Global Policy Forum

Europe's Dirty Secret


By Stefan Theil and Christopher Dickey

April 24, 2002

Across the Continent, corruption is a way of life. It erodes confidence in government and threatens the EU's future.

"Help, we're living in a banana republic!"-German weekly Die Zeit.

The smoke spewing from the leuna oil refinery in eastern Germany is cleaner than it used to be. In the bad old days of communism, it stank up the air, polluted the water and nobody cared. Today a different sort of foulness lingers.

In a personal deal between former chancellor Helmut Kohl and the late French president Francois Mitterrand, Leuna was sold in 1992 to France's oil giant, Elf Aquitaine. To help rebuild the plant, the Germans plunged euro 750 million into the company-and euro 40 million of Elf's money promptly disappeared into the private accounts of two German lobbyists with ties to the Kohl government. Elf's executives have since told French prosecutors that the kickbacks were passed along to German politicians for arranging the deal. As for German prosecutors, they've spent years dodging jurisdiction in the case-and so the scandal festers.

Leuna's millions are only a small bit of a cancer that is rotting the heart of Europe. Open a newspaper in recent weeks, and it's plain to see. In Germany, the ruling Social Democrats are embroiled in a series of bribery and embezzlement scandals involving dozens of local and national politicians, centered on a network of party cronies who siphoned tens of millions of euros off garbage-utility deals in Cologne and other cities. In France, the leading presidential candidate, incumbent Jacques Chirac, has been named in seven corruption investigations. He proclaims his innocence but neither his opponent, Prime Minister Lionel Jospin, nor the voters seem to care one way or the other. In Spain last week one of the country's leading banks was in turmoil after revelations that managers kept secret slush funds for, among other things, influencing election campaigns. Even in relatively clean Britain, Tony Blair is under fire for influence peddling on behalf of a steel magnate who just happens to be a major Labour Party donor.

Political corruption is the disease that dares not speak its name. It has become so much a part of public life, in fact, that politicians of every stripe agree not to speak about it. "There's this incomprehensible, scandalous silence," says Arnaud Montebourg, a lonely critic in the French Parliament. The cost to taxpayers is incalculable. Corruption steals money from social programs and services. (Bribes, kickbacks and inflated pricing add 5 percent to 30 percent to the cost of public projects, according to various estimates.) It erodes public confidence in government and undermines the legitimacy of political parties and their leaders. Once it was hoped that a new generation of young leaders would emerge to challenge the old way of doing things, and along the way clean up public life. But in fact the problem is only getting worse.

Public anger seems to be brewing, especially in Germany and France, where an increasingly disaffected electorate is turning apathetic and showing signs of abandoning the system. Germans grew accustomed to scandal after Helmut Kohl, when top Christian Democrats were discovered to be running a network of slush funds filled with illegal campaign donations (charges the former chancellor does not deny). But lately they've been shocked by the depth and breadth of what can only be called a corruption epidemic. The newsmagazine Der Spiegel recently splashed the payoff republic across its cover; last week the liberal Die Zeit trumpeted a front-page headline, corruption is devouring the state. A new report by the Bundeskriminalamt-Germany's FBI-warns that corruption now runs across "nearly all sectors of public administration." The shock to the Social Democrats threatens Chancellor Gerhard Schroder's re-election this fall. Meanwhile his rival, Bavarian Gov. Edmund Stoiber, has been tainted by the stunning bankruptcy of one of Europe's biggest media empires, owned by his ally and fellow Christian Socialist Leo Kirch. It turns out that Stoiber's state-owned Bayerische Landesbank gave .2 billion in ultra-risky loans to Kirch (greased by party hacks on the company's board) that taxpayers will now be billed for.

In France, corruption has made a mockery of next week's presidential election. Never mind that Chirac has been lampooned as "Superliar" on a satirical TV program. Forget the video confession of a former bagman, who died of cancer in 1999 after laying out in detail the way millions of francs in kickbacks from public construction projects were divvied up among the country's various political parties, including Chirac's Gaullists, the Socialists and even the Communists. Voters don't seem to notice. And yet, the anger is palpably there. As the polls opened last weekend, Chirac was expected to draw about 20 percent of the ballots; Jospin about 18 percent. By contrast, more than half of all Frenchmen were saying they'd cast what amounted to a massive protest vote. Showing their disgust with business (and corruption) as usual, they'd back the political extremes, supporting fringe candidates from the ultrarightist party of Jean-Marie Le Pen to the Trotskyites of Arlette Laguiller.

Are European politicians getting the message? Signs are they're not. If anything, the problem seems to be getting worse-for many reasons. One is that graft has long been an accepted fact of political life in Europe. A Jospin aide, asked why he hasn't made sleaze more of an issue in the French campaign, told Newsweek, "Everybody cheats a little in his life." Yves Meny, a political scientist specializing in corruption, considers this widespread attitude as a sort of traditional "solidarity." " Everybody knew the financing of political parties in France is illegal," he says. The trouble is, the longer the problem is neglected, the bigger and deeper it grows.

It doesn't help that European politics is becoming increasingly "Americanized." Not so long ago, candidates were elected in much of Europe on the strength of their policies and platforms, explains a former British diplomat. These days it's personality that counts. The effect on European parties has been not so much to discourage corruption as to mask it, even to encourage it. With the new emphasis on TV blitzes, capped teeth, dyed hair and "up-close" portraits of aspiring first couples, it takes much more money to win these days. And in the corrupt air of the Continent, the trend can also turn downright sinister, largely because Europeans lack many of the institutional checks and balances found, say, in the United States. The European press is hardly the watchdog Americans expect of their fourth estate, for example. It tends to be passive toward friends and polemical toward enemies. Tough questions may be asked, but they're rarely followed up. The courts, which once seemed to be leading the fight against corruption with the "Clean Hands" investigations in Italy during the early 1990s and an avalanche of investigations in France during the last decade, have now all but surrendered to political pressure.

Nowhere is this more striking than in Italy, where billionaire businessman-and media magnate-Silvio Berlusconi shrugged off an international arrest warrant and multiple corruption prosecutions to win the post of prime minister last year. "People have a short memory," says Meny. "Berlusconi convinced people if they wanted change, change was him." Since he came to power, what he's changed are the laws, shortening the statute of limitations in such a way that he'll be harder to prosecute.

Within Europe's burgeoning social-welfare state, the opportunities for graft are almost limitless-and therefore irresistible. Roughly half the European Union's GDP (about .5 trillion) passes through the hands of government bureaucrats for services, procurement, entitlements, subsidies, salaries and perks. That doesn't even include the Continent's huge parastatal sector-public-owned companies, most with cozy monopolies, shielded from the pressure of competition or the inquisitive eyes of shareholders, where tens of thousands of lucrative jobs are doled out as political favors. In sectors where public contracts dominate-construction, medicine and trash collection, to name just a few-kickback schemes are rampant. "The system has institutionalized corruption," says Erwin Scheuch, politics professor at Cologne University. His landmark 1992 documentation of systemic corruption shocked Germany but changed nothing. Meanwhile corruption has become the political glue that binds parties, interest groups and national leaders. A generation ago, only the ministers or heads of important public institutions were political appointees. The rest were more-or-less-competent career civil servants. Now party patronage reaches well down the ranks-not only in government offices but in state-owned banks, housing companies, health insurers and TV stations. At Bayerische Landesbank, where Stoiber and Kirch hold such sway, the management, the board and the all-important loan committee are chock full of professional politicians with no banking experience. In recent years, says Scheuch, even hospitals and universities (all run by the state) have begun hiring according to party membership.

As in politics, American-style "privatization" has boomeranged in Europe. Throughout the 1990s government services (such as the water utility) were turned over to private-sector management, even if they remained state-owned. That opened the door to even more egregious corruption: politicians still dole out the jobs, but the freshly "privatized" monopoly remains beyond parliamentary control. And unlike the relatively low-paid bureaucrats who used to run the enterprise, the ex-politicians and party hacks elevated to the board and executive positions face no limits on their salaries. What effect all this has on European competitiveness, among other things, can only be surmised. Clearly, it substantially inflates prices to consumers, diminishes services and rewards companies and individuals on the basis of cronyism rather than economic performance. As Europe heads into the 21st century, yearning to become an economic "superpower" on a par with the United States, it faces a stark choice: clean up or falter. For the structural "reforms" that most Europeans agree are necessary to recharge their economies cannot effectively go forward without changing the way "business" is done.

So what are the prospects for genuine change? It's difficult to clean up what you can't see. Europe's Continental politicians are as allergic as cockroaches to bright lights in the dark corners where they do their deals, and they have repeatedly voted down attempts to bare their incomes and corporate boondoggles-or even indicate all their moonlighting jobs and consulting positions. In Germany, it's perfectly legal for a Parliament deputy to be a highly paid lobbyist as well; nor does he have to disclose his income. Few countries have passed U.S.-style freedom-of-information laws. In relatively uncorrupted Sweden, a bureaucrat must have an extremely good reason to keep any government decision from the public eye. But in Germany the law stipulates that all public procurement decisions be made behind closed doors. Vote buying, legal until 1994, still is treated only as a misdemeanor-and the law makes it extremely difficult to prove. "Thank you" payments, the most common practice, are virtually impossible to prosecute.

If there is any impetus for change, it's coming not from politicians, or even from the corruption-numbed voters, but from Brussels. The EU Commission is pushing member states to pass minimal freedom-of-information laws to make government more transparent. Competition Commissioner Mario Monti, trying to create a freer market for goods and services in the EU, is fighting the subsidies and protection enjoyed by Europe's state-owned companies. The likes of Bayrische Landesbank, if they are to compete in an open market, would have to clean up or go under. There are other encouraging signs. For all the abuses in Germany, 9,348 acts of corruption were under investigation last year, up 38 percent from 1999 (though "that's only the tip of the iceberg," as one of the sleuths puts it).

Meanwhile the country's media are waking up-partly because many of the abuses are so egregious that they can't be ignored. NGOs like Transparency International, which used to focus on developing-world corruption, are turning their spotlights on the Continent. And in some places citizens' groups are mobilizing, such as one in Hamburg that wants to allow voters to cast ballots for individual candidates in local elections-as in America-and not just the list put up by a party. Reformers beware. Just last week German parties rushed a campaign-finance "reform" bill through a secret committee and quick approval in the Bundestag. It was meant as a reassuring nod to public pressure that had built up since 1998 and the Kohl scandals. But read the fine print. The law sets no limits on campaign contributions. It doesn't outlaw the practice of hiring politicians as lobbyists and leaves the entire local level, where most corruption occurs, virtually unmonitored. "It's a paper tiger," intended to avoid the real issues, says German party-finance specialist Hans-Herbert von Arnim.

From the fixing of parking tickets to pillaging big public-housing contracts, it's hard to escape the ultimate conclusion: that graft and political corruption are as close to the heart of Europe's vision of itself as its rosy dreams for the future-the euro, an ever-larger Union, a superpower's role in the world. Certainly, that will be the case in the absence of any public outcry. "As long as the state can deliver," says economist Patrick McCarthy, "a fairly sophisticated electorate takes corruption for granted, assuming that when politicians can steal they will steal." And like the communist bureaucrats who once painted glowing pictures of the Leuna refinery, they will let the poison seep deeply, destructively into their lives.

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.