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Brussels Budget Blues

Jeremy Hetherington-Gore Unleashed
24 October, 2010

Two questions: Does 140 billion euros seem like a lot of money to you? What does the European Union do?

For the average girl in the street, the answers are presumably: Yes; and Don't really know.

Certainly most people would be hard put to it to say how the EU spends that much money every year, amounting it's true to only 1.2% of total member state national income. Perhaps the average European citizen would hazard a guess that quite a lot of money goes on agricultural support, although if you look at even a detailed setting out of the EU's budget you won't find those words anywhere; instead catchy phrases like 'environmental sustainability' and 'rural cohension' are used to mask the gritty reality of paying French and Romanian farmers to produce fruit that could be imported at half the price from poor African countries where people are starving to death.

In fact, whereas the CAP once consumed 70% of the EU budget, that figure has fallen now to between 30% and 40%, depending on how you classify expenditure programs, although the total in money terms hasn't gone down all that much, because overall EU spending has risen at a sharp pace. It's also true to say that the balance of CAP spending has shifted towards the new, Eastern European entrants and away from richer countries.

Perhaps many people would also hazard a guess that quite a bit of money goes on 'bloated Eurocrats' and MEPs, and they would be right, in that administration costs are EUR9bn this year, although again one wonders just how much is hidden under other budgetary headings. Various administrative excrescences continue unabated, such as the twice-monthly pilgrimage of the Parliament from Brussels to Strasbourg, involving a baggage train of attendants, bureacrats, lackeys, camp followers and files on a scale worthy of Napoleon's Grande Armée.

All of these reflections because the EU has this week floated a consultation on how it is to finance itself after 2013 when the current budgetary deal runs out. At present, more than 70% of the money comes from direct government contributions, more or less in proportion to national income, and the remainder from a slice of VAT receipts. It used to be the other way around, but has changed because national contributions are seen to be 'fairer', although Mrs Thatcher didn't think so, and argued forcibly (and successfully) for a rebate for the UK, the first of a number of 'adjustments' that have been made to the formula over the years.

The EU itself (meaning the Commission) would like to switch to an 'own resources' basis, meaning that it would raise its money by imposing taxes directly. Laughably, it gives as examples a tax on all EU flights, an EU corporate profits tax (presumably based on the CCCTB), an EU VAT and, of course, that old war-horse, a Tobin (transactions) tax on bank accounts.

But any major, structural change in the financing system would require a new Treaty, and after the agony that was Lisbon no-one has got the stomach for that, so in reality what will probably happen is some patching and mending of the existing system. That way it can all be tied up during one of those famous all-night bargaining sessions between finance ministers in which preparation and endurance count for more than equity, and having the great advantage that the Parliament can be kept out of the proceedings to a large extent.

Yes, the Parliament. Any consideration of the future of the EU has got to get to grips with the democratic deficit that lies at the heart of the Union, and in particular with that feeble talking shop on the rue de la Loi in Brussels, whose barmy behaviour reflects its lack of democratic legitimacy, despite some recent improvements. That of course is where the purposes and financing of the Union ought to be thrashed out. And that is where, sadly, it won't happen, one more time. Perhaps by 2020, when the next financing package runs out, something will have been done about the Parliament. But I'm not holding my breath.


About the Author

Jeremy Hetherington-Gore Unleashed

Jeremy tackles the difficult issues head on!


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