BUSINESS
06/06/2012 03:00 am ET Updated Aug 05, 2012

European Corruption May Worsen Debt Crisis, Study Finds

* Report finds weak anti-graft measures in Europe

* Southern states worst hit by euro crisis most at risk

* Transparency International warns of European complacency

By Robin Emmott

BRUSSELS, June 6 (Reuters) - Political and business corruption in Europe, especially in the Mediterranean, could further weaken vulnerable economies struggling to overcome the euro crisis, an international watchdog said on Wednesday.

While it sees itself as one of the world's least corrupt regions, few countries in Europe regulate lobbying or give citizens easy access to public information, allowing a culture of graft to take hold and political and business elites to divert funds, Transparency International said in a report.

Bloated budget deficits and debt are at the heart of the euro zone's 2-1/2-year-old crisis, and corruption means scarce public money is spent inefficiently and may be creamed off at a time when record unemployment is reducing government revenues.

"Countries with weak anti-corruption safeguards are often the ones with most problems in their public debt at the moment," said Finn Heinrich, research director at Transparency International who supervised the report across 25 countries.

"Audit institutions are particularly weak and often not independent from the government, meaning that public officials probably know they can get away with cutting corners," he said.

The report named Greece, Italy, Portugal and Spain - the euro zone's most financially troubled nations - as having deeply rooted problems in their public administrations, namely that officials are not accountable for their actions.

Although not technically illegal behaviour, politicians and business leaders use their influence to win contracts and sway policies, while parliaments often fail to enforce the anti-graft laws and rules that do exist, the report said.

"The links between corruption and the ongoing financial and fiscal crisis in these countries can no longer be ignored," it said.

Corruption costs the European Union around 120 billion euros ($150 billion) a year, according to the Strasbourg-based Council of Europe. Many analysts say the figure is probably higher.

Privatisations are fertile ground for creaming off funds into private hands and Transparency International said that Portuguese and Greek privatisation programmes could be at risk, potentially leaving less money to pay down debt and deficits.

"Governments may not get as much money out of the privatisations as they should because a certain number of people close to private officials benefit rather than the public," Heinrich said.

CREEPING "DISEASE"

The perception that governments are too close to business elites added to the public anger that brought thousands of people onto the streets in Madrid and Athens in recent months. Former Italian Prime Minister Silvio Berlusconi was dogged by scandal. He faced a bribery case in Milan in February, although it was thrown out by the court and he denies any wrongdoing.

Corruption is notoriously difficult to measure, but 74 percent of Europeans see it as a growing problem in their countries, according to the EU's latest Eurobarometer survey. The European Commission has described corruption as a "disease that destroys a country from within".

Transparency International said the issue was not limited to the countries of the Mediterranean.

Many countries in western and northern Europe do not have dedicated anti-corruption agencies while wealthy Sweden and Switzerland have no binding rules to regulate private donations to political parties, the report found.

Regulations in the Netherlands are seen as "wholly inadequate," the report said, while bans in place on corporate donations in Belgium and France are not effective because funding can be pushed into other "opaque channels".

Transparency International also said the influence of lobbyists was shrouded in secrecy and that the 3,000 lobbying groups in Brussels should be required to sign a single register, rather than a variety of voluntary registers.

In France, only 150 of the 5,000 organisations that met members of parliament during hearings at the Assembly between 2007 and 2010 are registered as interest groups.

In Britain, several members of parliament were convicted after it was revealed that they were exploiting their expenses.

"Europeans' concerns are not with potential police corruption or such like," said Heinrich. "They view corruption as the close interrelationship between business and the political elite. European leaders don't take that into account."