Europe in My Region

 

1 million EUR. left the coffers of the Calabria Regional Administration for some imprudent (to say the least) operations in late 2015.

This is a repost of Fondi europei: per la Calabria “polpetta avvelenata” da un milione di euro, originally published in Italian on the sole24ore blog by Giuseppe Chiellino (@chigiu) and submitted to the Europe in My Region 2016 blogging competition.

These operations were undertaken by Mr. Luca Mannarino, the (now former) Chairman of the Calabria Region FHC (Fincalabra) using an EU Funds package. The operations were described in plenty of detail in the Corriere della Calabria Newspapers and discovered at the beginning of January by the new Fincalabra Board of Directors (The Regional Administration is the sole Fincalabra shareholder). They consisted of investing 47 million EUR from 2007-2013 EU funds in various mutual funds in several risk categories. These were resources the European Commission had given in advance and with the management of which the Regional Administration entrusted Fincalabra, so that it could use them for the Single Financial Engineering Fund. Essentially, they weren’t intended to fund enterprises with no return, but to create revolving financial instruments capable of multiplying EU funds, especially loan access guarantees for SMEs, but also start-up equity participations, further venture capital, as well as loans and technical support. This is part of typical Fincalabra business activity and is a way to repeatedly use the same resources to the benefit of a larger number of enterprises. The EIB does such operations on a much larger scale. The principle is the same as the one by which the Juncker Plan purports to release 315 billion from private and national investments in the EU, building on 22 billion of EIB and EU budget resources.

Mr. Carmelo Salvino, the current Fincalabra Chairman appointed in early December 2015, explained that “the funds have been disinvested upon paying about one million and five hundred thousand EUR covering back-end loads and invested capital losses”. Other sources from the Regional Administration indicate approximately one million, but the difference nearly doesn’t matter. The real thing that matters is how absurd this fact is, also having regard to the restrictions Fincalabra has to comply with towards the Regional Administration in managing the funds.

As a staff member from the Commission Directorate-General for Regional Policy explained: “We transfer the funds to the Regional Administration to arrange financial engineering actions for small and medium-sized enterprises. Then the Regional Administration hands them over to a specialist broker (Fincalabra in the case at hand). We only regard the Funds as having been properly spent if they lead to actions for SMEs.” Meanwhile, the broker decides on the best way to manage their treasury while waiting to concretely deploy the funds to the advantage of SMEs. If the treasury has been imprudently managed, Fincalabra will pay penalties (at their expense). Shouldn’t the funds reach the SMEs, they will have to be returned to the Regional Administration and ultimately, where no other acceptable use is made of them, to the EU”.

There is a risk that the EU Institutions will take the 47 million EUR. back and for the Regional Administration to solely pay for penalties and losses. “Spending funds for financial engineering instruments is potentially permissible till 31 March 2017. Nevertheless, operations have to be concluded by September-October in this year, so that everything can be reported next year by March” an expert explains. The spending deadline for the other funds (ERDF, ESF and EARDF) expired on 31 December 2015. When considered this way, the investment Fincalabra decided to undertake in July 2015 and actually undertook in September 2015 implied some financial risks too far, especially in view of extremely volatile financial markets. All of this – it has to be said – was done in exchange of a much higher expected yield than the one (nowadays) guaranteed by State Bonds.

The Calabria Administration has made an undeniable leap in quality as to using EU resources over the last two years. At least, they did as to expenditures and professed to be certain to avoid losing the funds at hand. Their statutes allow for a small flexibility margin, in order to avoid the funds being ‘automatically decommitted’ and to use them to cover other expenditures which had already been made and could be included in the Regional OP. Nevertheless, this risk can’t be completely excluded, yet. With respect to capital losses and penalties paid to bank, Fincalabra is considering initiating Court proceedings to get compensation, because the products were allegedly unfit for the risk profile of the underwriter, namely the Region FHC. “Anyway, we haven’t just brought a liability claim against the former directors, but we have also lodged two complaints with the Public Prosecutor’s Office and the National Court of Auditors respectively,” Mr. Salvino indicated.

We tried to get in touch with the former Fincalabra Chairman, Luca Mannarino (a tax consultant and the Forza Italia Party Calabria Branch Treasurer). He was appointed in mid-2014 by the centre-right wing Regional Administration Council – whose term would have expired some months later – and his requirements aroused controversy. To comprehend what the rationale of these operations (prudently and diplomatically termed “a very imprudent way of using treasury” and anyway “to be checked” within the EU-Institutions) was, it would be useful to listen to his account of the facts. Mannarino, who could be held accountable for State revenue damage, couldn’t be reached. His inbox and office phone were allegedly not set up and his mobile phone number was rung in vain. Without any explanation and having regard to his professional skills as to EU funds too, what happened looked very much like a ‘poisoned meatball’ legacy’ he left to the new centre-left-wing Regional Administration Council that was about to sack him thanks to the spoils system. The Courts will resolve who has actually been imprudent: the one who has invested the funds or the one who has disinvested them. What is unfair and unacceptable is that the brunt of this will fall on the SMEs from Calabria and taxpayers.

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