Commission sets out ‘ambitious’ budget plan as spending areas are moved out of main EU budget.
Adding value to funding debate
The spirit of Fontainebleau?
What they said…
When José Manuel Barroso, the European Commission president, unveiled his proposal for the EU’s multiannual financial framework for 2014-20 last week, he called it “ambitious and responsible”.
The spending levels were roughly in line with current spending on the EU’s main policy areas, he said, as a proportion of the EU’s gross national income (GNI), a measure of economic output. Spending over the last financing period, 2007-13, was around 1.05% of GNI and would remain at that level in 2014-20.
But as more detailed figures emerged late on Wednesday (30 June), after a nine-hour meeting of European commissioners, it became increasingly clear that the headline numbers were not telling the full story.
Barroso claimed that the proposal the Commission had just adopted was, for net contributors – those countries that pay more into the EU’s budget than they get back – a “good offer”. He even claimed that the level of spending was “very close” to what a group of five member states that are net contributors had proposed in December last year. That group, led by the UK, called for the EU’s finances to be frozen in real terms.
Closer analysis of the figures shows that the proposal represents a substantial increase in real terms. Even though the spending levels for the main part of the financial framework are roughly the same in terms of the share of GNI, as the EU’s national economies grow, the value of a fixed percentage of GNI also increases.
In terms of commitments, or the amount of money governments agree to provide for the EU’s spending needs, the financial framework will be 5% higher. This is the scale of increase requested by the European Parliament in its vote on future financing needs in June.
The striking feature of the financing proposal for 2014-20 is the number of big-ticket spending commitments that the Commission has moved outside the EU’s main budget. These items account for an additional €28bn in spending on top of the €1,025bn for the main financial framework. Counting these towards the total would give an increase of 8%, or €1,053bn, over the period.
The Commission has moved €2.7bn of financing for the ITER international fusion research project outside the financial framework. Janusz Lewandowski, the European commissioner for financial planning and budget, said ITER had been a “programming headache”, as its costs had exceeded initial estimates. The Commission has also put €5.8bn in funding for the Global Monitoring for Earth and Security scheme outside the MFF. Moreover, the Commission has added new items, such as a reserve fund of €3.5bn for crises in the agricultural sector.
Smart and inclusive growth
The budget category of ‘smart and inclusive growth’ accounts for the single biggest share (47%) of the multiannual financial framework on the basis of commitments. In the 2007-13 period, its share was 44%. Economic, social and territorial cohesion accounts for 37% of the total, up from 36% in 2007-13.
The main innovation within this budget heading is the creation of the Connecting Europe Facility to finance cross-border infrastructure projects for transport, energy, and information and telecommunications technology. The facility would have a total of €50bn at its disposal, including €10bn earmarked from the cohesion fund. The funding for cohesion policy would be more closely linked to the Europe 2020 objectives of boosting growth and competitiveness.
The Commission wants new conditionality rules so that there are stronger incentives for national governments to meet the Europe 2020 goals. Each member state will have partnership contracts setting out objectives and a mutually agreed approach to how to work towards them.
The proposal includes €39bn in funding for transition regions. These are regions where wealth is lower than 90% of the EU per capita average but above the 75% level for eligibility for structural funds.
To boost research and innovation, the Commission is proposing €80bn for a new programme called Horizon 2020. By comparison, the seventh research framework programme for 2007-13 was €50bn. Education, training and youth has been allocated a budget of €15.2bn, up by 70% from 2007-13.
Sustainable growth: natural resources
Agriculture, rural development and fisheries have been allocated €383bn for 2014-20, making up 37% of the total financial framework. In 2007-13, the share was 43%.
Spending on market-related schemes and direct aid to farmers will be €282bn, 28% of the overall financing and down from 34% in 2007-13. Rural development has been allocated €90bn. Farmers will have to demonstrate that they are meeting environmental management criteria in order to qualify for 30% of direct payments.
The proposal also seeks to close the gap between the level of direct payments in different member states. Direct payments are linked to historical production and can vary greatly. For member states where the level of direct payments is less than 90% of the average, one-third of the gap will be closed. This will be financed by all member states where the level of direct payments is above the EU average. Countries with the lowest level of direct payments would have an increase of 66%, while there would be a maximum reduction of 7% for those with the highest levels, according to Commission calculations.
The proposal also includes a new €3.5bn reserve for crises in the farm sector, which is outside the main financial framework. Farmers would be able to benefit from the European Globalisation Fund, intended to help workers affected by globalisation find new jobs though retraining. The fund has been allocated €2.5bn for 2014-20.
Security and citizenship
The Commission is proposing to allocate €19bn for this area. The proposal includes €8.2bn for justice and home affairs, and €455m for civil protection and the European emergency response capacity.
In 2007-13, it received €11bn – €7bn for justice and home affairs programmes and €4bn for programmes related to citizenship.
The proposal allocates €70bn for external relations, an increase of 25% compared to 2007-13. The European neighbourhood policy, which provides the bulk of funding for countries in the Middle East and north Africa, will receive €16bn.
The Commission wants to provide €21bn for funding the Development and Co-operation Instrument to contribute to achieving the Millennium Development Goals of poverty alleviation and improving education and healthcare levels.
The Commission has proposed a number of instruments outside the main financing framework for external relations. These include the European Development Fund, which has been split into two, with €321bn for overseas countries and territories and €30bn for African, Caribbean and Pacific countries. There will be a €2.5bn emergency aid reserve for unforeseen events.
The Commission has proposed a €63bn budget for administration, compared to €50bn for 2007-13. Of the €63bn, €50bn is for the EU institutions and €12.2bn for the pensions of EU officials and the European schools. The Commission said that administration’s share of the overall financing framework would remain at 5.8%. It has proposed a reform of the rules for EU staff’s salaries and pensions, including a 5% reduction in overall numbers and raising the retirement age to 65.
Environmental policy and climate change action will be included in all of the EU’s main funding instruments including cohesion, agriculture, maritime and fisheries policy, research and innovation and external aid. The Commission plans to increase the share of climate-related expenditure to at least 20% of the overall financing framework.
Barroso defended his decision to put these items outside the main spending plans. He justified the decision to move ITER outside the financial framework by saying that the project costs had been higher than expected. “We don’t like to have in our budget expenditure which was not foreseen,” he said. He added that funds put into reserves, such as that for natural disasters, was “not necessarily going to be spent”.
Barroso draws parallels between these budget items and the European Development Fund (EDF), which pays for aid to the African, Caribbean and Pacific countries. The Commission is proposing that the EDF should be €30bn. But the EDF has always been, and remains, outside the EU budget, and is funded directly by the member states. Because of this, the Parliament does not enjoy the decision-making and scrutiny powers over the EDF as it does over the EU budget and over the items that the Commission is now looking to place outside the 2014-20 MFF.
Barroso is attempting a difficult balancing act. He has tried to limit the increase in the headline figure for the financial framework to an acceptable level, while satisfying national governments that there will be adequate levels of funding for their diverse priorities, which range from support to farmers to regional economic development, from research and innovation to infrastructure projects.
No policy area is suffering a significant cut in its funding level. Agriculture’s share of overall spending is dropping from 43% to 37%, but the cash amount will still increase over the period. Ensuring that richer regions such as eastern German states will continue to receive regional development funds will cost €39bn.
Barroso came close to admitting that his proposals did not reflect the strict discipline the five net contributors have demanded. He said it was “impossible” for the EU to deliver “solidarity” – code for redistribution of funds – and close the gap in social and economic development “while reducing the budget”. It was “false” for member states to argue they were reducing their budgets, he said. The EU’s budget had risen by “much less” than national budgets over the past 20 years.
It would have been difficult for Barroso to make a case at the very start of the negotiations on the next financial framework for a substantial increase in the level of funding. The opening proposal had to be pitched in the middle ground marked out by the differing demands of net contributors and net beneficiaries. But national governments quickly saw the real picture behind the figures. The attempt at window-dressing has undermined Barroso’s credibility at the start of a long negotiating process.