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The EU Budget: Is Change Upon Us?

Total EU budgetary commitments for 2011 will account for just 1.13% of total European Gross National Income (GNI) (Europa 2011). To put this figure in perspective, the US federal government spends approximately 20% of US GDP, or 20 times as much as the EU level. However, despite representing only a small component of total aggregate public finances within the union, the EU budget remains of crucial importance. This is because the makeup of the EU budget is not only central to determining the unions ability to realise its core policy objectives, but is also linked to wider questions surrounding the very nature of the EU and its evolution as a polity.

In view of the importance of the budgetary system to the European project, it may seem somewhat surprising that tangible reform of the EUs budgetary framework has remained somewhat limited in recent times. In fact, the status quo nature of the EU budget has largely been maintained, despite calls for budgetary reform being heard from academics and policy makers alike. Most notably, the 2003 Sapir commission was unambiguous in its labelling of the EU budget as a historic relic with expenditures, revenues and procedures which are all inconsistent with the present and future state of EU integration. Even the Commission in 2005 identified the need for the EU to commit itself to carrying out a compressive review of all aspects of the EUs budget including expenditure, revenue and structure. However, such calls have up until now largely fallen on deaf ears. Instead there continues to exist a large contrast between the perception of a large scope for budgetary reform and a de facto agreement on maintaining the status quo.

In fact, the framework for the current budgetary system was largely underpinned by reforms introduced back in 1988. These particular reforms placed multi-annual caps on European expenditure, and sought to merge supra national and intergovernmental elements into the decision making process. Yet crucially, under this framework the multiannual budget still requires unanimous agreement amongst all member states to be legislated. Furthermore, over 85% of budgetary revenue is still set to be allocated through what is effectively a system of intergovernmental transfers. It is the continuation of strong

intergovernmental elements across the EU budgetary process, which has given rise to a deep-seated juste retour mentality amongst member states. It is precisely this juste retour attitude which has led to member states prioritising the securing of their individual net financial position vis--vis the community budget over any other considerations.

The excessive focus on net financial balances on the part of member states, is strongly related to the stark detachment of current EU spending from political priorities. For example, over a period of at least 20 years EU spending has been focussed overwhelmingly on two specific policy areas, which have included the infamous Common Agricultural Policy (CAP) and Cohesion Policy. Together, these two policy areas have consistently encompassed over 75% of the total EU budget, which has left a small amount of room for new priorities. Despite occasionally being presented as representing regional public goods, it is highly questionable whether existing budgetary polices benefit the EU as a whole. What is clear, is that the current EU budget fails to reflect the Lisbon Strategy, which was set out by the European Council in 2000. The ambitious objective laid down by the Lisbon Strategy was to make the EU the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion (Europa 2006). If the EU budget is to better reflect this Strategy in the future, then there needs to be a radical overhaul of current expenditure priorities in the direction of research and development, education, transport and infrastructure. Currently, the EU budget is very much disconnected from these key areas.

It is in the context of this debate, that a broad array of reform proposals have been presented by numerous players. Reform proposals have generally focused on two areas: firstly, on re-focussing and modifying the expenditure and revenue aspects of the EU budget, and secondly, on making alterations to the decision making procedures which currently lays down the annual and multi-annual financial perspectives. However, before considering these different reform options, it has to be kept in mind that there exists a basic conflict of interest between the institutional requirements of efficiency and legitimacy. Notably, this conflict of interest is also accentuated somewhat in the EU budgetary context, due to the sue generis character of the institution in question. Thus, while the EU needs to ensure the efficient allocation of its budgetary resources, any measures to increase

efficiency need to be continually balanced against legitimacy considerations. This distinct political dimension is related to the willingness of citizens to accept the redistributive implications of a common budgetary authority, the citizens sense of belonging to that unit, and their willingness to part of a pooled system of sovereignty (Enderlein et al. 2005). What we often find when analysing the main proposals for EU budgetary reform that have been put forward in recent times, is that they fail to strike an acceptable balance between legitimacy and efficiency. Instead, many of the reform proposals have at best a limited impact on efficiency, or the resulting increase in efficiency is counteracted by an unacceptable decrease in legitimacy.

Considering, for example, the reform proposal of adopting future multi-annual financial perspectives by Qualified Majority Voting (QMV), as opposed to unanimity, amongst member states in the Council. Granted, at face value a switch to QMV would limit the veto power of member states, possibly reducing the status quo nature of the budget significantly. Yet, the unanimity requirement for the adoption of the financial perspective ensures that the distributive interests of member states is respected, and in doing so, it contributes significantly to the legitimacy of the EU budget (Linder 2006). As a consequence, the option of switching to QMV is unacceptable at present because it lacks the necessary basis in terms of legitimacy. The replacement of the present revenue system of national contributions, in favour of a real fiscal resource, is also regularly proposed as an option for reforming the EU budget. Among the alleged benefits of such a move, would be greater efficiency due to a heightened supply of regional public goods. Nevertheless, the introduction of what is effectively an EU tax would be highly contingent on the willingness of EU member states to allocate further powers to the supranational level. In view of the heightened degree of euroscepticism swirling around the continent at present, such a reform would also in practice lack the necessary basis in terms of legitimacy that is required. Evidently, many of the major reform proposals suggested for the EU budget upset the delicate equilibrium that exists between legitimacy and efficacy. Consequently, as long as the current state of political integration in Europe remains, we can expect at best only incremental changes to EUs budgetary framework.

Bibliography
Begg, I. (1999) Reshaping the EU budget: Yet another missed opportunity? South Bank European Paper, 5/99. South Bank University. Enderlein, H. & Linder, J. (2005) The EU budgetary Procedure in the Constitutional Debate. In Richardson, J. (ed) European Union: Power and Policy Making. UK: Routledge Europa (2006) The Lisbon Strategy. (Online) Available:< http://www.europarl.europa.eu/parliament/expert/displayFtu.do?language=en&id=74&ftuI d=FTU_4.1.html> Europa (2011) Budget 2012 in Figures. <http://ec.europa.eu/budget/figures/2012/2012_en.cfm> (Online) Available:

Linder, J (2006) Conflict and Change in EU budgetary Politics. Routledge: New York Sapir, A. et al. (2003) An Agenda for a growing Europe: Making the EU Economic System Deliver.