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Last update: 19 05 2010

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Reforming EU budget

The agreement on budget reform was the main factor that helped to close two-year long negotiations about long-term financial framework 2007 – 2013. Traditionally, one of the most disputed points is the proportion of Common Agricultural Policy (CAP) on the whole budget. In the past more than a half of the whole EU budget was spent on CAP. At the moment it represents about 45 % of the budget. Commission aims at lowering expenditure on agriculture to 32 % by 2013.

Other problematic issue is British rebate which was negotiated by former UK Prime Minister Margaret Thatcher 1984. Due to small farming sector the benefit for UK from CAP was much lower than for other countries and at that time country was the third poorest member of European Economic Community (now European Union).The calls for scrapping British rebate were raising during the negations about new long-term framework in 2005.

In May 2006 European Commission, European Parliament and Council agreed on need of fundamental review of all aspects of EU spending and resources to enable EU to better respond on current challenges.

EC launched consultation on the Budget Review called “Reforming the Budget, Changing Europe” and was supposed to present concrete proposals in 2008/2009. Previous executive did not fulfill its commitment and according to the working plan of new Commission the final document is planned to be published during the third quarter of 2010 (between July and September).

At the end of October 2009 internal document containing draft of EU budget reform proposal leaked to public. It suggested redirecting funds to policies which address key challenges such as globalization and called for more flexibility in allocating funds and higher contribution to the EU budget from member states benefiting from redistributive policies (especially new member states).

According to draft regional funding should take into account also internal differences within countries and not focus only on helping lower-income countries. Draft also identified three priority axes – sustainable growth and jobs, climate and energy and global Europe. After it raised eyebrows in EU circles the relevance of the document was played down. EU officials stressed that such type of documents are for internal use only and often pass through several modifications before published.

National positions of Visegrad countries in the discussion on the future of the EU budget were thoroughly analysed at the workshop „Preparing for the EU Council Presidencies of the Visegrad Countries“, held in march 2010 in Budapest, with the support of the Visegrad Fund. Following texts are excerpts from the experts´ presentations, available also in pdf format.

Poland

(Presented by Elžbieta Kawecka-Wyrzykowska, Head of the Jean Monnet Chair of European Integration, Warsaw School of Economics)

Poland is of the opinion that the debate on the review of the EU financial system is crucial not only for economic reasons, but first of all because it is “inseparably linked to a discussion on the future of the European Union”. According to the Polish government opinion, the main guiding rule of the budget review should be “the aim for deepening of integration and improving the effectiveness in attainment of jointly set goals”.

  • Poland is against further reduction of the budget.
  • Poland assesses positively the long term perspective offered by the multiannual Financial Perspectives, which enable continuity of actions specified in strategies and programmes, thus creating stable frameworks for all actors, beneficiaries of the EU budget.
  • Contributions to the EU budget "should be to a greater extent based on entities benefiting from single market freedoms, and from deepening economic and monetary integration, and to a lesser extent they should be based on direct financing from national budgets”. We read also that “The method of EU financing should reflect the state of harmonization of individual policies within the EU. The economic entities and sectors that derive the greatest benefits from European integration should bring the biggest contributions into the EU budget financing. In this way, development of Community policies would contribute to expansion of the system based on EU own resources”.
  • Poland stressed that it is absolutely necessary to strengthen the Union’s cohesion. Enhanced cohesion should include both, its social-economic and territorial dimension.
  • The EU budget should also contribute to addressing new challenges, including climate change and adaptation to the effects thereof.
  • With regard to CAP, Poland stressed that this policy has already changed much as a result of several reforms implemented in the previous years. The present CAP supports to a great extent farmers’ incomes and enables farmers to make free production-related decisions depending on signals from the marketplace and strengthens competitiveness of the agricultural sector. Moreover, it also serves the implementation of natural environment protection and other goals.
  • Generally, Poland is against rebates and also correction mechanisms but it is not a very direct critique of the British rebate and of other rebates in general.

The final phase of budgetary negotiations will quite possibly coincide with the Polish EU Presidency in the second half of the year 2011. This imposes a particular responsibility on Poland to contribute to the final outcome of those negotiations. It means, first of all, the ability to coordinate efficiently the proposals put forward by individual Member States and the readiness to make compromises to allow the budget to adjust to new challenges.

Czech Republic

(Presented by Lukáš Pachta, Europeum Institute for European Policy; Metropolitan University Prague

The Czech government and major political parties perceive the need for the budget reform. Czech Republic has embraced a liberal discourse within the EU and openly advocates liberal reforms in the EU policies - limiting redistributive policies and supporting investments for the future.

However, the Czech Republic has its own stakes, too, in current state of play, so its stance is in fact much more ambivalent than it seems at first glance.

  • The Czech Republic supports the general tendency towards abandoning of VAT and customs bases resources altogether with all correction mechanisms. It advocates clear system of GNI based resources and rejects the idea of a European tax.
  • The Czech Republic is a net beneficiary and opposes efforts to decrease the total volume of the budget.
  • Generally, Prague defends keeping the regional (and cohesion) policy and reducing the CAP. The absorption capacity of the country has been steadily improving and any prospect of cutting those expenditures in the future is an unpleasant one.
  • The official Czech discourse mentions the CAP reform as a necessity. Money saved on CAP could be allocated to more reasonable goals such as education, research or energy security (the Czech Republic especially advocated energy infrastructure projects, e.g. Nabucco). By contrast, climate change agenda which is one of the top candidates for new reformed EU expenditures is not raised as a priority of the Czech Republic at all.

Hungary

(Presented by Miklós Somai, Research fellow, Institute for World Economics of the Hungarian Academy of Sciences)

Hungarian position to the EC proposal could be summarised in following points:

  • According to Hungarian government, a reform of the European Union’s budget has become necessary in order to successfully face new challenges of the 21st century (like climate change, energy security, ageing population, etc.), fulfil the Lisbon Strategy objectives and ensure a balanced development among Member States and regions across Europe.
  • New method of creating the EU budget proposed: firstly the basic objectives of the Community should be agreed upon; then the policies to meet these; and finally the own resources to finance the policies. Such a policy-driven budget, however, may require higher level of Community spending than is the case today, since Hungary is seeking to preserve the balance between new and old policies in such a way that subsidisation for the existing policies to be ensured, too.
  • The system of multiannual financial frameworks is good as it is, being stable and predictable; hence the loosening of its rules is not desirable. Enhanced flexibility might only be considered for common policies within their respective budget ceilings.
  • Budapest is of the view that, in order the new challenges identified by the Commission in its paper to be met, the EU budget should contribute to achieving the following key policy objectives:
    • Solidarity as one of the main objectives of EU budget spending,
    • Competitive Europe: to turn the Lisbon Strategy into action,
    • Sustainable development: Environmental sustainability should reflect the responsibility that European countries assume towards future generations.
    • Europe as a major regional and global player, as most of the regional and global challenges the Member States have to face today can only be addressed by joint action.
  • Budapest is of the opinion that the existing policies – like Cohesion Policy and CAP – contribute significantly to the above mentioned four key policy objectives, hence they should be kept. These policies are able to speed up the modernisation of the Hungarian economy and the process of catching-up to the average EU level of standard of living.
  • Hungary opposes the “re-nationalisation” of the CAP which would lead to distortions in the functioning of the internal market. Existing distortions (e.g. those caused by the different level of direct payments in the ‘old’ and ‘new’ Member States) must be abolished, too.
  • As for the new challenges listed in the Commission’s consultation paper, Hungary emphasizes the need for further integration in the field of: justice and home affairs, research and development, energy, environment and climate policy, common foreign and security policy, and migration. The financing of these objectives, however, should not endanger the financing of the Cohesion Policy.
  • The Hungarian government is more or less happy with the current own resources system (ORS) as it provides sufficient and stable revenues to finance the common budget. Budapest criticizes the VAT-based resource, as being complicated and lacking transparency, and the correction mechanisms making the burden sharing among Member States digressive.
  • Consequently, Hungary opts for a system resting on two pillars: the Gross National Income (GNI) resource and the traditional own resources (TOR), and rejects any correction mechanisms to tackle budgetary imbalances. In addition, Hungary wants to maintain unanimity in decision making on ORS and supports the introduction of a genuine own resource from 2020 at the earliest.

Slovakia

(Presented by Radovan Geist, Research Associate at the Centre of Excellence for Social Innovation, Faculty of Arts, Comenius University Bratislava)

  • General position on the reform of the EU budget: the Slovak Republic supports the reform in general, but it should not touch current financial perspective and could affect only budgets after 2013.
  • Principles governing EU budget: Slovakia calls for “balanced” consideration of principles, and puts emphasis on the solidarity principle.
  • Size of the budget: no position explicitly mentioned in the summary, but general text mentions the need to keep the budget size at least on the current level.
  • New priorities: Slovakia gives general support for increase of resources for the new policy areas (JHA, external policies, Lisbon reforms, climate and energy policies) and it tries to identify here specific national interests (energy security, bio-energy, biodiversity, hydroenergy, protection of external borders).
  • CAP: No position on the size of CAP spending is explicitly mentioned, but the document uses arguments for CAP reform based on liberal economic approach (increase of competitiveness of European agriculture, provision of adequate market infrastructure, etc). Specific national demands in this and related areas include: need to strengthen rural development given its important role in combating regional disparities and strengthening the social cohesion, minimal (or none) national co-financing in agricultural policy, and calls for creating level playing field for farmers from “old” and “new” member states (relates to pre-accession agreement on only gradual increase of CAP direct payments to farmers in NMCs to the levels received by farmers in “old” members).
  • Cohesion policy: The Slovak government states its readiness to discuss “concrete measures” of the policy, but underlines its overall importance and insists on preservation of at least 35% share on overall spending. At the same time it prefers “national principle” (money going to poorer countries, not poorer regions).
  • Compensation mechanisms: The position strongly calls for abolition of all such mechanisms, without directly mentioning the British rebate.
  • Administrative costs: Slovakia supports stabilisation, or slight decrease of administrative mechanisms and calls for measures securing more efficient use of capacities and resources.
  • Budget revenues: Simplification of the “own resources” system, with emphasis on GNI-based resource and traditional own resources, while at the same time; abolition of the VAT-based resource (arguing with its “administrative difficulty”); and objectives against any new tax-based resource, arguing that it would most probably necessitate “large harmonisation of the tax systems in the EU, which currently seems to be hardly feasible”