A debate on European Union budget reform took place Nov. 28 in Prague’s Evropský dům. The EU has decided to find out what its citizens think about the budget issue, and authorized the European Commission (EC), in cooperation with the European Parliament, to investigate.
The research is proceeding in two ways. First debates on the topic are being held across the member states, including a recent debate in Prague. Debate participants are primarily economists, economic academicians and bank analysts, and those in government and state administration. The second element, according to Johan Ureel, ambassador of the EU for the European budget reform and one of the participants at the Prague debate, is that the EC is inviting EU citizens to post their comments and proposals for budget changes to the EC.
After the April 2008 deadline for proposals and comments, the EC—together with the European Parliament—will hold a conference and subsequently issue the research results to member states’ representatives by the end of 2009 at the latest.
According to Ureel, currently the main budget problem is that member states are more concerned about the backflow of their contributions to the budget, instead of thinking about the added value of the budget for European citizens and policies. The EU considers this ongoing research a way to find out some concepts directly from expert citizens on how to change this view and also on how to adapt the budget to the changes Europe is facing. These changes include demographic problems, fast scientific and technical progress, and worldwide shifts in economic forces. However, Ureel claims that the research will not necessarily result in a budgetary reform, which if proceeds for the 2013–19 framework will have to be done by a future EC. Having worked at the EC’s Directorate-General for Budget for 10 years, Ureel’s expertise on budget issues is invaluable at such discussions.
In the financial framework for years 2007–13 the EU will administer nearly € 862.4 billion (Kč 22.6 trillion), which means 1.045 percent of EU’s gross national income, and the Czech Republic should get around Kč 93 billion annually from the budget.
Q: Why does the EU budget need to be reformed?
A: We have an open invitation from the European Council [which asked the European Commission] to look into the issue, and the mandate we received from both the European Council and the European Parliament is to make an analysis whether reform is needed and to analyze each area of EU expenditures and EU financing with a view of possibility for reform. It is not a forgone conclusion that reform is needed, but it is an invitation to investigate the issue of reform.
Q: Why does the EU think that a debate on reform is needed?
A: We think the world is changing and we are facing a multitude of very important challenges. We sometimes have the impression that the world is changing more rapidly than the EU budget. The budget [itself] is capable of change, but it does not change very rapidly. And … the analysis that we want to undertake is to see if it isn’t necessary to introduce change more rapidly in order to optimally respond to the challenges we are facing.
Q: What are the biggest problems with the EU budget?
A: This will be part of the analysis, so it is something we do not want to prejudge. However, it is clear that the budget today consists of around 70 to 80 percent of only agricultural expenditures and cohesion expenditures. For us a very important part of the debate and an open question is the optimal allocation of the resources at the EU level. Should we not look into … whether it is necessary to spend more money on other priorities? And the same goes for financing, where we are faced with a system based on national financing, which is not transparent. It is complicated, and at least it is warranted to look into … whether it needs a reform as well.
Q: If a reform proceeds, do you have a vision of how it should be done?
A: No. I think the way we see it is that the [European] Commission will present the analysis, most likely toward the end of 2008 or the beginning of 2009. Then there will be a long and in-depth discussion at the member state and at the European Parliament levels. Hopefully, they will jointly come to some [agreement] about the future of the European budget. Once we have those orientations … then a next commission will present a concrete proposal for the period after 2013. These are the different steps as I see them.
Q: The general public and many experts think that the financing of the agricultural sector is the biggest EU budget problem. Should subsidies to that sector be abolished or at least lowered?
A: It is absolutely impossible for me to answer that question today. But it will be a very important element in the [ongoing] debate. It is true that for many people the agriculture expenditures are controversial. On the other hand, many [other] people think that it is quite necessary and brings a lot of benefit as well. [In any case,] we will need to wait for the budget review as it is presented by the commission.
Q: Do you think those subsidies are able to raise the standard of living in the EU’s rural areas?
A: The very important goal of direct aid to farmers is to provide them with a stable and sufficient income. I think that is beyond doubt.
Q: Currently in the Czech Republic, there is a big discussion whether the country in the coming years will be able to withdraw all the money designated for it from European structural funds. Do you have any advice for those who administer the funds and how they can successfully withdraw the EU money?
A: I think it is not just a problem that is particular to the Czech Republic. Most of the new member states are experiencing difficulties in implementing the EU policies to some degree. I would assume that in fact it is quite normal and we anticipated it at the time of the accession negotiations. So there is nothing particularly abnormal going on in the Czech Republic. It is probably useful to remember that the old member states also have had problems implementing EU policies, particularly at the beginning of the EU financial framework. So what we see is not unexpected, not abnormal, but of course if it is confirmed [that problems persist,] in years to come it could be a cause of concern. Since I am not a specialist in the area of the actual implementation in the member states I would not presume to be able to give advice to the ministries here.
Q: How does the EU budget add value to European integration?
A: I am sure that the EU and also the EU budget, in particular, create a considerable added value for member states and for citizens. That is probably not the question. The question is how we can increase this added value with the limited funds we have. The budget will most likely, in the foreseeable future, not increase dramatically so we know we have only a limited [amount] of funds at [our] disposal. The question we need to address at this stage is how we can optimize how we use these funds. That is the core question we are addressing in this budget review debate.
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Opinions from the EU budget debate
Tomáš Pitter, deputy minister for European affairs, Office of the Government:
I believe it is good to consider new sources of revenues [for EU budget]. Of course we have to talk about items that should be taxed [on this level]. ... Simply put, it would certainly be legitimate from an economic viewpoint to ask seriously whether in the 21st century we have to spend one-third of the European budget on agriculture.
Ivo Hlaváč, deputy minister of agriculture:
After 2007 many aspects of EU Common Agricultural Policy (CAP) seem to be rather obsolete, and the EU is unable to react flexibly to pressures and demands created outside the space of European market.
Tomáš Sedláček, chief macroeconomic strategist, Československá obchodní banka (ČSOB):
Europe should be given management of those revenues and expenditures that it can manage better than the member countries of EU. It is arguable whether agricultural policy should be managed on such a high level. ... We should leave the current concept of European revenues based on gross domestic product (GDP) percentages and look for financial resources in taxation of vices; for example, some time ago there was a tax imposed in Finland on food products with unhealthy fat levels.
Ondřej Schneider, economist, Faculty of Social Sciences, Charles University:¨
The taxation level in Europe is rather high and every percent added to taxes is distinctly felt. ... The EU budget is managed in a better, more transparent way than 99 percent of national budgets in member countries. [One question is] whether the European budget can provide for some public assets that cannot be provided for by national budgets or not in the same or better quality as on the European level. Among such assets I could include defense and environmental protection. But I do not see the budget being particularly active in these areas. ... The EU took the way to monetary union without creating fiscal mechanisms helping her along. The European budget could become such a mechanism. ... [It] is different because there are politicians on the receiving end and politicians decide how the money is spent. For them it means an opportunity to get their hands on a budget that they can use for their political purposes without being constantly reprimanded by the parliamentary opposition. This is a great advantage for them.