The EU Spent a Bundle to Unify the Continent. It’s Not Working.

Some of the biggest recipients of aid are hotbeds of the very discontent that’s driving the bloc apart

By Laurence Norman and Drew Hinshaw | Photographs by Piotr Malecki for The Wall Street Journal 

   The closed sugar refinery in Lapy, Poland.

The European Union has spent nearly $1 trillion to unify the continent by delivering highways and trains into places where there were once gravel paths. In current dollars, that is over eight times the Marshall Plan that rebuilt Europe after World War II. The EU has bought airports and bridges, trams and swimming pools. It has repaired castles and medieval churches.

It hasn’t bought love.

To the vexation of European leaders, some of the biggest recipients of funding are now hotbeds of discontent, brimming with voters disquieted by the cultural and political pressures that have accompanied European integration, and threatening the bloc’s cohesion.

A renovated kindergarten in Lapy, Poland, sits near a bright blue billboard reading “Financed by the European Union.” The EU bankrolls one-fifth of Lapy’s budget, improved its sewage system and built an office complex for startups. Locals meanwhile overwhelmingly support Poland’s governing nationalist party, which says the EU overrides Polish sovereignty, condescends to Poles and threatens religious values.

“There must be respect,” said Lapy Mayor Urszula Jablonska, seated in her office between an EU flag and a crucifix. Were Poland to hold a Brexit-like referendum, she said she’s unsure of how she would vote. “I would have to consider our national values.”

Since the 1970s, the EU has shifted wealth across borders on a scale rarely attempted, under programs now called “cohesion funding.” Between 2000 and 2020, the EU is on track to spend around €858 billion ($992 billion) on needy regions or countries, chosen because their economic output per person is below 90% of the EU average.

The operation speaks to an ambition as grand as its price tag: To remake a continent of nations once divided by the traumas of the 20th century into a politically and economically unified Europe. The money has modernized infrastructure, raised living standards in the poorest regions, eased poverty and opened new markets.

The dissatisfaction stems in part from economic pain that this funding can’t soothe, given that the money is spread across the EU’s 28 members. Mixed in are thornier debates over issues such as sovereignty, cultural identity and respect. It stretches from small towns in Europe’s richest nations, including Britain and France, to struggling regions in fast growing post-Communist economies such as Poland and Hungary.

Many are ambivalent about the construction projects and wary of the accompanying strings.

“Local people had no attachment to all this new Tarmac or bricks and mortar,” said Nick Smith, an opposition Labour Party lawmaker in Wales, whose constituents voted overwhelmingly for Britain in 2016 to leave the EU.

The biggest recipient of EU cohesion funds in mainland France is Nord-Pas-de-Calais, once an industrial powerhouse of coal, steel and textiles. In Parliament, it is represented by Marine Le Pen, the French presidential runner-up who proposed France hold an EU exit referéndum.

Cohesion funds didn’t stop Brexit, where voters bristled at Britain’s EU bill. The EU’s current seven-year budget, which runs through 2020, earmarked €2 billion in cohesion funds for west Wales and Welsh Valleys, a region dotted with once-thriving steel factories and mining towns.

Many locals say EU funding was overshadowed by the disadvantages of membership, including the obligation to accept migrants from other EU nations. Blaenau Gwent voters favored Brexit by 62% to 38% to leave the EU. It was Wales’ highest “leave” vote.

“The money, we got our share, but it’s more important to save Wales,” said Ken Sullivan, a retired coal miner. Britain became “so open to foreigners, it was easy to be overrun with different cultures.”

The future of the EU still hangs in the balance, with divisions over refugees in particular driving wedges between its member states. If copious spending during decades of European optimism couldn’t revive fading communities or unite the continent, EU officials worry about what comes next. Rising nationalism is pitting smaller, eastern countries against larger, western Powers.

That is informing debate over the EU’s next seven-year budget, which starts in 2021. Cohesion cash, which accounts for over one-third of the EU’s 2014-20 €1 trillion budget, is under the knife. Britain’s payments will start to diminish after its planned exit from the EU next year, which would force the EU to cut spending or demand more cash from Europe’s capitals.

Officials are considering shifting tens of billions of euros in aid from Europe’s east to its economically struggling south, including to EU founding-member Italy, where a new antiestablishment government is injecting fresh uncertainty into the bloc’s future.

“This is a highly political exercise and not an accounting one,” Jean-Claude Juncker, president of the EU’s executive commission, said during an April EU conference on cohesion policy, in which he opposed deep cuts. “At its essence cohesion policy is about making sure that the life chances in Europe are not dictated…by accident of birthplaces.”

Cohesion funding has transformed recipients, initially along the Mediterranean and in Ireland, and then in the ex-communist countries that joined in 2004. Europe’s fastest-growing economies depend on the cash flow. In 11 of the EU’s 28 states, EU funding accounted for more than 40 cents of every euro governments spent on infrastructure, land and buildings between 2015 and 2017.

In some places, such as Western Europe, the EU sometimes markets its assistance poorly and voters are often unclear about the EU role in a mix of regional, national and European funding.

EU funding can carry onerous rules and stipulations involving complex paperwork and restrictions on project types, irking recipients. East European nationalists allege that much of the money flows back to German and French construction companies.

Donor countries have soured on cohesion funds, too, partly because of alleged corruption among recipients. In Hungary, where skepticism of the EU runs thick, the bloc’s antifraud agency says $47.8 million spent upgrading street lamps through EU contracts awarded to a company once owned by Prime Minister Viktor Orban’s son-in-law contained “serious irregularities” that may constitute fraud. The son-in-law denies the accusation. Mr. Orban says Hungary no longer needs EU cash.

In April, Mr. Orban won a landslide fourth term, campaigning against the EU, which he said would force refugees on Hungary. “Stop Brussels,” read government-financed pamphlets sent to homes. (The EU is calling his bluff. Hungary, Poland and the Czech Republic all face 20% cohesion fund cuts under current plans.)

Few cohesion-funding recipients are in such direct conflict with donors as Poland, which is allotted more than €60 billion under the current cohesion budget.

The ruling Law and Justice party is purging a 110-seat Supreme Court on the grounds that about eight of those judges served under Communism. The EU says the purge undercuts judicial independence and so triggered a never-used procedure that could fine Poland and limit its voting rights in the bloc. A decision is pending. Brussels has also sued Poland, Hungary and the Czech Republic for refusing to accept refugees as part of the EU-wide relocation plan.

Donor countries including France and Germany want future spending linked more tightly to upholding EU norms. Some Polish voters and officials call such conditions, which Brussels plans to adopt, attacks on their sovereignty by hostile western elites.

In Lapy, a town of 16,000 surrounded by beet fields, residents had voted 2 to 1 to join the EU in 2003. European assistance, however, struggled to offset the economic upheaval that followed the collapse of communism. In 2008, doors closed at the antiquated, state-owned sugar factory that had converted 370,000 tons of beets into 60,000 tons of sugar annually, leaving 250 people jobless. Farmers who had bought specialized beet reapers watched crops rot. Locals blamed EU sugar quotas. The next year, a train-repair yard cut most of its 700 workers.

Foreign supermarkets opened, hurting local merchants. Consumers bought imported goods with money wired home by young people who had relocated to thriving Polish cities and other countries.

Religious leaders began to question whether the European Community shares the same values as this overwhelmingly Catholic country. They have watched closely as Ireland, another Catholic EU member, voted to allow abortion and same-sex marriage. Most Poles have indicated they want to stay in the EU. Independent polls at home show they also feel wary about giving Brussels, the EU’s unofficial capital, more power.

The EU “would prefer that Poland not have a say, and instead do everything that they want,“ said Tadeusz Brzosko, a beet farmer outside Lapy. “Poles know our own mind and we will do what we see fit.”

In 2002, at a summit in Copenhagen dubbed “One Europe,” European leaders charted a rosy vision of what their money would accomplish. The gathering capped three years of debate over whether Poland and nine other nations should join as full members and receive economic assistance similar to that which had previously poured into Ireland, Greece, Spain and Portugal.

Development funding would help turn Poles into consumers for west European products and services, partly offsetting the cost of assistance, argued advocates such as British Prime Minister Tony Blair. Poland’s then-prime minister, Leszek Miller, said the funds would expunge Western Europe’s failure to save the east from communism. “This was convincing to them,” Mr. Miller said in an interview.

East European leaders returned home touting the money pledged. Some now say this created unrealistic expectations of swift economic change. Among EU enthusiasts, the Copenhagen summit was seen as a step to EU political union—an idea anathema to easterners who had just shed Soviet hegemony.

“This vision was never, never shared in countries like Poland or the Baltic States,” said Günter Verheugen, a German politician who oversaw EU enlargement from 1999 to 2004.

In rural Poland, the proportion of children able to attend preschool has leapt to 84% from 2% in the 1990s, Polish officials say. Thanks in part to EU funds, Poland’s output per capita was forecast to hit 67% of the EU average last year, up from 42% in 1995. The country hasn’t experienced a recession since 1992.

Pro-EU Poles feel the current nationalist government takes credit for an economic turnaround EU money has helped fuel, while blaming the EU for the local businesses that have closed along the way.

Near Lapy’s town square, an EU-funded office complex rents discounted rooms to startups, some given EU grants. Radoslaw Zaremba received $6,500 to launch a photo studio.

When the 30-year-old told his mother about the grant, she told him to be wary because she feared Brussels would want the money paid back, Mr. Zaremba said. For many around Lapy, he said, “the European Union is far away, it’s not familiar, and it’s scary.”

People walk on the bridge over the closed rolling stock repair facility. Recently the facility has started partial operation again.        

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