EU spending is highly complex and inflexible. An own resources budget would help the bloc respond to new challenges and better address the concerns of its citizens, writes Ivailo Kalfin.
Ivailo Kalfin is a member of the High Level Group on Own Resources.
The activities of the EU are financed with less than 1% of its GDP. Compared to the size of the national budgets, the EU spends nearly 40 times less public funds than the member states. However, the EU budget is very important. The EU only costs a cup of coffee per day to every EU citizen, yet still expectations are very high.
Whether the budget is large or small, EU citizens are concerned with the quality and the efficiency of the use of their public money. And rightly so, as people see their national institutions as much closer than the EU ones. It looks like controlling national public spending is much easier than overseeing the same money once it has become part of the EU budget. This is not quite so. The EU budget is approved in a complex procedure where national governments and elected MEPs play a key role. As a rule, any member state can block the adoption of the common budget. The scrutiny is done by the European Court of Auditors, the national audit institutions, a special committee in the European Parliament and an anti-fraud unit (OLAF) at EU level as well as the bulk of the corresponding national institutions. All noted errors in spending are not financed with EU funds. I would say that the budget control system at EU level is more sophisticated and more efficient than any national level. Furthermore, a budget deficit is not allowed. The EU budget does not generate debt and there is a string of safeguards, ensuring that this principle is observed.
The complexity of the adoption of the EU budget also has its drawbacks. The budget is small, often not matching the political ambitions of the Union, and very, very rigid. It is adopted for seven-year Multiannual Financial Framework (MFF) periods and the annual budgets have to follow the MFF limitations. That makes it very difficult to adequately respond to new challenges and priorities that emerge within the MFF period. The flexibility of the EU budget is restrained on the one hand in order to assure the long-term financing of existing policies, and on the other to provide safeguards against unexpected additional expenditures. This puts the Commission, which proposes the draft annual budget, as well as the Council and the European Parliament who have to agree on it, in a difficult situation. They need to respond to the current political challenges, as expected by the citizens, and at the same time not to jeopardise the MFF ceilings and the financing of the long term policies of the Union.
If we ask the European citizens today about their priorities and expectations from public policy, it is most likely that issues like migration, security, economic growth and employment would come on the top. Back in 2013, when the adoption of the current MFF was finalised, migration and security were not major issues. So public funds for these policies are minimal. Now we face a totally different situation. Furthermore managing migration pressure and countering terrorism are policies where the EU definitely adds value, as no single member state can be efficient without common and coordinated efforts.
So when assessing the 2017 budget we need to consider both the restraints of the MFF’s limited flexibility and the obvious need to finance new priorities. The Commission did its best when preparing the 2017 draft budget. The proposal is to decrease the payments for one of the major budget headings – the cohesion policy – and to further cut the administration. The money will be used to increase payments under the headings of security and citizenship, financing policies to protect the external borders and to help the member states to deal with the refugees in an orderly way. There is also an increase to expenditure for economic growth and competitiveness. Still, the Council expects that in 2017 payments to fall by about €10 billion compared to 2016, from €143.5 to €133.4 billion. To mobilise more funds, the Commission elaborated additional instruments, generating off-budget resources like the trust fund for Turkey, where €2bn out of the €3bn for containing the refugees are expected to come directly from the member states or the European Fund for Strategic Investments that already generated €116bn for substantial investments, in which EU public money is multiplied fivefold, passing through the financial instruments of the European Investment Bank.
So far the Commission has presented the draft 2017 budget, the Council adopted its negotiating position on 20 July and the Parliament will do so immediately after the recess. Negotiations will start in September but the first signals from the institutions are that the proposal goes in the right direction and apparently they would not turn the budgetary debate into a major hurdle before the end of the year.
Still, many questions remain open. There will be appeals from the Parliament to increase the commitments of the EU in terms of humanitarian assistance and development aid in countries of conflict, in order to tackle the root causes of migration. There will be well-reasoned calls to continue the commitments for tackling youth unemployment in Europe. The Commission will have to be very clear how the increased funding for security will visibly affect border protection and the management of the refugee issue. In addition, decreased payments one year for cohesion do not mean less money overall. The MFF ceilings are clear, so what is not spent in 2017 has to be provided until the end of the current seven-year period.
However, the big budgetary debate on the accounts beyond 2017 is yet to start. A midterm revision of the MFF is due, but was postponed due to the British referendum. It might reopen the debate about the current priorities and eventually make the budget more focused on concrete policies until 2020. At the same time in the coming months the institutions will start the debate on the next multiannual budget. This is the time to address the big issues like own resources for the EU budget, fiscal instruments for financial stability in the eurozone and the coexistence between the EU’s long-term priorities and new challenges. And definitely, the result of the British referendum is a strong signal that we need a wide-ranging, open and public debate about the added value of EU policies, the way they are financed and the democratic control and the efficiency of the money spent. The budgetary debate will be a core element of the crucial effort to bring the EU and its citizens closer together.