De Geus: Better spending will preserve the EU social market model

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Ahead of the launch of a study on the added value of EU spending, Bertelsmann Stiftung chairman and chief executive Aart De Geus points at the savings EU member states could achieve if they pooled and distributed resources more efficiently, for example in diplomatic and defence services.

Aart De Geus is chairman and chief executive of the Bertelsmann Stiftung. A Dutch national, De Geus served as minister of Social Affairs and Employment from 2002 to 2007.

He spoke to EURACTIV Editor-in-Chief Daniela Vincenti

To read the story related to this interview, please click here.

Bertelsmann Stiftung will publish a report today [11 July] on the European added value of EU spending. Is it really possible to quantify the added value of each euro spent?

In principle, yes. This is the result of our exploratory study. We have done fundamental work by refining the definition of European added value as being the difference between the net benefits of spending at the EU level and the net benefits gained at the national level in the same spending category. And we have established a new methodology of how the concept can be operationalised to provide for quantitative evidence.

But allow me a general remark first: Our study on European Added Value is on cost savings, i.e. we calculated if a policy paid for by member states is more expensive than if the EU would be in charge of and and vice-versa. It is not answering the question if a certain policy serves its alleged purpose or is at all sensible.

Being able to put for the first time a price tag on this cost savings, we are positive that our findings will serve as an encouragement to other scientists and think tanks to apply the concept and develop it even further.

After all, our study is meant to clear the way for a contest that leads us in the end to save or free European taxpayers' money by a more rational assignment of spending between the EU and the member-state level.

Nonetheless, the calculation of saving potentials remains a true econometric challenge insofar as it is a relative concept and one always has to establish a counterfactual. For example, if you wish to prove if the Common Agricultural Policy is less expensive than the national agricultural policies replacing it, the costing of national agricultural policies is the unknown which has to be simulated. Such a simulation is bent on assumptions and thus error-prone. That is why we have been giving a painstaking account of our experimental set-up in all the policy fields we have been testing.

What areas are best suited for EU spending and what for national spending?

Foreign affairs is for long a textbook case for a federal competence. You will not find a single federal state where foreign affairs is not administered on the highest level. The same holds true for defence.

Other areas where one sees strong indications that centralisation of the task would reap efficiency gains are: Border control, internal security, environmental policies, climate protection and energy policy, research and development, transnational infrastructure, macroeconomic stability, as well as market regulations and guarantees of fundamental economic freedoms, trade and competition policies. As you can draw from this list the EU – due to the introduction of the Single Market – has thus far gained responsibility only for market regulations, the guarantee of economic freedoms, trade and competition.

The threshold effects expected by centralising spending does of course not mean that national expenditures in areas as for example R&D will become superfluous. Given that the lower level has always an informational advantage, i.e. knows better what are the needs of those who should profit from certain policies, decentralised national and regional and even community spending will be needed for social security, public health, consumer protection and labour market policies. Securing diversity that can strengthen competitiveness does make spending on primary education and culture a national task.

The reasoning behind the added-value concept is grounded in fiscal federalism theories. The assumption is that financial resources that are spent on the EU level in total deliver higher benefits compared to the same amount of resources spent on national or regional level.

Centralisation or decentralisation of spending has thereby specific advantages and drawbacks. Regarding centralisation, the expectation is that tasking the EU to take over will provide for economies of scale by drawing, for example, on a larger pool of resources as we were proving in the realm of international representations and integrated land forces.

Centralisation can limit wasteful competition in curbing subsidy races as we were able to show for the CAP.

Much of the EU spending went for years to the CAP and cohesion policy. What is the best way to combine EU and national spending to mutually reinforce budgets on growth-driven policies?

EU spending could serve as "carrot" in a carrot and stick-strategy to push structural reforms in the member states. To foster the buildup of a functioning public administration, for example, cohesion fund resources should reward successful national reforms. Equally, these funds might be used to cushion the impact of market opening and privatisation in the national labour markets. This combination of budgetary resources from the European level with structural reform efforts on the national level is particularly important and promising for the euro-area crisis countries.

As far as the CAP is concerned, it is not growth-oriented in its function. It saves money because it suppresses subsidy races. But we can think of European public goods – for example, the environment or the protection of landscapes – as cultural heritage the CAP could be contributing to. The recent budget negotiations – and the [European Parliament] played a strong role in this – have shown that the CAP is progressively moved in the direction of producing such public goods.

You single out in the report two areas – cutting down number of embassies and integrating European land forces. But these are sensitive areas that impinge on national sovereignty. Are you advocating for a more federal Europe?

The United States of Europe is indeed a blueprint for the future of Europe we at the Bertelsmann Stiftung actively promote. We are not naïve that we think that this will become true anytime soon. But we are convinced that Europe will only be able to play a distinctive role in global affairs it if it becomes more united and makes better use of its resources. That is why we calculated the price to be paid for national defence autonomy versus a European defence.

Notwithstanding our convictions, we have been taking up in our study a cautious approach regarding foreign affairs as well as defence. We have not calculated a full-fledged integration of foreign policy but the potential cost savings that occur if, for example, the task of helping European citizen to get assistance for their lost passport would be communitised. That is really not impinging on national sovereignty. Especially as the Treaty of Lisbon has granted European citizenship. Already by today, every European citizen travelling outside the EU in a third country can turn for consular assistance to an embassy of another EU member state if his country happens to have no representation there.

Is it really possible to reform the EU budget, for example by giving the Union its own resources?

We don´t know. We will see. But with our study, we are advocating another reform path. That is the path of more rational spending by a more rational assignment of the spending level. By making clear what is the European added value, a more sustainable framework can be developed.

One problem of quality and value-added spending is the scrutiny. The Court of Auditors focuses too much on the legality of spending, rather than on legislative performance – spending that has had ripple effects and produced growth and jobs? Isn’t there a need for more EU scrutiny?

We should remind ourselves that the European Social Fund and the other funds were set up in first place as adjustment funds. Only with the economic situation deteriorating the call was on for an outright role of the EU budget in producing growth and jobs. And here we are in the midst of a war of opinions.

Is the state level at all able to fund growth and jobs? Or can it only create the right conditions by deciding on structural reforms that empower business to create growth and jobs? Whatever the answer to these questions, one is for sure: Cutting back on social transfers, public services and investments seems to be no recipe to deliver the public goods needed to enable and protect European citizens in a globalised world.

With the road to further deficit spending blocked, the question is: How long politics will afford the luxury of ignoring the added value argument?

Would you say that better spending would make better Europeans?

Indeed, efficiency gains would strengthen our position at home and in the world. We would have more money available to deal with the challenges of globalisation. Not least, better spending would enable us to secure our social market model, which is truly a European invention which makes us distinct and which we should keep under any circumstances.

On another note, we would provide for better outputs that would certainly strengthen the legitimation of the EU and raise its standing among European citizens.

For me it is difficult to think of a better argument for more Europe than that the EU can help member states to save money.

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