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A BUDGET FOR EUROPE 2020 Commission budget proposals Iain Begg European Institute, London School A BUDGET FOR EUROPE 2020 Commission budget proposals Iain Begg European Institute, London School of Economics

CURRENT CONTEXT National austerity – Somewhat dishonest discourse Compares Member States today with EU CURRENT CONTEXT National austerity – Somewhat dishonest discourse Compares Member States today with EU from 2014 Letter from 5 calling for freeze in real terms – Would imply fall in share of GDP Commission’s impossible political position Parliament more pro-active But hard to see Council conceding final say

THE LONGER SWEEP Current framework put in place in 1988 Before Maastricht Treaty – THE LONGER SWEEP Current framework put in place in 1988 Before Maastricht Treaty – decade before the €uro For an EU of 12, not 27 going on 28 Total around 1. 1% of GDP, but slipping Consistently below formal ceiling of 1. 24% Remarkable stability of main expenditures Cohesion + CAP around 75% throughout Despite changing narratives ‘Historical relic’ accusation (Buti & Nava) Attempt at wide ranging review 2008 -10

THE EU BUDGET IS… “A result of political trade-offs rather than a well grounded THE EU BUDGET IS… “A result of political trade-offs rather than a well grounded allocation decision to advance European objectives…. the real needs are often of secondary importance. The EU budget should be policy-driven and based on sound analysis of the added value of EU level spending to advance our shared policy agenda. ” Commission summary of consultation exercise, Nov. 2008

THREE CORE DILEMMAS SO MANY ACTORS, SO MANY POSITIONS A recipe for gridlock SO THREE CORE DILEMMAS SO MANY ACTORS, SO MANY POSITIONS A recipe for gridlock SO MANY DEMANDS, SO FEW RESOURCES A recipe for fantasy: what can 1% of GDP buy? Simple question: public goods or distribution? TOO LITTLE LEADERSHIP, TOO MUCH FOCUS ON JUSTE RETOUR We are stuck on the wrong questions

Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies Groucho Marx

STRENGTHS OF PROPOSALS Search for added value – But risks being limited in outcome STRENGTHS OF PROPOSALS Search for added value – But risks being limited in outcome Simplification welcome, but does anyone ever come in promising complification? Comparatively disciplined in headline totals – Despite immediate criticisms from net payers Attempt to be strategic in relation to 2020 Use of conditionality EU spending through “connecting Europe”

WEAKNESSES NEVERTHELESS Lack of underlying narrative other than 2020 – Ideas might have included WEAKNESSES NEVERTHELESS Lack of underlying narrative other than 2020 – Ideas might have included Recovery from crisis Greener Europe/climate change Europe in the world Dubious equations: – Smart = growth initiatives (research) – Sustainable = CAP, though greener – Inclusive = cohesion Just too much status quo – Even span of MFF unchanged, despite opportunity

The financing system is opaque and so complex that only a handful of specialists The financing system is opaque and so complex that only a handful of specialists fully understand how it works. This limits democratic oversight of the system. Moreover, many Member States perceive the system to be unfair. Commission proposal on own resources

OWN RESOURCES Simple choice between: National contributions Genuine EU level resources (consistent with Treaty) OWN RESOURCES Simple choice between: National contributions Genuine EU level resources (consistent with Treaty) – Ultimately, about who has the power to tax At present, c. 90% national contributions Proposals are: – Abolish the existing VAT resource… – … introduce a new VAT resource – And a financial transactions tax

FINANCIAL TRANSACTIONS TAX Clearly, politically tempting Notably, potential for ‘Pigouvian’ outcome(s) – However, size FINANCIAL TRANSACTIONS TAX Clearly, politically tempting Notably, potential for ‘Pigouvian’ outcome(s) – However, size of tax base limited Maybe more credible than often assumed – Less prone to tax dodging than hitherto Especially with regulated electronic markets – But still tricky to impose unilaterally Yet much more contentious as EU tax – Major flaw visible in just one pie chart Even allowing for true incidence of tax

Germany; 15. 5 Netherlands; 2. 2 France; 6. 6 Belgium; 1. 4 Italy; 2. Germany; 15. 5 Netherlands; 2. 2 France; 6. 6 Belgium; 1. 4 Italy; 2. 2 Austria; 0. 7 UK; 71. 3

THOSE MESSY ‘CORRECTIONS’ Manifestly a bizarre system Yet paradox that UK rebate is easy THOSE MESSY ‘CORRECTIONS’ Manifestly a bizarre system Yet paradox that UK rebate is easy to justify – As are the many Dutch corrections And German, Austrian and Swedish equivalents A problem that starts with uneven spending – But then flouts ability to pay principle New proposal is for lump-sum corrections Unrelated to annual fiscal circumstances But some advance in relation to incentives

CONCLUSIONS Too cautious Yet risks immediate rejection – Already presaged in September 12 th CONCLUSIONS Too cautious Yet risks immediate rejection – Already presaged in September 12 th missive Juste retour will not go away – New correction model will not solve it – But genie is out of bottle Intriguing politics of timetable: Poles no, DK uneasy and then comes Cyprus

LIKELY TO BE A DÉJÀ VU OF GROUNDHOG DAY ALL OVER AGAIN LIKELY TO BE A DÉJÀ VU OF GROUNDHOG DAY ALL OVER AGAIN