Britain’s bluster serves the eurozone well

The EU leaders' failure to find an agreement on the budget is largely symbolic as negotiations concern only a very small part of the Union’s wealth. More important to the EU’s future is the efficiency of the single market and relations between the countries inside and outside the currency bloc.

Published on 26 November 2012 at 16:00

One of the curious things about the EU is a predictable inverse relationship between the amount of money at stake and the time spent on negotiations. Nothing illustrates this better than the appalling spectacle of the EU’s budget negotiations.

Do not be fooled by the headline number of €1tn. This sum is to be spread over seven years, during which the forecast gross domestic product of the EU will be about €100tn. The dispute is not about the budget itself but about 3 per cent of the budget. Measured in terms of EU gross domestic product, the disputed volumes translate to about 0.03 per cent. It would be an act of arithmetic foolhardiness to attach any macroeconomic significance to it.

By contrast, sorting out the eurozone crisis will end up costing real money and will have real economic significance. This is what the leaders of the EU should be focusing on, not the EU’s budget.

Stalled single market

The singular importance of the budget negotiations, and of British prime minister David Cameron’s insistence on an EU budget freeze, lies in what they reveal about the future of the EU itself. A frozen budget means that the EU is stuck with what it does. Forget the Agenda 2020, or any other pretence at growth-enhancing policies. The EU’s prime project remains a crippled single market.

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The single market has been an overhyped, but mostly disappointing programme, with no measurable impact on GDP. It does not extend to most services, the largest part of the economy. Governments have rolled back the single market in finance during the crisis. Member states also treat energy as largely domestic. Defence procurement was never part of it anyway. I always found that the single market’s most useful function was that you can pay tribute to it in after-dinner speeches.

European Institutions

Civil servants are asking too much

Discussing the EU budget, member states are not the only ones defending vested interests. Frankfurter Allgemeine Zeitung deplores the “selfishness of institutions”, which demand an increase in their own resources while calling for budget cuts in member states. In the 2014-2020 period, six per cent of the EU budget will be devoted to community administration. The German daily adds

… in a prolonged period of austerity, there is no justifiable reason why EU personnel should be spared an ordeal that member state civil servants and wage earners across Europe have been obliged to endure. [...] In Brussels, it is commonplace to badmouth national governments while identifying the interests of European institutions with the European public good. This self-centred thinking is the real democratic deficit in the EU.

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