Blog Post

Same old Europe

The deal on the Multiannual Financial Framework 2014-2020, which will regulate the EU’s annual budget, is a missed opportunity. As in the past, the EU was captive to agonising negotiations in two separate European Councils for just a handful of money. The process clearly indicates that the EU budget is still perceived as an entitlement budget, from which each national government tries to extract the highest possible return.

By: Date: February 14, 2013 Topic: European Macroeconomics & Governance

In Prospect Magazine.

The deal on the Multiannual Financial Framework 2014-2020, which will regulate the EU’s annual budget, is a missed opportunity. As in the past, the EU was captive to agonising negotiations in two separate European Councils for just a handful of money. The process clearly indicates that the EU budget is still perceived as an entitlement budget, from which each national government tries to extract the highest possible return.

Compared with the deal struck for the previous MFF of 2007-2013, the only noteworthy difference concerns the size of rural funds. Back in 2005 national governments had agreed to devote 0.45 per cent of their GNI (gross national income) to spending on agriculture. Now the share is down at 0.39 per cent of EU GNI for a total budget that, if fully exploited, will barely reach 1 percent of EU GNI. Everything else is roughly unchanged including competitiveness and growth, which together account for 0.47 per cent of EU GNI against 0.46 per cent in 2007-2013.

Compared with 2007-2013, resources have been shifted from the cohesion to the competitiveness chapter—but this is partly cosmetic. Most of the funds under both headings have similar objectives, so they should not be treated separately. Also, not all of the planned spending in the competitiveness chapter materialises. In 2011, the European Commission had to de-commit more unused funds for the competitiveness chapter than for the cohesion chapter.

The politics may not have changed but there are two important new factors to account for, which concern the policy of the EU budget. One is that throughout the crisis the EU budget was used as a guarantee to provide financial assistance to countries in difficulty, whether they were in the eurozone (through the European Financial Stabilisation Mechanism) or not (through the Medium-Term Financial Assistance). To avoid exposing the budget to risks, the EU regulation establishing the EFSM stipulated that the value of the guarantee cannot exceed the “own resources” margin (the difference between own resources, ie the EU’s revenue, and payments). As own resources have now been set at 1.23 per cent of EU GNI, the margin for 2014-2020 is 0.28 per cent of EU GNI. Using the EU budget as a guarantee is a newish function for the budget—it may well be further explored in the future.

The second factor concerns the role of the European Parliament under the new Lisbon Treaty. It will have to give its consent to the agreement on the MFF for 2014-2020. Most importantly, it is co-legislator for about 70 pieces of law out of a total of 80 that are meant to specify some of the technical details accompanying the framework agreement. While the European Parliament can only accept or reject the MFF, it can propose amendments to this more technical accompanying legislation. This is an area in which, without being accused of jeopardising the the whole MFF 2014-2020, the Parliament can try to make a difference.

The process that led to the MFF 2014-2020 is the same as past MFF negotiations. Some changes at the margin are visible, but anything dramatic would require a complete rethinking of the governance of the EU budget, from own resources onwards.


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