Study shows EU spending can save taxpayers money

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Taxpayers and European governments would reap substantial savings if more resources were pooled at the EU level, says a new study that also examines spending on defence and diplomacy.

The Bertelsmann Stiftung study, released today (11 July), says common policies have paid off and saved billions of euros.

“We have put for the first time a price tag on the cost savings that EU and member states could harvest by applying added-value considerations to their budget decisions,” Aart De Geus, chairman and chief executive of Bertelsmann, told EURACTIV in an interview.

Every euro spent at the EU level would exceed the net benefits of national spending, the study says.

The study shows that the Common Agricultural Policy (CAP), the EU’s largest programme with a budget of more than €50 billion every year, creates European added value insofar as it prevents subsidy competition between the member states while also reducing political and economic distortions.

In 2010 alone, a renationalised agricultural policy would have cost member states around €23 billion more than it does currently through the EU budget.

Looking at the cost savings for a more centralised foreign policy, the experts found that the gains would range from €420 million and €1.3 billion per year, if governments reduced the number of their diplomatic missions and pool their consular services.

“Foreign affairs is for long a textbook case for 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,” said De Geus.

The study points at a common defence policy, which will be on EU leaders’ table at the December summit. The authors estimate the savings potential on wages alone at anywhere between €3 billion and €9 billion.

Member states currently maintain 890,000 soldiers. These land forces could be reduced to 600,000 if the 28-nation bloc were to increase defence harmonisation, the report contends.

Other areas where centralisation can reap efficiency gains include 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.

Carrot and stick

At a summit on February, EU leaders reached agreement on a €960-billion budget for 2014-2020, representing the first net reduction to the EU budget in history. But after a political compromise, all money will be spent, which was not the case with the seven-year budget period that ends this year. Some €50 billion of unspent money was reimbursed to member states over the 2009-2013 period.

The Parliament also won agreement for a mid-term budget review, scheduled to take place in 2016, so that the next Commission would not be condemned to seven years of austerity.

“EU spending could serve as ‘carrot’ in a carrot and stick-strategy to push structural reforms in the member states. To foster the build-up of a functioning public administration, for example, cohesion fund resources should reward successful national reforms,” De Geus said.

Centralisation and decentralisation

The 2016 budget review will also relate to the system of "own resources" for the EU's future finances, which the Commission said could include an EU VAT, a charge related to air transport and a share of auctioning revenue derived from the bloc's emissions trading scheme.

More and better EU spending will not only allow it to gather resources to finance the EU long-term strategic goals spelled out in the EU 2020 strategy, the Bertelsmann analysts said. Better resources would also enhance people’s understanding that the EU is not a mere cost-benefit analysis, as additional money can be invested in human capital and nurture the EU social market model.

Taking unemployment as an example, the EU has earmarked €8 billion for the so-called youth guarantee, which is supposed to bolster the prospect of Europe's young people in education, employment or training and to better prepare them for the needs of the job market. But some are deeply concerned that the funding is not enough to make a difference.

“Europe in the end is not an economic, but a political project,” said De Geus. “If politics wants to regain new room for manoeuvre for fiscal rationality, it cannot be omitted for much longer, given the financial constraints in which member states operates,” he said, adding that added value considerations should guide any reform of the Treaty.

“New thinking on added value of EU spending should guide an EU reform of the treaty and decide who pays for what and this might lead to centralisation of tasks, but also the EU might lose competence because of renationalisation of certain policies, which we will find are done more efficiently at national level,” he said. “Added value is about optimising.”

The study was completed jointly by the Bertelsmann with the Centre for European Economic Research (ZEW) and RAND Europe.

The Commission presented its proposal for the multi-annual budget 2014-20 in June 2011. The member states issued their position on it at the European Summit of February 2013.

The European Parliament adopted its position in a resolution in March 2013. Following intense negotiations, the European Parliament, the Council and the Commission reached a political agreement later approved by Parliament in a resolution. The European Parliament has given a tentative green light, provided that the 2013 budget is agreed in the autumn.

As the majority of programmes run out on 31 December 2013, the new sectoral legislation must be adopted before that date to secure funding for millions of EU beneficiaries. 

  • 1 Jan. 2014: Multi-annual financial framework 2014-2020 
  • 2016: Mid-term review of the MFF 2014-2020

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