 euros in Germany. That may undermine competitiveness and the growth outlook.
Most Financially Interconnected Countries
The inclusion of three Nordic nations for mandatory assessment is the result of a new methodology by the IMF that gives more weight to financial interconnectedness. The U.K. is the most financially linked nation in the world, followed by Germany. Seven of the top 10 most interconnected financial nations are in the euro-area.
So as the world congratulates itself (most notably Ben Bernanke today), the IMF seems concerned that this could all get worse again very quickly. Think they are all too small to worry about? Remember Lehman?
Danish central bank GovernorLars Rohdesaid most of the nation’s households would survive a jump in interest rates or a loss of income as Denmark tops world debt rankings.
An investigation into household borrowing revealed that high indebtedness curbed spending and economic growth during the financial crisis, the Copenhagen-based Systemic Risk Council, which Rohde chairs, said yesterday. Still, those findings aren’t grounds for alarm, according to Rohde.
“By far the major part of Danish households’ debt is carried by families who are robust enough to be able to handle shocks to interest rates or incomes,” Rohde said yesterday in a written reply to questions. “The threat to financial stability from that corner is therefore not serious in the current situation.”
Danish households owe their creditors 321 percent of disposable incomes, according to the Organization for Economic Cooperation and Development. That’s the highest ratio in the world and a level that has prompted warnings from both the OECD and the International Monetary Fund to rein in borrowing. Danish authorities have argued that households aren’t at risk thanks to high pension and household equity levels.
In neighboring Sweden, central bank GovernorStefan Ingves has suggested capping household indebtedness, not adjusting for assets, at 180 percent of disposable incomes. In Norway, the central bank has cautioned against further private borrowing after households owed their creditors about 200 percent of disposable incomes.
The Paris-based OECD said in November that policy makers in Scandinavia need to do more to stem risks posed by household debt growth.
Referring to its Dec. 20 meeting, Denmark’s Systemic Risk Council said an analysis suggested that households with high debt levels as of 2007 were prone to spend less during the crisis.
“That has probably contributed to a weaker development in private spending and economic activity in recent years, and has affected the financial industry. The council will return to this matter,” it said.
Denmark emerged as Scandinavia’s weakest economy after a housing boom that peaked in 2007 burst a year later. As many as 62 community banks failed during the ensuing slump, according to a September report by a government-appointed committee.
The nation’s AAA-rated government debt load is less than half the euro-zone average, helping keep mortgage borrowing costs low and supporting households. The central bank, which uses monetary policy to defend the krone’s peg to the euro, resorted to negative rates in 2012 to counter a capital influx. Denmark’s benchmark deposit rate, now minus 0.1 percent, has stayed below zero since July 2012.
Gross domestic product contracted 0.4 percent in 2012 and grew just 0.3 percent last year, the European Commission said in November. Growth is set to accelerate to 1.7 percent in 2014, compared with a rate of 2.8 percent in Sweden, according to the commission.
Data today showed that Danish seasonally adjusted bankruptcies declined to 382 in December from 417 the previous month, while adjusted forced sales of homes were at 334 last month, compared with an average of 428 in 2012.
The reports show that the crisis is “loosening its grip” on Denmark, Helge Pedersen, chief economist at Nordea Bank AB, said in a note.
Denmark’s Systemic Risk Council was created last year with a view to advising lawmakers on financial imbalances that may warrant a legislative response. The council also said yesterday it will examine potential risks to financial stability posed by the repo market.
“Increased use of repos and re-use of collateral can in some situations render the financial system more vulnerable,” the council said. It has therefore “decided to do more work on the subject,” it said.
To contact the reporter on this story: Peter Levring in Copenhagen at firstname.lastname@example.org
To contact the editor responsible for this story: Jonas Bergman at email@example.com