Financial Transparency Coalition

flickr / European Parliament

Eastern Europe has been wracked with corruption scandals over the past few weeks. In Hungary, Transparency International released a report about the cozy relationship between business and government in the country, and warns that the government’s internal checks and balances are breaking down. In Slovakia, Smer-Social Democracy party took over the government in part due to a massive corruption scandal. Earlier this year, two ex-ministers of Romania were jailed on corruption charges and Romania’s former prime minister became the country’s first head of government to be convicted of corruption.

The truth is, though, that corruption in Eastern Europe is not a new problem. In fact, our friends at Transparency International have been warning the world about these problems for years. Most scholars blame the “long hangover” left by communism in these ex-Soviet states:

Under communism corruption was considered by many a necessary part of life. Small ‘gifts’ of sweets, alcohol and other goods were taken to doctors or civil servants to get proper or quick services. Waiting periods of months for imported or scarce goods could be shortened considerably by offering officials ‘gifts’ or money.

Studies have repeatedly shown that people living in former communist states see corruption in all levels of society, from business to the school system to police and government, but often most strongly in the health sector and the judiciary.

But the question remains: why isn’t it getting better? And shouldn’t membership to the European Union alleviate the problem? The answers might surprise you.

Just as Global Financial Integrity recently found illicit financial flows from trade mispricing increased from Mexico just after the signing of NAFTA, corruption and IFFs may be correlated with European Union membership. While neither relationship has a proven casual link, both IFFs and corruption may be associated with trade openness and aid, which may in turn be correlated with an increased profitability of corruption or a volume of its proceeds.

On the one hand, the EU does forcefully promote anti-corruption with accountability and policy measures among its members. On the other, membership to the EU might have unintended negative consequences—by increasing trade openness and aid, membership essentially increases the available pool of money for corrupt officials to steal. For example, in her book The Best System Money Can Buy: Corruption in the European Union, Carolyn M. Warner, Professor and Faculty Head of Political Science at Arizona State University, argues that economic liberalization in the EU has not only failed to expel corruption, but has actually generated it, as well. In a 2008 article, the Economist argued that for corrupt officials in central and eastern Europe, “joining the European Union has produced temptingly large puddles of public money to steal.” Likewise, the New York Times noted this on the ascension of Bulgaria to the EU:

The EU, eager to improve the lives of the 7.5 million Bulgarians, dangled €11 billion, or nearly $15 billion, in aid. Far from halting crime and violence, the money effectively spread the corruption. Once Bulgaria’s shady business types realized how much EU money was at stake, said many of Sofia’s anti-corruption reformers, they moved from buying off politicians directly into politics.

That the EU integration process has made member states more corrupt is Warner’s implication, not her conclusion. And neither is it mine. The statistical evidence to support such a conclusion is not nearly sufficiently robust. However, corruption, like illicit financial flows, may increase when there is more money available for either in the first place.

This does not mean, however, that EU membership should be avoided or that its unintended negative consequences outweigh its intended positive ones. In fact, research has also shown, on the other side of the coin, that reducing corruption tends to increase bilateral trade flows among EU members. This tale is therefore cautionary, not prohibitive. As we see in these cases, increased openness and aid should be coupled with increased oversight, transparency, and accountability. Perhaps counterintuitively, a period of economic development is a time to be more vigilant about anti-corruption. It is a time to be wary of complacency.