Forty years after Portugal joined the European Union (EU), economists report gains from the use of EU funds in the Azores but also identify errors and future obstacles.

João Teixeira, a professor at the University of the Azores, argues that a new scenario is emerging, as Brussels focuses on Ukraine and the defense sector and European funds become scarcer. In the archipelago, the situation is aggravated by the imbalance in regional finances.

“On the one hand, we have to generate leeway in the regional budget so that this contribution from EU funds does not result in debt, but rather from the region’s own funds, from the regional budget. It is also in the regional budget that we will have to have funds to maintain the investments we have made to date,” he stresses.

For economists, a new paradigm in regional public finance is needed. “We have discussed this several times: it involves containing expenditure, strengthening transfers under the revision of the Autonomous Regions Finance Law, and reflecting on whether or not we can give up so many taxes, with the application of the 30% tax reduction we have in relation to the mainland, in corporate income tax, VAT, and personal income tax,” stresses João Teixeira.

“Until now, the logic was that public investment in the Azores was based almost entirely on EU funds. Therefore, EU funds were used to invest in education, schools, hospitals, health centers, roads, and to create employment and training programs. Then, here in the Azores, the idea arose that there was such a thing as good debt. Good debt was the debt we would take on to cover the shortfall. However, we observed that this beneficial debt led to excessive debt. This became more pronounced from 2015 onwards, when we entered into a cycle of excessive debt that culminated in the situation we all know today,” he points out.

The solution now, João Teixeira stresses, is to “make more efficient use of EU funds” and “create room in the regional budget for public investment.” The economist recalls that, to date, the EU funds the Azores have received, including those from the PRR (Recovery and Resilience Plan), exceed €7 billion.

Wrong investments

Opinions are divided on the real impact of European funds on the archipelago. While João Teixeira considers the results to be “very significant,” economist Tomaz Dentinho believes that too many mistakes were made.

“The large injection of funds was made by the mainland immediately after Autonomy and then in 1996 under the Guterres government. In fact, they triggered the first wave of money directed at Autonomy,” he begins.

According to Tomaz Dentinho, “EU funds were less useful because no one knows what comes next.”

He recalled a study he conducted with Mário Fortuna, also a professor at the University of the Azores. “Employment and the economy do not vary significantly with EU funds. While funds from the mainland are stable for both local authorities and the Regional Government, funds from Europe are unstable. Those who receive the funds are large companies, and those who sell the equipment. A large part of these funds is for importing products,” explains the economist.

Haste and lack of planning are additional enemies in this process. “Haste diverts funds, on the one hand, from the right places and, on the other hand, from the right machines. We have seen planes being bought that later turn out to be unreliable, large activities being located that are not well located, we have seen ports being built and then destroyed, in the rush to build,” he points out.

“Portugal and the Azores have lost access to the sea. Let’s not think that Europe gives money in exchange for nothing. It gives money in exchange for access to the sea, which is being overexploited in a way,” he adds. The development of the Azorean economy, he identifies, is the result of increased tourism, caused by the liberalization of air transport and “also the end of the milk quota, which was imposed on us until 10 years ago.”

Tomaz Dentinho argues that there have been positive steps, such as negotiations that leveraged the Azores’ outermost location to justify the non-payment of customs duties on corn and animal feed, thereby making the agricultural sector more competitive. The economist rejects the idea of a “begging outermost region,” considering that “the logic of the outermost region is not that, but rather that much of European regulation is made on a continental basis and European regulations need to be adjusted for the peripheries and outermost regions.”

“That’s what Portugal and the Azores have never been able to argue, because they come with good news and forget to give the bad news,” he laments.

João Teixeira believes that the structural social problems that persist in the region remain unaddressed. “Regional and national policies and European integration itself have failed to resolve them. I would highlight the enormous shortage of housing for young people and the middle class and the demographic decline, which is an ongoing problem. We have what I consider to be the worst indicator in education: the percentage of young people aged 24-34 with higher education in the Azores is half the national and European averages. This is a very worrying indicator. We still have very worrying indicators in the areas of poverty, health, and income inequality,” he points out.

Changing the scenario entails modifying two indicators: the economy’s qualification and diversification. “The first issue has to do with the productivity of companies (…) This leap in productivity that is necessary to lead to a leap in income can only be achieved with better qualified workers, with a higher percentage of people with higher education, a higher percentage of people with digital skills, with various types of skills…”, he says.

The diversification of the economy must go beyond tourism, a sector with multiplier effects but where wages are not high. “We have to diversify our economy into sectors more closely linked to innovation, the maritime economy, and digitalization, attract people with skills in these areas, and also train Azoreans in these areas, in engineering, and in areas linked to innovation, so that we can actually have activities here with higher added value that pay higher wages. And in this way, we will be able to bring our average salaries closer to the European average,” says the economist.

Tomaz Dentinho reinforces the importance of the financial viability of investments: “Financing is useful for viable projects. If they are approved based on fictitious profitability, they are intended to receive the subsidy. It is, in my view, a technical crime that is committed so often… Instead of discussing, step by step, the viability of each project.”

In Diário Insular-José Lourenço-director

Translated into English as a community outreach program by the Portuguese Beyond Borders Institute (PBBI) and the Modern and Classical Languages and Literatures Department (MCLL), in collaboration with Bruma Publication and ADMA (Azores-Diaspora Media Alliance) at California State University, Fresno. PBBI thanks Luso Financial for sponsoring NOVIDADES.