Cause and Effect in European Politics and Law

The EU Has again Shot Itself in the Foot with Budget 2014-2020

Adelina Marini, November 30, 2012

The failure of the special EU summit for Budget 2014-2020 is not simply a failure of the EU leaders to agree about money. It is about something much deeper that has been emerging clearer for quite some time - the internal EU conflict. The conflict between the EU of the institutions and the EU of the member states. While the institutions of the EU (the Commission and the Parliament) ever since the Lisbon Treaty have been fighting for "more Europe" and as of this autumn there is already talk about a "federation of nation states", the Council (the member states) is becoming engrossed more and more in surviving.

And this survival is not integrated at all, it is even at times everyone for themselves. Nor is it related to the EU as a common solution. On the one side there is the eurozone, clutched at finding an exit of the crisis; on the other side are the new member states, for whom it is crucial the money for economic cohesion not to decrease; on the third side are individualists like Britain. This is precisely why European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso stated after the interruption of the negotiations on November 23rd that it was about something very complex. But not the negotiations themselves are multilayer, but the very situation in which the EU finds itself has split into several essential layers.

The national egoism against the institutions

The European Union is at important crossroads and as usually the disagreements which path to be chosen are many and noisy. The eurozone crisis has challenged the 27 + Croatia with a new reality, which they are not ready to face neither as leaders nor as societies - without deepening of integration the euro is doomed. And although all EU member states (excluding Britain and Denmark) are obliged to sooner or later join the euro area, the questions when and why are at the centre of their actions. The EU budgetary framework is 7-year long, a sufficiently long period given the speed with which the ideas for deepening of the European integration, especially in the eurozone, are evolving. This is why, the negotiations have become a stake of the uncertainty surrounding the future of the Economic and Monetary Union (EMU).

If the Commission has bet on a budget oriented toward reform and which would have been perfect for a uniform Europe, the member states have chosen the status quo to reforms. The Commission proposal was a small step to a bold one and a big step from the status quo. That proposal contains the entire unfulfillness of the European integration - common investments in the EU transport network, ensuring smooth transport from east to west and from north to south (the Connecting Europe Facility); more investment in science and research because this is the EU added value - innovation, technological novelties that make the EU be a step ahead of the producing quantity but not always quality rapidly developing world; in the same time keeping with small reductions the main EU policies - the agricultural and the cohesion one, and all the rest that are present in one way or another in the current framework (2007-2013).

The member states, however, have chosen the status quo and thus they went 7 years back when the main dispute was reducing or keeping the size of the farm subsidies. The return of the negotiations to the fundamentals of the EU - the Common Agricultural Policy (CAP) - practically removed all the newly appeared competitors and left the director's baton in the hands of the big: Germany, France, Spain, Poland, Britain. All the others left the summit downcast.

The main arguments

The institutions insist that the EU budget is a small fraction of the sum of the national budgets and that the member states in fact spend much more than the EU budget, which on top of everything is balanced as well (cannot come out with a deficit). As an argument against the insistence of a group of countries the budget to be reduced in real terms, which, as the British premier explained, meant measuring the budget in payments not in commitments (as is now in the EU), Herman Van Rompuy recalled that compared to the current financial framework the budget was reduced in real terms by 80 bn euros. The European Parliament chief, Martin Schulz, said that the EU budget was not big at all. It is 50 times smaller than the sum of the budgets of the member states.

And the net donors are struggling for drastic cuts of conventional spending (that type of spending that does not have direct impact on growth and is practically consumption, like spending for administration, farming subsidies, etc.). Instead, they want more money for science, research, climate change that would have a real contribution to economic growth which, however, can hardly be applied to predominantly agricultural countries. Moreover, some of them want to return from Brussels with a victory - to show taxpayers (and voters) that at a time when all member states cut spending the European institutions do the same.

The disputes reached the level of who how big salary gets. At a news conference after the interruption of the negotiations on November 23rd, British Prime Minister David Cameron announced that more than 200 Commission staff earn bigger salary than him before allowances. " Any EU staff not from Belgium get a 16% expatriation allowance on top of their generous salaries, even if they’ve lived in Brussels for more than three decades", he explained. According to him, a reduction of salaries by 10% would save "almost 3 billion euros".

The new member states (but in general the group is of poorer states) are fighting the EU funds to remain in order to compensate for the lack of foreign direct foreign investments they so much need. Some of them are dependent on agriculture as well. For instance, in Ireland the share of farming subsidies from the EU funds the country received in 2011 is 77%, according to the interactive map of the European Parliament. France, traditionally, is the biggest beneficiary of farming subsidies that have a share of 72 per cent from all EU money the country got in 2011. With Poland the situation is very different - there, agriculture has a twofold smaller share than cohesion funds - 30% for agriculture vs. 67% for regional policy. In Bulgaria, the proportion between the two big policies is almost equal - 40 per cent for agriculture, 49% for regional policy. In Spain, agriculture prevails over regional policy - 52% to 40%. It is curious that in 2011 Britain spent 60 per cent of the EU funds on farming, while regional policy had a share of only 18%.

Among the other countries that spend a lot on agriculture are Italy (63%), Denmark (74%), Germany (56%), the Netherlands (46%), Austria (70%), Romania (64%), Finland (61%), Sweden (57%). These data are not surprising because the CAP is the first entirely community policy in the EU, created because of the food crisis after the second world war. Later, the farm subsidies turned into a defence of the internal market of the EU against not less subsidised farming produce from other global players or against the low prices of producers from the developing world that do not correspond with the same draconian measures for quality. It is no accident that the farm subsidies are the key in the negotiations within the Doha Round on global level. This is why they might not be market-oriented, but instead are a powerful political tool.

In the toughest situation are the "transition" countries which get almost equally from the two policies and they are crucial for them. A vivid example of such a transition country, which is in a very delicate situation in the negotiations for other reasons as well, is Spain. It is already a net donor, while in the recent past it was mainly considered a poor and needing external help. The fact that it now is an average EU country is not at all an occasion for celebration in Spain, which was heavily affected by the eurozone crisis and the question whether it will be the next "patient" of the eurozone rescue funds, after a special bailout was agreed for the Spanish banks, still remains. And as it persistently refuses to agree to the conditionality to receive a rescue loan, Spain finds it hard to defend its interest to continue to receive, if not the same money as in the past, at least not very much less as is foreseen for it in the next 7 years - 20 billion minus.

A European "Marshall" plan or reparations?

The problem, however, is at a domestic European level, where a large part of the EU are countries with devastated by the collectivisation during communism agriculture and which will need years to reach the quality and competitiveness of the produce of countries that have been benefiting from the CAP for several decades. And in spite of the enhanced pre-accession preparation, this cannot happen in a decade. Instead, the new member states, and also the poorer older member states, are especially dependent on cohesion funds which the illustration of the Europarliament for 2011 shows very well. The Czech Republic spends 59% of the EU money for regional policy, against "only" 37 per cent for agriculture; in Estonia too the cohesion and structural funds prevail with 53% of spending against 40 per cent for farming; Latvia spends 62% for regional policy; Lithuania - 59%; Hungary - 68%; Malta - 63%; Poland - 67%; Portugal - 66%; Slovenia - 62%; Slovakia - 59%.

Generally, if we draw a line and divide the EU into countries that spend more for agriculture and countries that pay more for regional policy, we will see that this line passes over, roughly of course, the tracks left by the Iron Curtain. In this sense, quite telling were the words of the Polish foreign minister, Radoslaw Sikorski, who in an article for the British newspaper The Guardian, recently wrote: "This is our very own late 'Marshall plan', thanks to which we may at last catch up and right the wrong that we suffered at the 1945 Yalta conference". In other words, this is an appeal to the older member states - you still owe us!

And as the disputes are yet to inflame (the one about the budget is only a part, there are yet negotiations to take place on the banking union, the future of the eurozone, the fiscal union, etc.), the EU will have to clarify for itself and among itself once and for all what do we need this Union for? Because it is obvious that the division is deeper than it was supposed to be against the backdrop of its initial purposes - a unification of the continent. If we judge from Sikorski's words, the repairs of the damages from World War II have not happened yet or at least are not complete. In similar spirit, although not sending back to the World War II, were the words of European Parliament President Martin Schulz in the beginning o the summit: "You have some very difficult negotiations ahead of you today. The lines of disagreement between you run deep. Please allow me, therefore, to remind you of one thing: the decisions you take today will shape the European Union of tomorrow". And here Martin Schulz is absolutely right.

On what will the leaders reach an agreement in January will depend EU's future, but it is being drawn as we speak. By the way, the budget summit on November 22-23 was expected to be overshadowed by the eurozone crisis. While the leaders were trying to switch over to the next 7 years, the financial ministers of the eurozone were seeking a solution for Greece. In December, the leaders will have to decide what kind of repairs the eurozone should undergo - an overhaul or cosmetic repairs - and the ideas up to date are quite ambitious - of President Barroso, of the Future of Europe Group. Everything will settle down when it becomes clear whether the eurozone will have a budget of its own or not. Something that Barroso's proposal contains, but is met with resistance by the non-euro countries. This is why, what the exit of the negotiations on the budget will be will depend on what will the leaders decide in December for the eurozone.