Brussels and the begging bowl

As the EU fights a losing battle to finance its increasingly wide range of roles and responsibilities, member states reluctant to contribute to community institutions are being held to blame for an imminent cash flow crisis.

Published on 24 September 2010 at 15:15

It may be in poor taste to kick Europe when it’s down, but the facts are plain to be seen. The EU appears to be increasingly irrelevant in global politics. Notwithstanding the spectacular face-off over the Roma issue, it is at best viewed with indifference by public opinion within its borders. But now the 27-member bloc has been overtaken by yet another malaise, Europe is on the verge of financial bankruptcy.The subject at issue is not the threat posed by sovereign debt accumulated by its member states, but the budget of the EU itself — the operating and investment budget. The cashbox in Brussels is all but empty!

This autumn, the struggle over the budget which will dominate the activity of the European Parliament will almost certainly draw plenty of blood in Brussels. For the first time, the issue will be decided in compliance with the rules of the Lisbon Treaty, which gives the last word to Parliament. And before the curmudgeons among you shout me down: if there is one area in which the EU continues to make progress, it is in the field of democratisation, and notably with regard to the powers granted to the 736-member parliament. At last we have a parliament worthy of the name: it even votes on the budget.

A legislative giant with feet of clay

But the good news stops there. This summer the Commission presented a proposal for a 2011 budget of approximately 126.6 billion, or 1.02% of the EU’s GDP. Given the context of the sovereign debt crisis, it was an austerity budget which took into account the fact that the main priority for member states remains the restoration of national public finances, and that EU spending would have to take second place. But it was still too much for the European Council, which pared it down before passing it on to the European Parliament’s Finance Committee. "We have reached a point of deadlock over the budget," remarks the Committee President, France’s Alain Lamassoure.

Lamassoure goes on to explain that the EU has now become “a legislative giant.” With each new treaty — Maastricht (1993), Amsterdam (1999), Nice (2003) and Lisbon (2009) — the European Council has charged the EU with more extensive responsibilities. Or put more simply, Europe’s national leaders have increased the number of tasks assigned to Brussels: which now include the development of policy for energy, the environment, higher education and research, and the creation of a 6,000-strong diplomatic service etc.

However, at the same time the Council has somewhat imperiously refused to provide the EU with the means to achieve these new goals. In fact, the EU’s budget has been progressively reduced: in the mid-1980s, it represented 1.28% of Europe’s GDP, in the 1990s this figure was scaled back to 1.02%. And who knows where it will be in the wake of this autumn’s debate?

As a result, the EU now appears to be a waning power whose summits are followed by the announcement of ambitious projects that never see the light of day. Can anyone remember the Lisbon summit where the Council decreed that Europe would shortly become "the world’s most dynamic knowledge economy?" It would be funny if it was not so sad, but how many patents have been lodged in Europe since then?

Finance ministers – formerly reluctant to pay, now unable

As Mr Lamassoure explains, Europe may well be a "legislative giant," but it remains a “budgetary midget.” In its early years, with the treaty that established the European Coal and Steel Community (ECSC, 1951), it benefited from its own sources of revenue in the form of customs and excise duties (the common external tariff). However, this influx of funds progressively dried up in the course of major negotiations on the global dismantling of trade barriers. To refill the coffers in Brussels, in 1984, it was decided that revenues would temporarily be supplemented by contributions from member states to be calculated on the basis of their GDP and VAT revenue streams.

What began as a provisional measure became permanent, the supplement became the main course, and there have been no further decisions on EU funding since then. Today the bulk of the EU’s budget is still sourced from national contributions, and the EU still features as an expense in the financial provisions of its 27 member states, where it is regularly criticised by national representatives and continues to provoke the ire of the governments who pay the most.

This state of affairs has paved the way for a mentality that privileges a “return on investment” approach — i.e. that each member state should recover the cost of its contribution to Europe — which is the very antithesis of the community spirit of times gone by.

It is a situation that weighs heavily on Mr Lamassoure who remarks that in the past "finance ministers were reluctant to pay," but today in the context of the current crisis, "they are unable to pay." If the deadlock surrounding the European budget is to be broken, the first line of attack must target the chains that bind it to national contributions.

And that can only mean one thing: the allocation of specific European resources. The majority political party in the European Parliament, the European People’s party (EPP), is proposing to introduce a European tax on financial transactions or CO2 emissions. Mr Lamassoure favours a more inventive approach that will enable the EU to directly receive VAT for certain types of imported products (for example, from cars).

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