Open Europe Blog

The EU’s “Super Wednesday”, which we followed live on our blog, ended with the Commission unveiling its blueprint for the next seven-year EU budget, running from 2014 to 2020. We published our response earlier this afternoon, outlining “the good, the bad and the ugly” of the Commission’s proposal. Here are a couple of interesting aspects we’ve flagged up:

  • Frustratingly, the Commission has not published any figures comparing overall EU expenditure under its new proposal with the previous budget period, making a comparison very difficult. This is clearly another step backwards for transparency in Europe. But what’s clear is that the Commission has once again chosen to ignore the demands for self-restraint coming from across Europe. Despite the UK, France, Germany and others calling for a cash freeze in the next long-term EU budget, Barroso & co. have proposed an inflation-busting 5% increase from the current budget period, with total commitments reaching over €1 trillion;
  • On top of this, the Commission has earmarked an extra €58 billion to finance a number of projects and funds which are off the main balance sheet and are not considered as part of the main budget (which include large scale projects that were previously part of the main budget such as ITER and GMES). Once this additional cash is factored in, the total increase to EU expenditure is at least 7% (the UK Treasury suggests a 10% overall increase – the difference is down to different baseline numbers). In other words, the Commission is trying to spin the increase.
  • The 8% cut to agriculture spending is good news. However, farm subsidies will still account for over one third of the CAP budget with the Single Payment Scheme accounting for the bulk of the subsidies, meaning that golf clubs, multinationals, assorted royalties and other landowners will be able to cash in on EU farm subsidies well into the future (the Single Farm Payment is disbursed based on historical entitlements and land ownership, irrespective of whether the recipient is actually a farmer).
  • The Commission’s blueprint leaves the mechanism for the allocations of regional funds untouched, meaning that richer member states will continue to “recycle” money between each other via Brussels. Hardly a rational policy. On the positive side, stronger conditionality will be applied to those receiving funds, while a separate €40bn fund has been created to promote transport and energy networks across Europe (an area where the EU budget clearly can add value). More money will also be spent on Research & Development, which is good.
  • Despite the Commission proposing a cut to jobs and an increase in the retirement age for EU officials (which is a positive thing), spending on bureaucracy and administration will increase from 5.7% to 6.1% share of the total budget.
  • The Commission wants to scrap the existing rebate systems in favour of new “lump sum” reductions to net contributors’ payments – it is not yet clear what economic impact this would have on the UK’s rebate. We’ll no doubt return to this point.

However, by far and away the most controversial aspect of the draft budget presented yesterday is the proposal to introduce fully-fledged EU taxes, in the form of both a “financial sector tax” and a new “EU VAT”. It’s not yet clear how much money the Commission is planning to raise via these two brand-new EU levies. We believe that EU taxes are a non-starter: they not only lack any democratic legitimacy, but are also extremely difficult to put into practice (this is particularly true for a financial transaction tax, as we’ve argued here).

The Commission’s proposal drew an immediate rebuke from most net contributing countries. A UK Government official called it “completely unrealistic”, while Dutch Europe Minister Ben Knapen said it was “very disappointing”. German Foreign Minister Guido Westerwelle chimed in adding,

“The Commission clearly exceeds the total volume of the budget which would be acceptable to the [German] government.”

And his Italian counterpart Franco Frattini has made clear that Italy will seek an “indispensable” reduction in its net contribution to the EU budget over the next seven-year period.

In other words, we’re in for a long, grinding negotiation round.

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