Economy / Foreign Policy

European Loans Have Secret Beneficiaries

Wealthier European nations in the north cannot continue to subsidize failing economies in the south for long, at least not in the ineffective way they are now. There is a big problem with the European Commission; it often does not place conditions on the loans it gives to countries, unlike the IMF. The result is corruption on a grand scale. Nowhere is this more evident than in Calabria, a region in the southern part of Italy.

Calabria makes up the toe end of the “boot” shape that Italy has. It has an astronomical 20 percent unemployment rate, and it is ruled by the mob.

Forget ‘Cosa Nostra.’ The traditional Sicilian mob is rapidly being out-done by a new organization in Calabria. They are known as the ‘Ndrangheta (pronounced en-DRANG-get-ah), and they are now the most powerful organized crime group in Italy.

The ‘Ndrangheta dominate the Calabria region of Italy. In a diplomatic cable released by Wikileaks in 2008, a U.S. official said that Calabria would be a ‘failed state’ if it were not a part of Italy due to the stranglehold of the ‘Ndrangheta organized crime syndicate on the economy. In fact, the organization is so massive that its activities account for three percent of Italy’s $1.8 trillion GDP. And the ‘Ndrangheta don’t just dominate Calabria’s economy. Recently, the Italian government fired the entire city government of Reggio Calabria under suspicion of ties to ‘Ndrangheta.

While southern Italy has struggled with the influence of organized crime for decades, in the context of the present Eurozone crisis, the ‘Ndrangheta highlight one of the biggest problems facing the continent: loan accountability.

Italy received $60 billion from the European Union from 2000 to 2011. One of the largest projects the struggling nation undertook with the money was to replace a highway in the south called the A3. The government has spent nearly $10 billion on the road. Yet the road exists today in a state of disrepair.

Why can’t Italians finish constructing a highway when given unconditional funding? It might be the unconditional funding.

The lack of loan accountability has paved way for the ‘Ndrangheta to make serious money off of the failing construction project. Subcontractors working on the road generally follow the “three percent rule,” in which they overcharge the government by three percent for the work they do. Guess who pockets the rest? The result is a road under perpetual construction. A finished product wouldn’t be profitable to the mob.

As countries like Italy in the south of Europe threaten to pull the entire continent into an economic calamity, wealthier northern countries will have to start getting tougher on their neighbors.

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