EU budget talks collapse

, by FM Arouet

EU budget talks collapse

EU Member States and EU Institutions failed to agree on the 2013 EU budget on 9th November. Arguments on both sides remain the same, but this time it’s different: the crisis context should force leaders to look at the bigger picture and make choices accordingly.

Political bickering as usual

The European Commission and European Parliament were asking for a 6.8% increase in the EU budget whereas EU member states were only ready to concede a 2.8% rise. Eventually, the talks collapsed over a €9bn “emergency funding” package for 2012, which was supposed to cover education, infrastructure and research projects. These €9bn compare to an overall EU budget of €129.1bn, barely a few percentage points. Furthermore, the EU budget itself only amounts to 1% of GDP, against 56% of GDP for France. The numbers involved are too small to justify arguments about financial constraints: as every year, the EU budget talks are fundamentally political.

However small the numbers, one must admit that EU member states’ arguments are receivable: it is not acceptable for the EU to ask for more money while it tells EU member states to reduce public spending. Furthermore, there is a general agreement that EU money could and should be better spent. The Common Agricultural Policy (CAP) should help needy farmers and not export-based corporations. Regional spending should be more tightly controlled in order to ensure a truly positive impact on local economic development. Many more efficiencies can be found, particularly on the administrative side: one European Parliament would be a good start. On the funding side, the British need to understand that membership of a club entails a certain level of equality amongst its members. We all know how fond of clubs the Brits are, so they should understand that if they think a membership fee is too high for what they get, then they should make a clear decision about whether they really want to be part of it or not. We cannot go along with the British rebate as always.

Wrong answers to wrong questions

Overall, this political bickering about a few billions has brought the wrong answers (“freeze CAP, don’t touch the administration, the UK rebate or regional spending.”) to the wrong questions (“how to spend what we have?”). The EU is in the midst of the worst crisis since its creation. Decision-makers are failing to take into account the scale of change that our continent is undergoing, and how much further change is needed, only to maintain the socio-economic structures that they are pretending to defend. The question EU leaders should be asking themselves is: we are short of money, how can European public spending (national + EU) be used more efficiently in order to promote growth and efficiency? They are obviously avoiding this question because the power to tax is the most fundamental political issue. However they should understand that their reelection will depend on economic growth; and the outlook is bleak.

The wider function of a budget: economic stabilizer

The actors of the budget talks and their arguments are well-known, and so are the conflicts inherent to EU spending, so the fact that talks collapsed is not as surprising. You can be pretty sure that they will find a usual back-door compromise at the next negotiation rounds on 22nd-23rd November. This would be a pity: this crisis is a once in a lifetime opportunity to change our way of thinking and doing. The crisis demonstrated the incompleteness of the European Monetary Union: the lack of fiscal transfers amongst richer and poorer regions combined with the absence of exchange rates to account for these differences forces the least productive regions into perpetual indebtedness, allowed by excess savings in richer regions. The same process happens within Member States, but redistribution mechanisms (social security, unemployment benefits, taxation schemes, etc.) allow its different parts to hold together. Indeed, this is underpinned by a strong feeling of solidarity, itself based on nationality. But there are also important economic arguments in favor of such redistribution schemes. Put simply: big is better.

The euro was supposed to underpin the Single European Market (SEM) – Europe’s best and only chance in globalization. However, it failed to do so, and is now instead destabilizing it because of the euro’s incompleteness. A “complete” euro, with a strengthening of the SEM, would be an incredible economic boost to Europe as a whole. The basic argument against such a federalist leap is the following: this is politically unachievable, people will never accept it. Well, in a euro area with unemployment reaching a record high of 11.6% in September 2012, we can be sure that some would be ready to give integration a chance in order to get a job. The budget talks should have been the opportunity to ask these questions. Not this time, apparently.

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