Interview with Commissioner Grybauskaite on the financial perspective

Budget Commissioner Gyrbauskaite talked to EURACTIV on the failure of the 16-17 June EU Summit to reach an agreement on the financial perspective, the EU’s long-term budget framework.

In April 2005 you warned that the EU would be paralysed if there were no agreement on the financial perspectives (FP) in June. Is the EU therefore now paralysed? 

I meant that by 2007 it will be paralysed – because we need about 12 to 18 months for the legal basis to be prepared after the deal has been settled. As we have failed to reach an agreement on the FP by June we are already risking leaving 40 percent of the European budget in January 2007 very difficult to execute and not at all practical. Chiefly affected will be cohesion policies, all regional support to both new members and old cohesion countries, all research, all educational programmes, all multi-annual programmes – they will all be difficult to execute in practice. 

But if my memory serves me right, in the past even Agenda 2000 was very late. Even later than what is envisaged now. And then the EU was not really paralysed. So are you not dramatising the situation? 

No I am not dramatising. To be very precise all cohesion projects only started in 2002 and after exactly a year and a half [after the FP agreement was reached]. So we lost some time and, partly because of the so-called ‘endless tunnel’, the absorption capacity of member states was threatened. What we lost or not we will know only by the end of 2006. 

On the other hand in another interview you said that you were quite pessimistic that the new UK Presidency could reach a deal in the next six months. Are you still pessimistic about this?

Up to the meeting on the 1 July 2005 in London it was very clear that, at least for now, at this stage the UK Presidency is ready to invite further discussions but not yet formalise goals for itself to reach a deal. I think the decision by the presidency will only be made after the October seminar on discussions on the future of Europe; that means that at least for the next few months there is a great deal of uncertainty on the intentions of the presidency, which, combined with this quite aggressive rhetoric to some policies of Europe, splits more member states than it unites. On this basis I formulated an opinion that the risk of no agreement in this Presidency is a lot larger than it was for the previous one. 

For some media the main reason for the failure of the summit to reach a deal with the financial perspective was indeed the British rebate. Are you of this opinion? Or are there other stumbling blocks on the table? 

The rebate was the main stumbling block. Not the only one but the main one. 

What was on the table at one point when they were close to a deal was a budget based on 1.06% of EU GNP in commitments. Is that something the Commission can live with?

Evaluating the package, the Commission were at that stage keeping their reservations. Officially we were saying that if this was the final result we would still like to consult with the Parliament. But taking into account the minimum necessities especially for cohesion policy, CAP and competitiveness (which anyway was doubled comparatively), I can now make a calculation. If there was no agreement that means that there is nothing on the table at present. But this compromise [1.06%] was very close to being accepted by all three EU institutions. It was very close to the solution as a compromise, but now we can only speculate. 

So do you actually envisage taking your own initiatives now to get the discussion started again or is everything back to the position where it was before? 

We very much hope this is not the case because in the Council decision there is wording recommending that member states and any future presidency should take further what was negotiated by the Luxembourg Presidency. Not to start from scratch. I very much hope that the UK Presidency will use this recommendation that was adopted by all 25 members with the Council as a background for negotiations. So it makes no sense to anyone now to start from scratch. If we look back at how long it takes, the whole cycle of preparation for the financial perspective takes about 3 and a half years. So including discussion in the Parliament, the Commission and so on, we cannot afford to lose any more time. 

Doesn’t the UK government have a good point that the EU should put its finances where its mouth is if the EU wants to meet the Lisbon agenda objectives, so have more money for research, innovation, jobs? 

Let’s be very clear. The necessity to reform the budget is urgent. The necessity to reform Europe is urgent. The budget can only reflect what is going on in Europe. If European economies and policies do not undergo reform, how do you imagine the European budget could be modelled? From this point of view the British initiative to push for the Lisbon agenda and push for reforms will absolutely lead to a more modern budget in the future. And I support this wholeheartedly, even from the beginning I was very critical that today’s European budget is not a budget for the 21st century and that’s a fact. 

Now let’s look into the matter with political pragmatism. Can you achieve this in four or five British Presidency months? With unanimity? No. So what does this aggressive rhetoric from the British presidency side mean? Do they want consensus and a deal on finances or not? It’s one thing to talk about the necessity of reforms and another thing to talk about the political responsibility and capability needed to implement these reforms. Are these reforms for the four or five months before us? No. Who is against reforms? Nobody. 

And in negotiations the Commission proposed a mid-term review of the budget by 2008, knowing that we need financial back-up and we need a European budget that is running and financing the main policies. And, it recommended, during this time to enter into deep discussions and prepare the reforms. Take the example of the CAP reform. It started to be discussed in 1998 and was finalised only in 2002. It took more than 3 years of serious in-depth discussions to reach a deal. So be serious – if we’re talking about reform it is serious. 

But of course the British are not the first to voice some of these criticisms on the financial perspective method. There were already some in 2003 the Sapir report, which apparently they have now suddenly rediscovered because they are now talking about it all the time. But in the Sapir report the experts called the financial perspective a relic of the past, and that was before the Commission came with these new proposals. So do you agree that there was not really enough done in building on this report? 

Let’s be again more responsible about what we are talking about. The Sapir Report was requested by the Commission. It was a group of scientists and think thanks who produced it. And there is nothing at all to criticise about this report – it responds to Europe’s current need perfectly. But as I said, the academic vision of think-tanks is one thing, concerning more or less the long term goals for Europe, and the goals which you need to do today, and in the mid-term, are another thing. And if they’re in the framework of, say, this administrative structure of decision-making in Europe (whether 15 or 25, in most cases unanimously), this was already criticised in the Sapir report as the practicle obstacle to radical reforms. 

Taking all this into account, it is one thing to have a vision of what Europe needs to be targeting, but today we need the financial resources to be able to run what is necessary to be run. And during that time, nobody from any of the member states takes up the responsibility of engaging in preparation for reform – and not only the budget. As I said, the budget is only the reflection of what is going on in economic policies. In March the Council, including Britain and all member states, relaunched the Lisbon strategy, accepting and acknowledging the necessity of reforms. 

It is not an achievement, sorry to say, of the British Presidency. All member states unanimously admitted that they had done almost nothing in five years, and needed to do something urgently; so everyone understands the necessity. Can we achieve this in four or five months? No. Can we pay the price of jeopardising the financial perspective today? No, I don’t think so. So what’s going on? Is it just populist rhetoric, or does someone really want to do something, really? We’ll see in some months, very soon. 

But how much of the Sapir report has actually gone into the Commission proposal? 

The report mainly affected proposals for growth, agenda and competitiveness. This is the correct balance as the economy is the priority and the budget is a reflection of what is happening. And in the Sapir report, that is exactly the case. Firstly growth and employment policy, competitiveness and so on. Not forgetting, of course, the necessity to finance this, including investment and research development. Only then, the report was talking about how the budget should look in the future if these policies are already implemented or realised. 

In our proposal we already tried as much as we could within the parameters of political reality. Already in this Commission proposal, agricultural spending was reduced by 10%, from 46% to 36%, by 2013. But because of the 1% target group, the budget limit was squeezed to as low as possible and the 46% figure was reintroduced. And later it will be revealed who made the initial mistake here, because now the UK Presidency is inviting us to discuss policies and priorities before returning to the subject of money. But who signed the 1% target a year ago without discussing policies? First we faced the 1% limit – and at that time, nobody had even mentioned the necessity of reforms, including concerning the budget. 

For the general public, it must be very difficult to understand what went on in the last EU summit. The financial perspective debate has been about percentages and figures whereas it should be a real, interesting discussion involving the citizens of Europe about the EU’s priorities. This has not been the case. Has the Commission really tried to ignore the 1% figure and focus on priorities? Even the Commission was arguing over this percentage. 

Not exactly. First we established what needed to be financed, then we emphasised a new area, instigated mainly by old member states and the Presidency, on development and competitiveness. In our proposal for competitiveness and research, investment was doubled. In particular for research we proposed twice the amount of resources. In reality what happened, and this is most fascinating to observe, is that on the most modern parts of the budget – research, competitiveness, education, the trans-European network – all elements which had the European added value were immediately cut. 

So here we can see a direct contradiction between nice rhetoric on reforms, and then returning to the negotiating table to find that cuts have only been made to the reform package, touching neither agriculture nor cohesion as these policies are already in the treaties so you cannot manipulate them too much. On the other hand, everything proposed by the Commission was instantly cut. And if you want an example then take the first and last move of the British Presidency – the 2006 budget – where the cuts are only really made to research, innovation and education. Not in cohesion, not in agriculture. 

To finish with a reference to the Sapir report, we already envisage a quite radical decrease in agriculture spending and a radical increase in rural development, which is the more market-oriented part of agriculture. Also, a doubling of research and development and a lot for competitiveness and trans-European networks, which has never been before on such a scale and previously was mainly concentrated on European value-added. Then we have an approach that was not about projects but about monies. Of course, automatically agriculture started to be a large one and other things, the most modern ones, were cut. In these circumstances, in which most governments were talking and reading and understanding about the necessity of reforms whilst doing the opposite when at the negotiating table, I think the Commission’s proposals went as far as was possible at the time, using Sapir’s proposals as much as possible. 

But isn’t the problem there that indeed, all this rhetoric about reforms gets into a conflict with this logic of juste retour [fair return]. How can you get out of this logic of juste retour, what can the Commission do, maybe not now but in the future? 

If I can answer in terms of the origins of the issue, the European budget in the 1960s and 1970s never involved the question of juste retour invoked by any of the founder members – it concerned only financial solidarity as the goal of European Union. The first country to bring up juste retour was Britain. The first time, it was Margaret Thatcher who said: “Give me my money back.” 

This was the original phenomenon in European history that introduced this poisonous element into financial discussions. And now we have an increased element of this. No one imagines that, for example, they will ask why membership fees for the United Nations are not being returned to Britain or Germany or Lithuania – because we know that it’s going to poverty, it’s going to fight terrorism, or whatever. And that is why all members volunteer to pay their fees. So why in Europe, after 20 or 30 years of existence, was this changed to a direction that is absolutely against financial solidarity and all the elements on which Europe was created. And now we face this phenomenon that most member states only discuss how much they pay and how much they receive – it is the most poisonous tendency that we can identify. 

Of course, there are a lot of proposals and one group including advocates of the Sapir report and most so-called pro-European scientists talk about financing the European Union independently. An independent source of funds would be less dependant on decisions made by national governments and could be funded mainly by the citizens of Europe. However, we are not yet ready to tackle these questions. If Europe adopts an integrationist approach and goes in the direction proposed by the Convention, it will be following a path already rejected by a Council decision. 

We can now see proceedings going in the opposite direction, and in discussions what we hear from most member states – twenty three from twenty five – is based purely on gross national income, that means based on the decisions made by governments. […] As a pragmatic person I can say that achieving this independent source of funding by the nearest mid-term is very unrealistic. At the same time, the necessity is continuously growing and larger and larger battles will develop as a result. Why are there taxes on financial services or taxes on VAT or corporate incomes? We will discuss these issues and we will propose something by 2008 as we promised to the Parliament and Council. 

But isn’t there a good reason why so few countries are in favour of these independent sources of revenue? Isn’t it because citizens don’t actually want to pay money towards funding the EU as they aren’t even clear about what the EU is doing? The Dutch government was under pressure, especially after the referendum. They had to harden their position as they knew that following the outcome people were more negative towards the EU and therefore unwilling to pay. 

I can say that this is absolutely not the case. Consider how one or more governments have misused the referendum. The arguments used were mainly to blame Brussels or blame Europe – blame for failures or an inability to manage domestic affairs. In the latest Eurobarometer we analysed the reasons for failure. Europe wasn’t a main reason – it was largely a vote against internal policies, against national governments. So I can confidently say that failure is attributable to over ten years of misuse of Brussels by European governments – to shelter or hide behind Brussels or Europe to cover up their own domestic mismanagement, in most cases. It is mainly decisions by governments and not by people. Nobody really talks about the views of their people. It is mainly decisions made by governments to use their own resources. 

On a topic related to the rebate, you proposed this general correction mechanism. Is this now completely off the table if you start from where the Luxembourg Presidency proposals left off? 

In my personal opinion I do not think that any corrections are good. If we are talking about financial solidarity, before 1984 nobody was talking about the rebate. Since 1984 we started having the rebates and the budgetary system became very complicated, lacked transparency, became difficult to administrate and lacked efficiency. Yet, this is the decision of the Council, or of member states. Each new financial perspective further complicated our own resources system.

Today, because there is no agreement at all, we can say that anything can be changed. Although it is helpful to use what was previously achieved as a good foundation, nothing prevents us from making any further changes. If member states have enough courage and logic to propose changes then this will happen. We thought that, to be able to abolish the exclusive situation of one member, it would be good to introduce a general correction mechanism. Some countries were in favour of this, while some were against. However you will never be able to introduce a proposal that satisfies everyone, because poisonous discussions regarding financial solidarity result in the situation we have now. 

If I understand you correctly, you are quite pessimistic about reaching an agreement at some point, maybe even beyond the UK Presidency? 

No, quite the opposite. I think that the more we criticise the political rhetoric, the more it will hopefully provoke some feeling of political responsibility among member states. At least then we will be demonstrating that we want results. We want some real efforts to be made, not just to listen passionately to discussions. So it is our duty to push member states into reaching an agreement. Eventually an agreement will be achieved, but the timing has a price. 

Do you feel like the difficult situation of having the referenda on the Constitution at the same time as your financial perspective debate has led to this kind of political rhetoric? 

Partly yes, because if we take into account the objective environment in which we started negotiations, this is partly the reason why the 1% club asked questions. Of course it was the economic problems in most old European countries. Their growth and unemployment, their stagnation and economic problems concerning the social security system and so on. All these factors put pressure on public opinions and this of course influenced the national governments’ opinions. Obviously considerable pressure was placed on member states, especially when we consider the added complications from elections, the Constitution debate and the referenda on the Constitution. Plus we have the negotiations on the financial perspective. Of course all these conditions did not simplify matters but further complicated the background for negotiations. 

Talking about elections, there are some coming up in Germany that could change the situation completely. Do you expect the new German government to have a similar approach to the financial perspective as the Schröder government or do you think there will be new emphases that could complicate the situation? 

The German government has always been quite strict, because, objectively speaking, the economic situation there was not the most optimistic. And, of course, the German government has been traditionally quite strict and stuck to a 1% limit. Nevertheless, President Schröder did make some concessions during the negotiations and was willing to make compromises. Usually, if we look historically, this country was always very supportive towards the European idea, regardless of the person in power. We do expect the new government, if it will indeed be newly elected or changed, to generally keep the same attitude – quite strict, quite pragmatic but still very much pro-European. So, from this point of view we do not expect some serious or radical complications. There may of course be some differences in interpretation or actions, a softer line perhaps in dealings with other countries or member states. However, in general we envisage strictness because it is the common attitude of the government, not just one or two members; and we still hope that this country will be helpful in finding a compromise no matter what government is in power. 

As one of the new member states’ commissioners, do you feel disappointed about the national interest focus of the EU-15? In the last summit it was clear that some of the new member states were a lot more open to compromise than the older ones. 

I think there is an element of disappointment because enlargement was a huge experiment in Europe and ten new members arrived with lots of hope and a positive attitude towards the European idea in general. I can allow myself to say that all of us are still very much pro-European, eager to have unity, to have common goals achieved. And we were seeking not only economic support, but political support and to participate in the construction of the future Europe. This was our goal when we came and it still is our goal. In most of the new member states, people are still very positive about Europe. For us, in reality, it was a type of cold shower. 

You must have learned some lessons from your first experience as commissioner responsible for the financial perspective. What recommendations can you give to the next commissioner who will have to deal with the next phase? 

The job is not yet done, including the negotiations on the financial perspective. So allow me to answer your question when I’m in my fourth or fifth year here as commissioner. The job is still in its infancy and I still need to do a lot and learn a lot, so from this point of view I think it is too early to speculate. 

You mentioned that there is still a need to reform the way in which Europe deals with its financial perspective. Does that mean that after you have an agreement now, either in six months or a year, you will start a discussion on a more structural reform? 

I would be willing to do this and I hope that it will be possible. If not to implement reform, then at least to propose it for possible implementation in the next financial perspective. Because we will propose some ideas on how to reform and what actions should be taken by the end of 2008. Is it possible to implement these during this financial perspective? I’m not sure, although let’s consider all possibilities. However I’m very certain that the necessity to have a different financial perspective and a different structure from 2014 will be extremely urgent. So it is very clear that we can have an input and provide at least academic input to fuel discussions and propose concrete changes as an executive body. At least for the next financial perspective, although I’m sure some things can be achieved from 2009. 

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