Liberals in the European Parliament are readying their boxing gloves after unveiling an 11-page blueprint demanding a radical shift towards an EU budget based on own resources, rather than relying on member states' contributions.
"We have to drastically change the financing of the EU," said Guy Verhofstadt, leader of the Alliance of Liberals and Democrats for Europe (ALDE) group, the third largest in the European Parliament.
"The present system is not a good one and it is not what our founding fathers wanted," he claimed, presenting his group's proposals yesterday (11 January).
Verhofstadt argued that if the European Union could secure its own funding, the EU institutions would become directly accountable to citizens.
"It is not only for financial reasons but also for democratic reasons, as it would give European citizens the opportunity to directly control European policies," he said, adding that establishing a direct link between taxpayers and EU expenditure would improve trust and accountability.
Today, the European Union gets more than 75% of its budget from member states' contributions, which are set at 1% of EU Gross National Income (GNI), while the EU Treaties set the ceiling at 1.24% of EU GNI.
Other sources of revenue include customs duties, agricultural levies and own resources generated by VAT.
Recent battles over the bloc's 2011 budget offer a taste of the fight that may loom ahead. EU leaders strangled by a severe economic crisis insisted that the EU must tighten its belt and show the same level of austerity as member states. As a result, the budget for 2011 will only increase by 2.91% compared to 2010, just half of the increase proposed by the European Commission.
At stake is not only the implementation of the EU's long-term strategy for growth and jobs, dubbed 'Europe 2020', but also the political innovations introduced by the Lisbon Treaty, including the bloc's newly-formed diplomatic corps.
Last year, UK Prime Minister David Cameron rallied against increasing the Union's budget and convinced other leaders to spell out in EU summit conclusions that as fiscal discipline is reinforced in the European Union, "it is essential that the EU budget and the forthcoming [long-term budget] reflect the consolidation efforts being made by member states".
But the Liberals were yesterday keen to point out that the EU budget only increased by 8.2% between 1996 and 2002, while the average increase in the national budgets of member states during that period was 22.9% for the same period.
ALDE accepts the arguments in favour of cuts, but "in the longer perspective we see the need for the EU budget to live up to the obligations of the Lisbon Treaty and the goals set in the Europe 2020 strategy," said Finnish ALDE MEP Carl Haglund, his group's coordinator in a new European Parliament special committee set up in July 2010 to devise a new multi-annual financial framework for the post-2013 EU.
Scrapping national rebates
The Liberals believe the current EU budget structure is not fit to fulfill the long-term obligations of the Union and advocate for a return to own-resources funding. They also want to abolish all forms of national rebate.
In the past, individual member states have negotiated all sorts of rebates on their contributions, based on the fact that much of the EU budget is spent on the Common Agricultural Policy, which benefits some member states more than others.
That was the line held by UK Prime minister Margaret Thatcher in 1984 when she reportedly banged her purse on the table and asked for her money back. The UK net rebate, which is still applicable, will decrease from €6 billion in 2009 to roughly €3 billion in 2011.
European bonds to finance EU budget
Verhofstadt has been pushing for the Union to get its own resources for years. In a book published in 2009, he wrote that it would be better for the EU to obtain revenue from environmental and consumption taxes, arguing that these were not new taxes.
"The own resources that the Union gets would be deducted from the national contributions and therefore make it possible to [reduce the] national taxes to be contributed," according to Verhofstadt.
The Liberals are also arguing in favour of European bonds as a way of financing large pan-European investments or raising funds for unforeseen circumstances.
Verhofstadt cited as an example the European Financial Stability Mechanism (EFSM), under which the European Commission last week made a five billion eurobond issue to provide financial support for Ireland.
The interest rate of the loan to Ireland was set at 5.51%, putting the cost of borrowing from the EU at 2.59% plus a margin of 2.925%.
This margin returns to the EU budget and is distributed to the EU's 27 member states at the end of each financial year. "Without any fight we have there a way to get our own resources in the European budget," Verhofstadt said.
According to the Liberals, returning to an own resource-based funding method would also improve the alchemy between the European Parliament and the Council, as it would put the two arms of EU budgetary authority on a more equal footing. As it stands today, the European Parliament is the only parliament that has no say on the revenue side of a budget.
Abolish EU institutions to save money
Conscious of the row with member states that is sure to lie ahead, Haglund said the ALDE group believes that a fundamental restructuring of the EU's administration is necessary. The Committee of the Regions (CoR) and the European Economic and Social Committee (EESC), which represents employers, unions and civil society, are the targets of the streamlining envisaged by the Liberals.
"The CoR and the EESC, in the form that they are in today, do not bring enough added value to the policymaking process," said Haglund, noting that together they cost the EU over €200 million a year.
Another idea in the pipeline is abolishing the monthly circus of MEPs travelling to Strasbourg, which costs European taxpayers approximately €200 million a year.
To save money, ALDE also wants to see better synergies with national budgets and suggests involving national parliaments in the debate ahead.
"EU spending must always create a greater value than the aggregated individual spending of member states," reads the blueprint.
More budget flexibility
Verhofstadt also wants to increase the flexibility of the EU budget, which he described as an essential tool for allowing the Union to react to unforeseen circumstances.
Experience has shown that lengthy and difficult negotiations to transfer funds from one heading to another have delayed timely implementation of important decisions.
The ALDE blueprint stresses that since the entry into force of the current Multi-Annual Financial Framework, which runs until 2013, five revisions have been adopted in order to finance Galileo, the European Institute of Technology, the food facility and the Economic Recovery Plan.
None of those changes were painless.
