The future of the EU budget

Richard Laming

Research questions received from a student, with responses from Richard Laming, Director of Federal Union

1. Do you agree that the current UK rebate from the European Union undermines community logic and EU solidarity?

2. The UK Government’s position on the rebate, and the need for overall EU budget reform, is a fully justified stance for UK Government to take.

3. The UK should agree to a change in the rebate, or find some other way of paying more into the EU budget.

There are two main lessons to draw from the current chaos over the EU budget. The first is that trying reach solutions on the basis of intergovernmental haggling is fraught with difficulty and, if it ever reaches a conclusion, will reach no more than a temporary conclusion. The only principles at stake in the debate are the national interests of the participating countries, not the interests of Europe as a whole, nor still less of the European citizens. That isn’t a smart way of taking decisions.

Secondly, it is necessary to link together public spending and tax raising, rather than dealing with them separately as at present. The notion of value for money doesn’t get the attention it deserves under the current arrangements. Those in charge of spending ask how to spend the money they are given, never asking whether they need to spend that money and would in fact be better advised to return it to the taxpayers from whom it came in the first place. The European Parliament can set spending priorities in some areas (although not agriculture) but not overall spending levels. It would be much better to hard-wire financial responsibility throughout the system.

One of the breakthroughs that the Blair government has made has been to talk about the rebate in the context of agricultural spending, which is to link the two sides of income and expenditure together. The narrow minds in British politics and the British media complain about this – putting the rebate at risk – but actually it makes good sense. It starts the deal with the second of the two problems I have highlighted: we are still a long way from getting to grips with the first one.

4. The Common Agricultural Policy is no longer viable in its present form.

5. The Common Agricultural Policy benefits rich farmers more than small farmers.

6. Cutting EU farm subsidies and tariffs is vital to try to reach agreement on a new global trade deal before 2006.

It is becoming clear that the biggest recipients of CAP funds are large agribusinesses rather than small family farms. There are moves in different member states to publish the details of who gets what, and this is what we find. Perhaps this shouldn’t be a surprise: these businesses are the biggest farms, after all.

There needs to be a structural shift away from providing subsidies for production towards payments for social and environmental reasons (if there are any payments at all). This doesn’t need a Europe-wide system, with one exception. Bigger than the farming sector in Europe is the food and drink industry, which buys the vast bulk of European farming output and employs many more people. By many measures, it is Europe’s largest industrial sector, and is vitally dependent on a single market in food. There needs to be fair competition between producers in different member states within the single market, which in turn implies that there must be limits on what each member state might wish to spend on social and environmental payments to farmers. Too great, and they can turn into market distortions. The future CAP is therefore a limit on farming subsidies, rather than the source of them.

7. Crucial differences over EU farm subsidies mean a deal at the World Trade Organization meeting in Hong Kong is unlikely.

I am reluctant to make predictions about what will happen when, but there is an important point to note behind the question. And that is that it is necessary for the EU to agree at all. EU member states are represented in the WTO negotiations by the European Commission, rather than each trying to get the best deal on its own. If there were 25 differnet voices, all pulling in different directions, the overall result for Europe would be worse than if the Commsision is given a mandate to negotiate on its own. The success fo the EU as a player in world trade negotiations since the Kennedy round in the 1960s is entirely due to the role of the Commission as the single external voice and the common commercial policy to back it up. Trade policy is organised by the EU on a federal basis and it works as a result. The contrast between the success of the EU as a trade negotiator on the world stage and its relative failure as a peace negotiator is striking, and the solution is clear.

8. An agreement over future budget plans will be made in time by all member states of the EU for the 2007-2013 period.

9. Failure to agree over the EU budget plans for 2007-2013 undermines the future progress of the EU.

Having said in answer to a previous question that I am reluctant to make predictions, here I am going to make one. I am sure that there will be a budget deal before the end pf next year for the period 2007-13. The reason is that it matters so much. Agreement on a new budget is necessary for the continuing health of the European Union, and the continuing health of the EU is vital for all its member states. However much they may posture and argue, the heads of government know this. The system is designed to provoke crises and instability rather than to foster smooth agreement, but nevertheless agreement will be reached in the end. Federalists argue for a more rational and orderly approach to decision-making, coupled with greater transparency and accountability. The budget process would be so much better as a result.

Richard Laming is Director of Federal Union, and may be contacted at richard@richardlaming.com. The opinions expressed in the article are those of the author and not necessarily those of Federal Union. 9 December 2005.

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