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Home > Blogs > Anthony Harrington > EU Budget brings "austerity" home to roost for the EU

EU Budget brings "austerity" home to roost for the EU

EU Budget brings Anthony Harrington

The latest meeting of EU Heads of State can claim a remarkable success in its efforts to agree a Budget for the next 7 years, or in other words, for the period from January 2014 to December 2020. For the first time since its formation in 1957 the European Parliament is being asked to ratify an EU budget that envisages spending less than the previous budget, 3.4% less, to be precise. The deal reached at the European Council, after a marathon stint by Heads of State, limits the maximum possible expenditure for an enlarged EU of 28 states (assuming Croatia joins in July) to just under one trillion euros (EUR 959.99 billion).

This enormous figure amounts to 1.0% of the EU's gross national income (GNI), which sounds prudent enough, given that member country fiscal budgets are supposed to  be no more than 3% of GDP. GNI and GDP are, of course, not quite the same thing - GNI includes GDP but adds in monies earned by EU companies in other countries where such monies are repatriated to the EU, and deducts income earned by non-EU companies that is repatriated outside the EU. However, this figure is on top of what member state governments are already committed to spending on their own national commitments and as such represents an additional burden for net contributor countries.

Europhiles argue that the money represents good value for all member countries on a number of fronts, trade flows and the absence of major European wars since the formation of the EU being cases in point. Europhobes mostly see waste, mismanagement and outright fraud on every hand, with the Common Agricultural Policy and a bloated Brussels bureaucracy being prime targets of their ire. As such the Europhobes have long called for a halt to the onwards and upwards march of the EU budget, and, indeed, would like to see it start to shrink by a good deal more than the 3.4% that is on offer at present. This could easily be done, they say, by the EU pulling back from activities that are best done by member states for themselves.

What is being proposed this go round is not an even handed 3.4% cut across the board, but rather, a selective pruning that allows some areas of EU spend to increase, while other areas are cut. In particular, the Heads of State agreed on a substantial increase in spending on the "future geared" areas of research, innovation and education, which get a 37% increase in spending to EUR 125.61 billion.

There is even room for wholly new programs such as the "Connecting Europe" Facility. This is a new instrument that will make some EUR 29.3 billion available to "bridge the missing links in Europe's energy, transport and digital infrastructure". Quite what that will mean in practice remains to be seen, but that kind of sum would pay for a goodly chunk of very high speed fiber optic broadband network across borders, and/or for many a mile of  high speed rail track. The Budget also foresees a kind of back door funds transfer mechanism whereby the poorer member states will receive a larger share of funding, particularly for schemes like youth unemployment initiatives.

So will the EU bureaucracy and Member State governments be able to transform all this funding into concrete steps to reduce the continent's unacceptable unemployment levels and generate increased productivity and competitiveness on a global scale?

Given the mess the EU got itself into over the course of its last seven year Budget, I wouldn't hold my breath waiting, but certainly the intentions are good - but then they always have been, haven't they? It's the execution that has been woeful...

Further reading on the EU and stability

Tags: austerity , Buget , Common Agricultural Policy , Croatia , EU , eu budget , eu council , European Council , Europhobes
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