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Reforming the EU Budget – time just left for some new ideas…

Article by Dick Leonard

October 10, 2008

The long awaited review by the Commission of the EU budget, announced in 2005, when the financial perspectives were agreed for 2007-2013, began in June, after ideas submitted by interested organizations and members of the general public had been considered at a special conference at the end of May.

Within the past few weeks, two Brussels-based think-tanks have published their own proposals. The Centre for European Policy Studies (CEPS) had appointed a high-level task force, headed by a former chairman of the European Parliament’s Budget Committee, Terry Wynn, with Jorge Núñez Ferrer as rapporteur.

The title of their report, ‘The UK Rebate and the CAP: Phasing them both out?’, might give the mistaken impression that they believe that these two steps taken by themselves would resolve all the EU’s budgetary problems. In fact, their recommendations range far more widely than this, suggesting a wholesale re-ordering of EU objectives and processes, based on the four principles of value for money, subsidiarity, additionality and proportionality.

Meanwhile, two researchers at the European Policy Centre (EPC), Fabian Zuleeg and Sara Hagemann, have addressed themselves more to the question of the process by which the budget is formulated and approved, rather than its content. In a policy brief entitled ‘A bigger bang for our euros: How to reform the EU budget’, they begin by emphasizing how relatively small the budget is.

Currently it amounts to rather less than one per cent of EU GDP, a declining proportion from over 1.1 per cent in the early 1990s. This is equivalent to about 2.5 per cent of national public spending or, as the Commission points out in its discussion guide, “about 64 cents per day on average for each of the EU’s 495 million inhabitants”. Nevertheless, the total amount concerned is not inconsiderable, amounting to almost €820 billion in the 2007-2013 budgetary period.

Four main themes should be addressed by the Commission’s review, the EPC authors argue:

– What new policy challenges does Europe need to address? Over what time frame? With what specific added value?

– What principles should guide EU revenue-raising? Are rebates and correction mechanisms justified? Should EU financing be closer to the citizens, for example through a visible tax?

– How should the EU budget be governed and is it responsive enough to changes?

– How can EU budget procedures balance flexibility and stability better, increase accountability, and deliver results more efficiently and effectively?

The authors make a series of suggestions on improving the process, arguing that present practice tends very much to favour the continuation of existing commitments, almost irrespective of their current relevance, rather than innovations, and positively to encourage member states to treat the whole exercise as a zero-sum game.

Perhaps their most prescient proposal is to align the ‘political and budget cycles’ by setting the financial perspectives for a five- rather than a seven-year period.

If not, they say, in 2013-14, we may “well have an outgoing Commission proposing a new EU budget to an outgoing European Parliament, with dubious implications in terms of both legitimacy and accountability”

The aim, they say, “should be to align these cycles, so that each Commission and Parliament would be required to deliver a five-year budget – preferably in the middle of their respective terms, after both institutions have settled in and before a renewal of their mandates begins to dominate their thinking”.

It is very much to be hoped that other think-tanks, interest groups and individuals will hasten to get their suggestions in during the short time still remaining. The importance of the forthcoming review can hardly be exaggerated.

The Reform Treaty, if ratified, should give the EU a better chance of acting more effectively, both internally and on the world stage. It is time to couple it with a thorough-going overhaul of its budgetary resources, and the ways in which they can be applied.

Dick Leonard is author of The Economist Guide to the European Union.

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