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Unwise Spending Exposes Europe's Economic Errors

BARRY HATTON

CABO GIRAO, Madeira Islands (AP) â¿¿ The president of these Portuguese islands turned out, as he almost always does, for a ribbon-cutting ceremony at his government's latest showpiece investment: a panoramic steel-and-glass viewing point perched on what islanders claim to be Europe's highest cliff-top.

The price tag for the platform, parking lot and cafe was ⿬2.5 million. That's a hefty outlay for a near-bankrupt archipelago of about 250,000 people which has ⿬6.3 billion in public debt, needed a ⿬1.5 billion bailout last year and has promised to be frugal. But development funds from the European Union, bankrolled by the continent's taxpayers, made it affordable by picking up ⿬2 million of the tab.

For Alberto Joao Jardim, Madeira's president for the past 34 years of fast-rising official expenditure, the project was "fundamental" for the tourism sector and the region's economic progress. For critics, it was something else: part of the explanation of how Europe dug itself into its current financial mess through imprudent investments and misguided economic policies.

The EU's aid policy for less well-off parts of the continent, meant to help bridge the wealth gap between rich areas of the bloc and poor, has done much to boost livelihoods. But the bonanza of easy money also bred political vanity projects, bridges to nowhere, lax oversight and widespread corruption. Wiser investments that might sustain long-term growth were often neglected.

Meanwhile, the requirement to supplement the aid with local funds, often from bank borrowing, helped grow the piles of debt that are at the heart of Europe's financial crisis. This week, EU heads of state hold a summit to hammer out the bloc's budget through 2020 â¿¿ and development funds promise to be at the center of what is likely to be an acrimonious debate on how to divvy up EU money.

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