A preview of national positions on EU Budget reform

In the previous post we presented 5 recent studies by the Swedish Institute for European Policy Studies. In this posting we will have a closer look at document 2008:02 The EU Budget Review: Mapping the Positions of Member States.

The study basically consists of two parts, the first one based on a survey with responses from 167 experts, decision makers and business persons in 23 Member States, the other on country papers, reviewing more or less official positions of 8 member states.

The authors are, of course, very well aware of the lack of representativity and other statistical fallacies of the sample survey. Nevertheless, some very interesting information can be gleaned from the results.

To start with, dissatisfaction was great with present System of Own Resources (the way in which the EU budget is financed). Transparency, autonomy, fairness and efficiency were rated as poor – only “sufficiency” received a somewhat higher rating. The expenditure structure was rated even more harshly.

Interestingly enough, more than 20 % of the respondents would prefer a considerably larger EU budget than 1.5 % of the GNI (the present ceiling is 1.24 % – the actual budgets are as a rule lower than 1 %). Figures in a range of 2 to 15 (!) % were mentioned. As could be expected, though, those figures were largely to be found among researchers and experts whereas decision makers had a more conservative view.

There were few constructive ideas on how the System of Own Resources should be reformed. The idea of an EU-tax was not considered realistic over the short run (10 years!) but could perhaps be feasible in the longer run. On the expenditure side an overwhelming majority felt that CAP expenditure should be reduced or even abolished. Interestingly enough, even respondents from countries benefiting from the present CAP seemed to share this opinion. Objectives such as competitiveness, cohesion and “The EU as a Global Partner” should receive more resources.

Strangely enough, the country papers appear somewhat less negative towards the idea of an EU-tax. (Our interpretation). 4 out the 8 countries certainly reject the idea but the other 4 declared a fairly open attitude. There was, obviously, a very negative attitude towards the present UK rebate and connected reductions for 4 countries: it seems, almost, to be taken for granted that this system will be abolished in the forthcoming negotiations. (Needless to say, this does not go for the UK!). This is almost universally seen in connection with a reform (or reduction) of CAP.

As to the size of the budget, there are no surprises: net payers want a smaller or, at the very least,  not a larger budget whereas net receivers are in favor of a larger budget. Interestingly enough, Spain seems to be in an intermediate position.

From the available material, the authors conclude that the old budget conflicts are still very much present. The issue of the budgetary net position or, as it is known, juste retour, is still very central in the thinking of most member states. The authors believe that no fundamental reform of the Own Resources System (e.g. an EU-tax or  strictly GNI-based payments) is feasible. They are more optimistic with regard to the rebate system which they see as intrinsically linked to a CAP-reform. An important observation is that there appears to be no general division line between old and new member states.

It is on the expenditure side that the authors see the greatest chances of more fundamental changes. Reforms both of the CAP and of the Cohesion Policy as well as a reinforcement of the competitiveness objectives might be achieved, if the study results can be taken a reasonably representative of the opinions in member states.

Reasonably, the authors argue, the only way to get away from the juste retour approach goes via a clear identification of expenditure fields where a European added value is clear (that is to say where action at the EU-level would be more efficient that at the national level). Countries would then not exclusively look at what they have to pay for the EU membership but also on what they don’t have to pay through the national budget. They emphasize the importance of clear financing rules and a coherent system without ad hoc solutions.

Hopefully, we have given a reasonably fair summary of the study and of the conclusions of the authors, which by the  way, come from Sweden, Hungary, Germany, Spain, Poland and Bulgaria. We would like to add a few comments of our own:

It may be an over-interpretation, but the material would seem to show that, as usual, experts and people working with EU-issues at the grass-root level are more open, more progressive and more daring in their views on the future EU-budget and financing system than politicians and official decision makers – this irrespective of national background. The decision-makers are hopelessly hampered by the juste retour-thinking based on populist and electoral concerns. It is peculiar, to say the least, that an idea of an EU-tax is rejected out of hand since such a tax would mean that citizens and tax payers would, for the first time, be able to discern the EU-memberships cost for each individual, that is to say transparency would greatly increase.

Politicians’ fear of transparency may have several reasons: perhaps they see transparency as undesirable since it would be difficult to be equally specific about the pecuniary benefits of the membership. But, more likely, politicians fear that the general public would not accept the fact that an EU-tax would be counter-balanced by a reduction of national taxes (at least to the extent of present payments to the EU). In fact, such a distrust would not be entirely unwarranted.

It is a pity that the idea of a General Correction Mechanism seems to be removed from the agenda. It is true that the introduction of such a mechanism would be a deviation from the principle of a general financing system without exceptions. On the other hand it would serve as a shock absorber for the big net payers (present and future) and it would help them to get away from the juste retour-principle. Depending on the values of the parameters involved, a generalized mechanism would be to the benefit of all member states except the UK.

We would also, again, issue a warning for unwarranted optimism on the issue of a CAP reform (and thereby of the UK-rebate).  We have earlier argued that there are strong forces acting in an opposite direction.  A problem complex intertwining agricultural production, environmental concerns,  climate change protection, rising agricultural prices (leading to inflationary pressures) and risks of a global supply crisis with grave consequences for many developing countries makes this an extremely difficult area to navigate.  Of course, this calls for intensified international co-operation, not the least within the EU. But can politicians really abstain from short-term, disjointed and ad hoc solutions which they, rightly or wrongly, believe would gratify their electorate and turn to more structural and long-term beneficial ways of tackling the issues? Personally, we have our doubts.

We may (or may not) come back to some of the other papers, for instance the budget as an instrument in climate change policy or the general issues of budget reform as outlined by Iain Begg, André Sapir (sic!) and Jonas Eriksson. The other papers are also of the greatest interest but probably more important for those directly involved in the reform or negotiaing processes. All reports are, however, available on-line through SIEP:s web site.