EU wage premiums hurt potential for European added value

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

The debate on EU salary levels should not be discredited as a merely populist exercise. Effectively, it is also a debate on the potential future role of the EU in the provision of public goods, say Friedrich Heinemann and Stefani Weiss.

Friedrich Heinemann is head of the Department Corporate Taxation and Public Finance at the Centre for European Economic Research (ZEW) in Mannheim, Germany. Stefani Weiss is director of the Future Europe department, Brussels office of Berthelmann Stiftung.

"4,365 EU officials earn more than the German chancellor."

This was the catchy headline of a German newspaper, Die Welt, these days. Adding fresh fuel to the arguments of notorious EU sceptics the direction of impact is as obvious as timely: Germany should press for further cutbacks in the multi-annual EU budget, currently under negotiations.

While the particular comparison was new and quite creative, the debate is old. Thus, the reactions to the headline were almost ritualistic: Populist critics mourned the outrageous profligacy of EU spending and fed feelings of envy.

Defenders either pointed to some methodological flaws in the newspaper's calculations or to the labour market's competitive pressures which makes it ever more difficult for the EU to attract highly qualified, multilingual personnel.

Unfortunately, an important aspect is completely absent from the debate: The payment level of EU civil servants acts as a constraint for the potential shift of new tasks towards the European level and as a possible obstacle for the EU to create the much sought after European added value.

A recent research project of the Bertelsmann Stiftung conducted together with the ZEW Mannheim and RAND Europe looked into fields where the EU should have clear cost advantages in providing public goods and services compared to the national or regional level.

The study substantiated some of the potential cost savings from Europeanisation for consular services and defence.

Today’s provision of embassies and consulates by EU member states all over the world suffers from very costly redundancies. In New York, for examples, 24 EU members finance their own representations.

A European approach would be able to cut back costs without reducing the quality of service for European citizens abroad. The study quantifies the potential cost savings in a range between 6% to 19% of current spending – which would indeed be a sizeable European added value.

Equally, for European defence, a “European army” which would replace the multiplicity and redundancies of 27 armies would entail substantial cost saving potential. Here the study sees a savings potential of around 30% with respect to the required staff for integrated land forces of a European army.

The problem, however, is that the calculated cost savings crucially depend on one key assumption: The transfer from a national towards a European responsibility must not entail a wage-push. The Bertelsmann Stiftung-ZEW-RAND study is based on calculations according to which the future European staff is paid somewhere at the average of today’s national staff.

All the potential cost savings would be reduced or even turn into a cost disadvantage if wages of an EU provision converge to the top (or even above) today’s national spectre of salaries.

This points to a serious and overlooked consequence of today’s wage premiums for EU officials (which may be contested with respect to their size but not regarding their existence): Today’s payment scales in EU institutions will be the obvious anchor for wage negotiations for any new EU service which may be created in the future.

This is a fundamental handicap since there are hardly any public services where the cost advantages from economies of scale could compensate for this wage push.

Less staff may be needed in an EU embassy, but if all Portuguese or Polish diplomats suddenly get EU salaries today’s national and fragmented solution may be the better deal for European taxpayers.

Thus, the debate on EU salary levels should not be discredited as a merely populist exercise. Effectively, it is also a debate on the potential future role of the EU in the provision of public goods.

Therefore, some of the defenders of the current income levels might better give a second thought to the issue. In particular those with European ambitions, who regard a larger role of the EU as desirable, should lobby hard for a more affordable payment scheme for European staff.

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