May 7, 2018

A fresh start for EU finances ?

The 2021-2027 EU budget is a small step in the right direction, but not the “fresh start” announced by the Commission. The role of Member States remains unclear, and there are only minor adjustments on the main expenses, such as agriculture and cohesion and security fundings

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The Commission has recently published its proposal for the finances of the EU for the next decade.  It is entitled: «A Modern Budget for a Union that Protects, Empowers and Defends» But in reality this is a budget of continuity, rather than change. The total spending proposed would remain capped at around 1.1 % of EU GDP. Within this overall envelope some change is indeed proposed, but it is modest.  The key change can be seen in the evolution of the main policy areas in the chart below.

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The Commission proposes that three broad areas should each account for about 30 % of the overall EU budget: The two traditional areas, Agriculture and Cohesion and the rest, which comprises research and security.

The good news is that the relative weight of agriculture should decline, but this would just represent a continuation of a trend, which started 20 year ago. The share of employment in agriculture has halved over this period, but the share of spending on agriculture has fallen by only one third.  Spending per farmer has thus increased considerably.

The main novelty proposed in this area would be put a cap on the total direct payments any single farm could obtain from the EU budget. This is of course very much resisted by the largest farm holdings (often industrial enterprises specializing in single crops, e.g. sugar).  Countries with many of such large beneficiaries of direct payments tend to defend these interests (although the benefits of these payments would go mainly to the shareholders of these firms, not farmers).

The relative weight of cohesion spending should also decline, but only very slightly, although differences in income have narrowed a lot over the last two decades.  But this the area where MSs have the most direct interest because cohesion funding goes directly into the coffers of regional governments.

Much has been made of the idea to link EU spending to the respect of the rule of law in Member States. However, the Commission is now in reality proposing something quite different. The original text reads as follows:

«The Commission is now proposing to strengthen the protection of the EU budget from financial risks linked  to  generalised  deficiencies  as  regards  the  rule  of  law  in  the  Member  States.  If  such deficiencies  impair  or  threaten  to  impair  sound  financial  management  or  the  protection  of  the  financial interests  of  the  Union,  it  must  be  possible  to  draw  consequences  for  EU  funding».

This implies that in reality the rule of law condition would not aim at countries where the judiciary is no longer independent or where media freedom is in danger.  The purpose of the rule of law condition would be only to protect the financial interests of the EU.  Even countries where the democratic process no longer works would thus continue to obtain funding from the EU provided the country respects the financial interests of the EU.  This might appear unjust.  But it makes sense.  The EU needs to defend its fundamental values and democratic principles.  But taking away EU spending would mean that only the poor could be punished.  The EU needs different instruments to uphold the respect of its fundamental values.

The biggest proposed increase is in the area of internal and external security. However, the increase is much less dramatic if one compares the Commission’s proposal for the 2021-27 MFF not to the 2014-2020 MFF, but to today’s (2018) spending since some funds have already been redirected to this area.  Nevertheless, more funding will be available with one eye catching commitment: «The Commission proposes to create a standing corps of around 10,000 border guards by the end of the financial period».

But it remains to be seen where these 10 thousand would be deployed.  Member States might be weary of having so many EU officials occupying their border posts.

All in all, the Commission proposes a modest step in the right direction, but not the ‘fresh start’ it claims.  Moreover, even the modes improvements proposed by the Commission risk being diluted by special interest of Member States.  This is the start of a long process of haggling which is unlikely to improve the final result given the strong status quo bias which is built into the system.

The author

Daniel Gros

Daniel Gros is Director of the Centre for European Policy Studies (CEPS), Senior Fellow of LUISS School of European Political Economy and Member of the Advisory Board of The LUISS Center of Italian Mezzogiorno Studies


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