EU budget: the poisonous ‘budget rebate’ debate

During the recent negotiations over the definition of the EU budget for 2007-2013, many national governments made extensive use of the notion of ‘juste retour’ [fair return], thereby taking up the stance that their contribution to the EU budget should be proportional to the amount of EU money they receive. In this study published by Notre Europe, Jacques Le Cacheux dismisses this concept as being both misleading and dangerous, showing that it is underpinned by a ‘questionable accounting approach’ as well as by a false perception of the EU integration project as a ‘zero sum game’.

Summary:

The “net national balances” on which European governments base their stance in the financial negotiations on the forthcoming medium-term European budget are the product of a questionable accounting approach to the economic and financial relationships between member states of a Single Market pursuing common policies. Initially funded through “own resources”, the European budget has become increasingly dependent on national contributions, which, for the past twenty years, has led to demands for “fair returns”. Yet the recent and past history of federations and other groupings of individual states offers numerous examples of the dangers of this kind of “accounting logic”. The conventions which determine this type of calculation are fairly arbitrary, while even minor changes to allocation criteria cause significant variations in these balances. But more fundamentally, it is the underlying economic reasoning behind these estimates that is at fault: levies and, to an even greater extent, expenditure have repercussions on member state economies. As a result, a geographical cost-benefit analysis of Community policies in an economic and monetary union does not show what the net balances alone would appear to indicate. The pitfalls of budgetary negotiations dominated by opportunistic strategies and national self-interest can be avoided by taking note of what happens in existing single or federal state systems and by dissociating spending decisions from financing decisions.

Please click here to read this study in full.