The EU budget - size matters

, by Tero Luoma

 The EU budget - size matters

Following tense discussions in December, the Council reached an agreement on the Financial Perspectives. Nonetheless, especially from the federalist point of view, many problems were not tackled on the budget.

The Agenda 2007 agreement was an easy solution without ambition and thus extensive reforms must still be done for and within the EU budget in the near future.

The Agenda 2007 negotiations showed quite clearly the problems of the EU budget. To put it straight, at the moment there is no such thing as the EU budget - it is primarily a fund of 25 Member States.

First of all, the EU budget is far too small. With just a little over 1% of GNI, and roughly 120 billion euros per year, it is not a budget for 450 million citizens. Compared to national budgets and the US Federal budget the difference can be clearly seen. The US Federal budget is 30-times the size of the EU budget. Size really does matter, in every case.

Secondly, the financing is far too dependent on Member States since over 90% of it comes from them. The share of VAT and other EU’s own resources is minimal in the budget as a whole. This situation of Member State financing is currently resulting in a net payer vs. net contributor situation wherein each country calculates its payments and benefits on a national level. The EU budget is a national bookkeeping practice in which every country tries to achieve a maximum result - for them. No one cares about the EU budget as a whole.

The EU budget is a national bookkeeping practice in which every country tries to achieve a maximum result - for them.

The budget is balanced on national level and not on the level of the citizens. Taking Finland as an example, a Finn pays 300 euros per year to the EU while at the same time s/he would pay circa 7700 euros per year to the national government.

The balance is similar in all the EU countries - in fact, the EU is cheap, but very few people understand that. Admittedly, it is unfair to compare national and EU budgets since the EU is not a welfare state. Many argue that one gets nothing from the EU unless one is a farmer or lives in a poor area.

The dependence on the Member States’ financing affects also the EU spending. Over 80% of the EU budget is spent by the Member States. The financing must be balanced on spending by giving Member States their share in a form or another. On a national level different kinds of projects are planned just to get money from the EU. If a project is really valuable and important, why is it not financed by the State? The ideal situation would be for the EU to focus mainly on the financing on European level projects in which many countries are involved and which are important for the whole Europe, not just for one Member State.

As regards spending the EU budget is a relic from the past. It is meaningless to talk about the percentages on a budget which spends over 70% of the money to agriculture and rural development is not from this world. A 300% increase in the R&D funding is still less than 5% of the R&D funding spent by the Member States. This scale must be kept on mind all the time.

One thing is for sure, at its present state the EU budget is so distorted that it is useless to support the EU targets like competitiveness, economic growth or jobs. If we want to make the EU work the budget must be reformed. In practice this means EU taxation, refocusing EU spending, CAP reform, the abolition of the UK rebate and the increase of the EU’s own resources. An ideal EU budget would be independent, target-oriented and efficient.

Image: Dalia GRYBAUSKAITE - Commissioner for Financial Programming and Budget (Lithuania) Source: Wikimedia

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