EU Budget: a victory for the Council

The passing of the EU budget last week by the European Parliament was definitely a win for the Council and the fiscal hawks amongst the Member States. For the first time the EU budget will be cut, and cut by €35 billion (3.5%) over the next 7 year period (this "Multi-annual Financial Framework" allocates the budgets for 2014-2020).

While the European Parliament was able to wring a few concessions from the Council, given that it supported an increase, it's hardly a sign of parliamentary muscle. The centrist alliance of the European People's Party, the Liberals and the Socialists and Democrats bloc were key to passing the budget (537 to 126 votes), with the Greens, United Left and the Eurosceptic Europe of Freedom and Democracy group being the main opponents. The centrist alliance made a few demands that were mostly reflected in the concessions.

In return for its support, the Parliament got:

- Protection of EU funds for research, humanitarian aid and border controls from cuts;
- Retention of unspent funds by the EU, so that these can be used elsewhere (instead of returning to Member States);
- Agreement to ensure the payment of existing commitments under the 2013 budget;*
- Review of the EU's own resources (money directly received by the EU rather than given by the Member States).

The cut in the budget was also reduced from the level demanded by countries such as the UK.

The rationale behind the cuts is that the EU budget needs to reflect the austerity of the Member States - a bizarre idea if the austerity currently practised is supposed to be a policy of necessity rather than ideology, since the EU as an organisation has no debt or deficit. This is because the EU cannot borrow money. The "need" for the EU to reduce spending for the same reason as the Member States is therefore an ideological position rather than an actual attempt to balance a budget or EU public finances. The end result is a reduction in the already low fiscal transfers from the EU in investing in the poorer regions of the EU - taking away an important, if small, support at a time when money is being sucked out of vulnerable economies. So much for solidarity.

It is even more perplexing when a supposedly centre-left party takes this approach.


* The EU budget in 2013 seems to be in a similar position as in 2012, with Member States ironically happy to sign up to spending commitments and then not budget properly for it...

EU Budget Deal: Progress, from a Psychological point of View?

The EU institutions (Commission, Council and Parliament) reached a deal on the Multi-annual Financial Framework (MFF) that plans EU budget spending for 2014-2020. The MFF is not absolutely final since it has to pass a Parliamentary vote in September, but the deal does mark the end of the parliamentary revolt against the deal cut by national leaders. Politically, it's been a very charged budget, with arguments for cuts in a time of austerity, the European Parliament flexing its muscles over the budget, and the resignation of the parliamentary rapporteur on the MFF after the Irish Presidency mistakenly announced a deal last week.


So what's in the deal?

The cuts agreed by the Council remain: for the first time, the EU Budget will face a real terms cut of €85 billion, reducing the budget over the next 7 years to €960 billion. The focus on cuts meant that the parts of the budget prized by national governments were protected at the expense of more discretionary spending. The deal softens this by:

- Permitting the front loading of up to €2,543 million in 2014-15 for youth employment, research and Erasmus and apprenticeships and pro-SME policies, to be split as:
            - €2,143 million for youth unemployment;
            - €200 million for Horizon 2020, the EU Framework Programme for Research and Innovation;
            - €150 million for Erasmus; and
            - €50 million for COSME, a programme for the competitiveness of SMEs;
- Allowing for voluntary contributions by Member States by up to €1 billion to the €2.5 billion pot for aid for the most deprived;
- Unspent money will in an annual budget will be retained by the EU for spending on other projects, rather than being returned to the Member States;

- There is a concession to the idea of the MFF being subject to review and revision, but it seems very vague.

Is this, in the words of EP President Martin Schulz, progress "from a psychological point of view"?

The deal has shown that the EP has made some progress in shifting the MFF back towards some spending that is not the preserve of a national carve-up. There are national vetoes behind agricultural spending, cohesion spending and rebates, but no single Member State has a defining interest in EU projects that tackle unemployment, research or competitiveness. Can you imagine a British Prime Minister saying that they've cut some of the rebate in order to protect spending on unemployment programmes? The EP has demonstrated some value in trying to balance the budget more in the direction of spending for programmes that all of Europe benefits from, but that don't deliver specific national receipts of money.

That said, the concessions aren't a major victory for the Parliament - particularly on the aid for the most deprived and on MFF review, where the concessions appear so vague and woolly as to be practically meaningless. However, it is notable that a right-leaning European Parliament has not held out for reducing or eliminating the cuts to the EU budget. Despite the unprecedented level of power over the budget, the Parliament hasn't been as pushy as it might have been. From my point of view on the left, the deal is a defeat: it doesn't really deliver that much in terms of research and employment projects, and it buys into the idea of austerity despite the EU Budget not being in deficit. Cutting from common programmes to symbolically satisfy austerity is daft, and it undercuts further the ability of common European spending to offset, at least to some extent, the economic damage caused by national austerity.

Still, the fact that a right-wing EP largely endorsed the budget direction set by the European People's Party-dominated Council is not surprising, though it's another sign that the Parliament does act along ideological and party lines, which is important for the upcoming elections next year. Party and policy do matter in the EP.


Party Positions

The EP still has to vote in the MFF in September if the Framework is to be passed, so the positions of the European political groups matter. What are they?

Supporters:

The European People's Party (EPP; centre-right) probably support the deal, though they do not have a specific press release at the time of writing. Since they are the largest group in the Parliament and dominate the Council and national governments, they will probably support the deal. EPP parliamentary leader Joseph Daul supports current Eurozone/EU economic policy, but also insists on flexibility and a review clause in the MFF. I think EPP support can be assumed.

The European Conservatives and Reformists group (ECR; centre-right, but further right than the EPP), have welcomed the deal, and have complained that the European Parliament tried to obstruct it. Since they have got the cut in the budget they wanted, and the cut is a big win for David Cameron, they're not likely to vote against.

Qualified Supporters:

The Alliance of Liberals and Democrats (ALDE; centrist, and economically centre-right) have welcomed the deal, but want to secure some of the details before giving support, such as on the legal basis of the MFF (to secure the Parliament's power), on money for the Digital Agenda and on the review clause.

The Socialists and Democrats group (S&D; centre-left) have welcomed the deal as an improvement for youth unemployment schemes and Erasmus, but will discuss their position next week.

Though only qualified support has been given, I imagine that now that the EP has finished its negotiations as a whole and that there have been some concessions, these groups will largely support the MFF.

Opposition:

The European Greens (Green) have condemned the deal as only consisting of cosmetic changes when the overall budget is still being cut.

United Left (GUE-NGL; left-wing) also condemned the cuts to the budget, and hit out against EP President Schulz for only seeking agreement with the two biggest political groups in the Parliament (EPP and S&D), keeping the rest of the groups in the dark.


While these aren't firm voting stances by the political groups, it looks like there will probably be a majority for the MFF, failing any last minute revivals of Parliament-wide opposition.

Youth Guarantees and Youth Unemployment

Youth unemployment is a serious problem across recession-hit Europe. In each country there is increasing concern that the crisis is producing a lost generation denied the opportunity to get into the workforce, and of a brain drain as people educated and trained at home cannot find that economic opportunity once promised to them.

Last weekend youth unemployment was the topic of a Relaunching Europe conference organised by UK Labour and the Socialists and Democrats group in the European Parliament. I went along to the conference, and I had the opportunity to talk to Hannes Swoboda, leader of the S&D group, and Glenis Willmott, the leader of the European Parliamentary Labour Party.


Youth Guarantees, EU budget and joint campaigning

From the Party of European Socialists Conference in September, the Youth Guarantee was clearly the centrepiece of the PES's policy on youth unemployment: €10 billion Euro from the EU budget to help guarantee jobs and training for young people. But how would that work, and what would the money be spent on?

Hannes pointed to his own experience with Youth Guarantees in Vienna, where a collaboration between local government, unions and business could link unemployed young people with opportunities in work and training if they had been unemployed for a certain amount of time after leaving education. The idea for Member State youth guarantees supported by EU money (the €10 billion would come from the European Structural Funds), with the EU facilitating the exchange of expertise from countries like Austria and Finland who already have guarantees in place. Funding for education and European programmes such as Erasmus was also highlighted by Hannes, who said that the increasing centrality of mobility to the workforce underlined the importance of the programme.

With €10 billion the proposed price tag, the EU budget would clearly be an issue. Labour is behind the youth guarantee with its proposed jobs fund as its version of the national guarantee, but Glenis had to defend Labour's EU budget position. She said that Labour's aim is to shift the focus from CAP spending towards investment and guarantees like the youth guarantee. However, with CAP, rebates and cohesion backed by national vetoes and with the European Parliament as the sole defender of investment programmes under the budget (some of which are already under threat), I can't see how Labour's rationale for a real terms cut in the EU budget will achieve this. Shifting money in the European Structural Funds to a new project was always going to be difficult in itself, but winning EU funding for youth guarantees in a climate of budget cuts is going to be an uphill struggle. Glenis and Hannes made the argument that the Member States are hypocritical when it comes to wasteful spending, with offices for the European Patent system shared between Britain, France and Germany. I agree, but sadly this doesn't change the voting situation.

So given these divisions would there be much of a pan-European election campaign for the PES and Labour in 2014? What would the effect of a PES presidental candidate for the Commission be and will there be a common manifesto? Glenis reflected on the last campaign, saying that the last common manifesto didn't get much press attention, and that the lack of PES candidate for the Commission presidency was a handicap when it came to electing the Commission - "why were we [Labour] supporting a conservative candidate [Barroso]?". She seemed optimistic about PES cohesion and the manifesto for the next campaign, given the anti-austerity stance of the party as a whole (Labour agrees with "about 80%" of S&D positions). For Hannes, while the PES will be putting forward a candidate, no candidate will be able to have name recognition and appeal across all Member States.

I understand the caution over the presidential candidate - the lack of appeal for a single candidate across 27 or 28 Member States is part of why I favour a parliamentary Europe - but with the primaries being held over winter 2013, and the caution in the air over how to use a candidate in the election, it feels as if there's a real possibility that the PES could not make the most of an electoral asset out of fear. The pro-European left desperately wants to make it clear that current European policy is the fault of the Coservatives in power, but it will hard to do that at election time if they're not bold about putting up an alternative vision with alternative candidates.

Veto of Diminishing Returns

Back in 2010 I wrote about the then Dutch government's approach to the EU, and noted that it wasn't particularly fond of vetoes, despite the perception that they're better for smaller Member States to protect their interests. This is because when there must be unanimity, the bigger states can rely on their greater power to get a greater say since they don't have to be afraid of being outvoted. However the UK's veto policy is showing that the value of waving the veto around - the nuclear option in EU politics - doesn't really work for the big states either, and that use devalues the veto heavily.

But it's not just the use of the veto, it's how it's being used. It's ridiculous to announce the circumstances of when you'll use the veto before  negotiations, because if you declare yourself to be uncompromising, then it will be harder to find allies to hammer out a winning position - that process inherently means compromising. Aggressive use of the veto means that the UK becomes less attractive as a negotiating partner, and the focus will switch to building a majority with the rest. Which potential ally could be sure that a British PM could get their minor compromise through the British Parliament - would it not be better to spend time on building a majority that would be more useful in the annual budgets after the UK wields its veto? The majority position after the veto will probably be the basis for any final deal when it comes to finally hammering out the multiannual financial framework, so why waste time on an unreliable partner like the UK?

With officials considering just using the back-up annual budget procedures, which are decided by qualified majority voting, there's talk of EU officials trying to "find a way" around the British veto. It's not trying to find a way around it - the annual procedure is what happens when there isn't agreement and the vetoes are used. If a Member State walks in with hardline conditions and little room for compromise no wonder everyone else in the club turns to what the follow-up will be.

And this brings us back to pre-vetoing (or should that be premature veto-casting?): vetoes are their most effective when at the end of a negotiating process, at the early hours of the night, when everyone else is invested in getting things done that particular way. By pre-announcing the veto and giving the other negotiators time to get used to the back up procedures and situation - maybe even turning to negotiate on that basis - you effectively devalue the veto before you even get to use it.

The veto will also be devalued back at home. The hardliners who cheer every time the veto is used won't be long in complaining that it has no discernible effect whatsoever. This veto policy is not only ineffective for the British government on the European stage, but is poisonous to its European policy generally - it will lead to more paranoia that the UK is not listened to within the EU institutions, and grow more disillusioned by its lack of allies, all while missing the fact that negotiations are not simply about other people listening to you.

In any case, this blogger supports the rise in the EU budget, since there wasn't enough money for the last one, and the policy commitments made by the Member States need to be paid for.

Labour and the Commons vote on the EU Budget

The UK government was defeated in a non-binding vote in the House of Commons yesterday, with rebel Tories being joined by the opposition Labour Party to call for a real terms cut in the EU Budget (307 votes for, 294 votes against). Though David Cameron signalled support for a budget cut at yesterday's Prime Minister's Questions, it's clear that he doesn't think that anything more than a real terms freeze can be negotiated.

The debate over the EU Budget is depressing. There is no discussion of what the spending priorities should be, so the argument for cuts seems to have crystallised into a moralistic tale of mutual cuts, rather than a rational debate focused on what our priorities and values should be and what our capacity to find them is. As Olaf Camme in The Guardian wrote:

"The size of the EU's budget is not the actual problem and its reform will require more than opportunistic lip service and national point-scoring. At the very least, it will need to involve governments and opposition parties alike entering a serious debate about where Europe can add value and what kind of financial governance can best provide for it. Both dimensions are somewhat found wanting in the British debate, on the right and the left. Yet failure to do this would only underline the saying, often attributed to Henry Kissinger and paraphrased here: the politics (around the EU budget) are vicious precisely because the stakes are so small."

Labour's decision to side with the anti-EU wing of the Tory party to attack David Cameron is crass party politics.  Labour argues that the EU should cut its budget when EU Member States are implementing austerity flies in the face of their rationale for slower cuts and more investment in growth and job creation. Earlier this month it was revealed that an emergency budget is needed to plug the gap in the Globalisation Fund that is directed to helping workers retrain so they can find employment. What does Labour say about the various EU programmes to help boost growth and competitiveness in the poorer regions of the EU? Even if the UK is a net contributor, how often have we heard over the past two years that the lack of growth in the EU has hurt the UK economy? Should supporting recovery in the UK's main export market not be part of its recovery strategy? (Though the health of the UK economy is mostly in the UK government's hands).

Again: the gap for the Globalisation Fund was €10 billion, and the proposed increase in the EU budget is €9 billion. There needs to be a practical debate for how we shape the EU budget to best serve us during the recession and strengthen everyone's position in the single market. And this needs to be done as part of a negotiated solution - remember, every Member State has a veto! Supporting massive cuts in the absence of any reasoned debate beyond a "austerity for all" mantra does not make a credible budget policy.

An Emergency EU Budget

The Commission will table an emergency EU budget - a "supplementary amending budget" - to plug an estimated €10 billion funding gap across several EU projects, including Erasmus and the European Social Fund. Erasmus is probably one of the EU's most famous projects, funding the exchange of European students across the continent, but the European Social Fund is meant to deal with employment, and is linked with the Lisbon Strategy:

"In order to support the Lisbon Strategy the ESF adopted the following priorities in the 2000-2006 period:

• active labour market policies to combat and prevent unemployment
• equal opportunities for all in accessing the labour market
• improved training and education, as part of a lifelong learning policy to improve access to the labour market, maintain employability, and promote job mobility;
• a skilled, trained and adaptable workforce and new forms of work organisation
• entrepreneurship and conditions facilitating job creation"

The ESF takes up around 10% of the EU's budget, so to have such a key area "insolvent since the beginning of the month" is clearly a big problem.

The European Parliament has also backed the Commission's budget proposals for a 6.8% increase for the next 5 year budget, compared to the Council's position of an increase of 2.8%. It's been argued that the Lisbon Treaty and the projects voted for by the Council has added to the expense, while the Member States are unwilling to pay for the policies they bring in on a European level. The Member States have argued that the EU shouldn't increase its budget at a time of austerity.

It should be noted that the 6.8% increase in the budget would be an extra €9 billion - and if the EU's struggling to cover a gap of €10 billion in the budget, it's hard to see how programmes on employment and regional development won't be affected. The regional funds and funds aimed at aiding employment - like the European Globalisation Adjustment Fund - help the poorer and more crisis-hit countries in the EU. EU budget austerity will end up hurting those countries and regions that need it most, as modest as the help can be when the budget is only 1% of the EU's GDP.

Whether or not you agree with EU austerity, I think there is a good argument for adapting the timing of the EU's 5 year budget plan ("Multi-annual Financial Framework") to bring it closer to the European Parliament election cycle. Passing the budget is a main task of the Parliament, and if cuts or increases are to be made, then making it a more prominent part of the election campaign would bring more legitimacy to the process.

The Fiscal Stability Regulation

The second proposal of the two-pack, the Fiscal Stability Regulation (PDF), focuses on budgetary surveillance where Member States are “experiencing or threatened with serious difficulties with respect to their financial stability”. The Regulation would only apply to the Eurozone Member States. The Regulation would mean that Eurozone Member States will, just like Member States requesting precautionary assistance from the EFSF, ESM or IMF, be subject to a higher level of budgetary surveillance than would normally be the case under the Eurozone legislation so far.

The Regulation

- The Commission can decide whether a Member State should be put under enhanced surveillance, and whether to prolong that status every 6 months. The Commission must put Member States receiving financial assistance on a precautionary basis under enhanced surveillance if they actually draw on the precautionary aid;

- If a Member State is under enhanced surveillance, it must adopt measures aimed at addressing the sources or potential sources of difficulties and, on request from the Commission, the Member State shall: communicate information on the financial situation of financial institutions under the surveillance of national supervisors to the Commission, ECB, and European Banking Authority; carry out stress tests to test the resilience of the banking sector to financial and macroeconomic shocks; be subject to regular assessments  of its supervisory capacities over the banking sector; communicate information needed for the monitoring of marco-imbalances

- The Commission will conduct regular review missions in Member States under enhanced surveillance. If further measures are needed, the Council may recommend that the Member State seek financial assistance on a qualified majority vote;

- Where financial assistance is sought, the Commission will prepare an analysis of the sustainability of the Member State’s government debt;

- The Member State receiving financial assistance will prepare a draft adjustment programme in agreement with the Commission to be approved by the Council by QMV. If the Commission highlights significant deviations from the programme, the Council may make a finding of non-compliance by QMV;

- The monitoring under adjustment programmes will suspend the monitoring over other Eurozone legislation;

- There will be “post-programme surveillance” as long as a minimum of 75% of the financial assistance received by a Member State has not been repaid, and this period may be extended by the Council, voting by QMV. For this surveillance, the Commission will conduct regular review missions and the Council may recommend corrective measures to the Member State on a QMV vote;

- For qualified majority votes, only Eurozone members can vote in procedures under this Regulation, with the Member State concerned excluded from the vote.

European Parliament Report

The report in the Economic and Monetary Affairs Committee was drafted by Jean-Paul Gauzes (EPP). The report was adopted by Committee by 25 votes to 4, with 13 abstentions. It was passed in a plenary vote, but I haven’t been able to find out what the vote was.

The report contains 72 amendments, and the main changes are:

- Like the Excessive Deficit Regulation, more referenced to employment and social protection have been made in the recitals, and in the first article with regard to wage formation and collective agreements;

- Amendment 8 would include a recital referring to ECJ case law that Member States can restrict the free movement of capital on ground of public security, stating that this may be possible to fight tax evasion where a Member State faces serious difficulties in retaining financial stability. It would also insert a reference to the ability of the Council, on a Commission proposal, to authorise restrictions in the free movement of capital concerning third countries. Provisions addressing this are also to be included as articles;

- It would make it a requirement for Member States to report debt issuance plans to the Commission and Council;

- The report seeks to tie the decision that a Member State is at risk more closely to objective factors, including warnings from the European Systemic Risk Board;

- Requiring the Commission to examine the potential negative spill-over effects generated by Member States, including in the field of taxation, and the Council may make recommendations to the Member State regarding this on a proposal from the Commission;

- Requiring the Commission to report the findings of its reviews (including post-programme reviews) to the European Parliament;

- Requiring Member States intending to request financial assistance to inform the European Parliament;

- That the assessment of government debt sustainability also include an assessment of the impact of the adjustment programme on the Member State’s ability to repay, and the Commission will make public its methods of economic assessment;

- The Commission would be given the power to approve draft macroeconomic adjustment plans, with the Council being able to reject an approval by qualified majority voting. Likewise, the Commission can adopt recommendation for a new draft plan where it judges the old one to be insufficient; a recommendation which the Council can reject. (This would increase the power of the Commission in comparison to the original draft);

- The Commission can also make changes to the adjustment programme where there is a significant gap between forecasts and realised figures, which the Council can reject by QMV within 10 days of the decision;

- Similarly, the Commission will be empowered to decide whether a Member State has significantly deviated from the adjustment plan, with the Council having 10 days to reject this decision;

- Adjustment plans must take into account the need to ensure sufficient means for fundamental policies such as education and healthcare;

- A Member State subject to an adjustment plan shall audit existing debt to assess the reasons for its accumulation;

- Social partners and civil society shall be given the opportunity to express their views on the Commission public recommendations and opinions provided for under this Regulation;

- A Member State can be placed under “legal protection” if it is going to default on a decision of the Commission (which can be rejected by the Council within 10 days). Under legal protection a Member State should be able to stabilise and honour its debt. Legal protection would: have the effect of “close-out netting” or “credit event” provisions becoming inoperative; maintain (freeze) loan interest rates and ensure that new loans (apart from financial assistance) are to be reimbursed as a priority; creditors of the Member State must make themselves known to the Commission within 2 months or have their debts extinguished; the Member State submits a recovery and debt settlement plan to the Commission for approval;

- For post-programme surveillance, the Commission can take these decisions, with the Council having the power of rejection.

Thoughts

The European Parliament has put forward some amendments to increase scrutiny and oversight over the budgetary monitoring, with more reporting to the European Parliament and opening up Commission recommendations and opinions to the comment of social partners and civil society. There are also references to the need for the social impact of the adjustment programmes to be assessed and for the necessary funding for health and education to be ensured.

However the drive to empower the Commission is striking. In all cases the Council can reject the Commission’s decision so the Commission still needs the Council’s consent in a way, but it matters that the consent can be implied through inaction and that it doesn’t have to be won in a vote. This would make it more likely for the provisions of the Regulation to be exercised since it is politically difficult for Member States to vote on issues for another Member State. The “legal protection” amendments are the most radical. I don’t know much about state bankruptcy, but the provisions seem to be far too concerned with ensuring that creditors can be paid off (and by implication that the failed adjustment programme be taken as far as possible to secure enough repayment as possible, despite this failure). That the Commission can declare this protection without an application by the Member State goes too far in empowering the Commission. There is no way this amendment will pass in the Council, and it should be noted that the Commission is considering ways bankruptcy could be dealt with in the Eurozone.

Excessive Deficit Regulation

The Excessive Deficit Regulation (PDF) builds on the six-pack legislation’s provisions on budgetary surveillance.

The Regulation

The Regulation would establish a common budgetary timeline (mid-term budgetary framework to be published by 15^th April, draft budget laws published by 15^th October, and budget laws should be adopted by 31^st December), and require the creation of national independent fiscal councils for monitoring the implementation of national fiscal rules for achieving budget balance.

For budget monitoring, the relevant information is (simplified list taken from Article 5(3)):

(a)    The targeted budget balance as a percentage of GDP;

(b)   The projections at unchanged policies for expenditure and revenue as a percentage of GDP;

(c)    Targeted expenditure and revenue as a percentage of GDP;

(d)   A detailed description of measures to be included in the budget to bridge the gap between the targets in (b) and (c);

(e)   The main assumptions about expected economic developments and important economic variables, based on independent macroeconomic growth forecast;

(f)     Any additional indications on how recommendations to the Member State will be met.

The Commission will give its opinion on the draft budgetary laws by 30^th November, and national parliaments can require a Commission presentation to them. There will also be an overall assessment for the Eurozone.

When a Member State is under the excessive deficit procedure it falls under closer budgetary scrutiny, with regular reports to the Commission on the execution of the budget on the general government and sub-sector levels. Under Article 7(6), the Commission can require a Member State to carry out and report on a comprehensive independent audit of its accounts and provide additional information on its progress on the excessive deficit. The Regulation would increase the Commission’s power in monitoring Member States’ budgets and involvement in budgets where there is an excessive deficit procedure in force.

European Parliament Report.

For the Economic and Monetary Affairs Committee, Elisa Ferreira (S&D) drafted the report for the Parliament’s response at first reading. The report was endorsed in Committee by 18 to 12, with 14 abstentions, and in plenary by 501 to 138, with 36 abstentions. The report was endorsed by an EPP-S&D-ALDE-Greens/EFA coalition.

The report submits 81 amendments that will be the Parliament’s starting negotiating point with the Member States in the Council. The main changes are:

- Greater reference to employment and social partners to be added to the recitals;

- It would add (non-binding) calls for a Financial Transaction Tax and a Common Consolidated Corporate Tax Base to the recitals;

- Specifies that the Regulation does not affect wage formation or collective agreements;

- Would define “particularly serious not compliance” as a deviation of 1% GDP in one year or an average of 0.5% GDP each year for two years from the budgetary objective if there are no exceptional circumstances;

- Gives some more flexibility with the deadlines;

- “Expected economic developments” will include an estimation of the assumed macroeconomic multiplier effects (so stimulus packages can be taken into account);

- Specifies that the Commission’s power to specify content of draft budgetary plans is through delegated acts, which brings it under closer control and scrutiny by the Parliament and Council;

- The European Parliament can also require that the Commission present its budgetary plans to it and the relevant EP Committee, as well as the Eurogroup, will discuss the Commission’s opinion on national budgetary plans and the budgetary situation in the Eurozone. The Commission may update its opinions in the light of these discussions;

- Overall assessments of the Eurozone shall also include stress tests that provide “an indication of the risks to public finance sustainability in the event of adverse financial or budgetary developments.”

- The requirement of Member states to report debt issuance to the Commission and the Eurogroup will be included;

- The Commission will be required to present a report on a roadmap towards Eurozone Stability bonds and present a proposal for a Eurozone sustainable growth instrument aiming at mobilising approx. 1% GDP per year over 10 years, including an increase in EIB capital and project bonds, to be invested in European infrastructure, science and technology;

- Eurozone Member States may agree an annual coordinated public debt issuance framework (this is for a future proposal, however);

- A European Redemption Fund shall be established based on joint liability and strict conditionality for 25 years (after which it will be wound up), covering debt over 60% GDP of non-assistance programme Eurozone Member States on a roll-over period of 5 years. There will also be a fiscal consolidation strategy and a structural reform agenda. The ERF’s day-to-day management will be under the Commission following a regulation by the EP and Council;

- Under the excessive deficit procedure, the relevant Member State will present its national plan, including areas of European Added Value, such as EIB credit lines;

- The Commission shall present a report, and possibly a proposal, on a European Debt Authority to the Parliament and Council that would be responsible for managing and coordinating all issues relating to the annual debt issuance plan of the Member States.

Thoughts

The report is clearly very ambitious, particularly inserting the creation of a European Redemption Fund, likely as a way of aiding Italy and Spain. The Parliament is keen to introduce a greater scope of variables to the process and to highlight the importance of social partners, respect for wages and collective agreements, and European solidarity through national plans indicating EIB and other economic help. It’s also clear that the Parliament is using this opportunity to push its ideas on to the agenda and to overcome being overshadowed by the European Council summitry that’s dominated the past 2-3 years of crisis. The Parliament has also tried to introduce more democratic and parliamentary controls over the Commission’s power, especially in ensuring the oversight of its delegated powers by the Parliament and Council. By reserving a right to demand Commission reports and the right of debate, the Parliament tried to ensure that all these plans are open to political debate and discussion.

Still, the need for the Parliament to cram requirements for further reports and debates on further aspects of Eurozone reform highlights how one-dimensional the current “fiscal union” is. The more radical elements are sure to be thrown out or heavily watered down – I don’t expect to see the redemption fund survive negotiations with the Council – but there are some grounded ideas for improving the content of reporting, planning, and of improving democratic oversight.

Member States v the Commission: the contradiction behind the EU budget

Member States reacted with shock that the Commission proposed a 6.8% increase for the EU budget, and the Commission argued it is necessary for the EU to be able to meet the commitments it has already made.

Really, it seems there's a contradiction between how the Member States act in the Council, and how they act outside it. In the Council they're open to all sorts of ideas and are trying to secure funding for themselves (the fight to retain structural funds and CAP money will begin in earnest if it hasn't already - Irish MEPs have already started to voice concerns over CAP).

Lately this kind of attitude can be seen in the UK's approach to the proposed EU PNR Directive, which will require the collection of data on all passengers flying into and out of the EU for the purposes of fighting crime and terrorism. The UK Minister for Immigration said to the House of Commons European Scrutiny Committee that they managed to get agreement in the Council for the proposal to permit Member States to collect PNR data for intra-EU flights and for other modes of transport if they wanted. On the question of depersonalising data gathered that has been stored for other 2 years (to limit the data the government holds on people), the Committee reports:

"Whilst UK experience suggests most requests for access to full PNR data will be made within the initial two year period, the Minister recognises that the requirement to mask data (rather than to archive it in accordance with existing practice in the UK) will have operational and cost implications for which the UK may seek EU funding. [Emphasis mine]."

The UK is a major supporter and player behind EU security legislation, and if it feels that it could summit applications for EU funding over these issues, the question has to be: where does the money come from? There are far more Member States which do not have any PNR system in place at all and would have to create their own if this Directive passes - should they get funding as well? This application might not yet have been made, but if Member States are caught in a culture where commitments - and funding applications - are easily made, but little thought is given to how they will be paid for, then perhaps its better to turn to a system of own resources, where the EU raises its own funds, within limits and subject to the consent of the Council and EP.

The more the institutions have responsibility for raising funding as well as spending money - and the more we can hold them directly accountable for it - the more pressure there will be to rationalise what the money will be used for.

Those Pesky Parliamentarians

Tsk. Those parliamentarians, eh? They clearly don't know how politics works; you don't have to pay any attention to the projects you set up or even actually pay for them, you just announce them to great communique-filled media fanfair. If they don't work, well, sure, that's the Commission's fault, isn't it? Can't they just sit back and enjoy their gravy train...?

So the budget talks have failed. On one hand, it's not the end of the world: the 1/12 rule means that the previous year's budget is carried over on a monthly basis until something is agreed. There's even a mechanism allowing the monthly budget to be added to, in the case of monthly fluctuations. On the other hand, it means that the new projects launched by the EU - not just the Lisbon innovations, but the initiatives of the European Council - are not really being taken care of. Money will be found, but budget by default is not a particularly satisfying outcome.

What were the issues? The 2 major issues were the EP's role during the Multi-annual Framework (the multi-annual budget of the EU), and the existence and procedure for a flexibility reallocation mechanism - essentially 0.03% of the EU's GNI that can be tapped into in the case of unforseen spending needs. As the EU cannot borrow money and must stick to its budget, this has been a useful tool in the past for covering crisis expenditure.

The budget increase of 2.91%, agreed on by the Member States, was accepted by the EP (which wanted a 6% increase), in return for a place at the Multi-annual Framework negotiating table. This would entail a political agreement - an interinstitutional agreement to clarify the procedure which is ambigous in the Treaties as to the EP's role. The ministers claimed that they did not have the mandate to negotiate such an agreement, to which Anne Jensen MEP expressed surprise at the press conference, pointing out that the Member States were aware of the issues the EP would raise in advance. On the flexibility matter, this ran into trouble when the UK pressed for the money under this mechanism to be released after a decision reached by a unanimous Council vote (rather than the current QMV).

"Failure to agree on the reallocation flexibility endangers the financing of programmes such as ITER, an international project to design and build an experimental fusion reactor in France, a source explained.

Another payment which now appears to be in jeopardy is a commitment to pay 190 million euros to banana-producing countries following a decision to discontinue preferential import tariffs. Similarly, 300 million euros of compensation to Bulgaria for having closed down four of its nuclear reactors also hangs in the balance." [EurActiv]

So the EP may have wanted more say, but it appears that some Member States attempted their own power grab as well.

The Parliament's demands to be at the table during the Multi-annual Framework talks included a demanded commitment to look at the issue of the EU's own resources. This is being reported as meaning an EU tax - which is the most high profile and obvious option - but that in itself seems little reason to block agreement. Whatever you think of the idea of an EU tax (and I've argued before that it's an option that has points to be considered), unanimous support is needed in the Council, which is unlikely to occur, so committing to considering the broad issue of own resources (shifting some of the budgetary burden from national budgets to some economic activity) isn't really that dangerous.

So Parliament wanted an increase in the budget to help pay for initiatives the EU started (including ones started by the European Council), and were willing to settle for the number member states agreed on; wanted a place at the table when the multi-annual budget is being discussed (since they are equal with the Council with regard to the budget); and a continuation of the flexibility mechanism.

Sound unreasonable?

The Shape of Dutch EU Policy

This article has been rattling around my head for a while - since before the official formation of the Dutch government - but I never got around to writing it. At the very end of September, I attended a lecture by Wepke Kingma, Chief Director for European Integration at the Ministry of Foreign Affairs on the challenges facing Dutch European policy. Of course, this was before the new government came in (though we were pretty sure about how the coalition would turn out), but it was very interesting to hear about how the Dutch government generally sees itself in the EU.

The Dutch EU role:

When it comes to how the Dutch government view the changes in the EC/EU over the decades and how the power structures affect its influence, it sounded familiar to me. I've often argued that increased power for the Council (or European Council) is counter to the interests of small states, and that the supranational aspect of the EU generally serves small states better. This seemed to be the Dutch experience, with worries over the growing power of the European Council as the Commission is weakened, as well as enlargement. Vetos are of little use as they are a "nuclear option" in negotiations and make you unpopular and less influential in future negotiations; also, it benefits big states more as smaller states are more easily pressured under a unanimous voting system. The Dutch strategy for dealing with enlargement and the "big 3" is to have well-developed positions on all European policies to ensure that the Netherlands is a reliable negotiating partner; and this also feeds into coalition-building on issues. I was a bit surprised that coalitions in the Council are very stable, but it makes sense as it is hard and time consuming to constantly form new voting/negotiating coalitions.

One aspect of the Dutch relationship with the EU that is different from Ireland, and perhaps other small states, is the "founding member" status of the Netherlands. Enlargement seems to be seen as a dilution of identity and influence - the original 6 were described as a "nuclear family", and I couldn't help thinking of the Dutch word "gezellig", which is a bit untranslateable, but means something lke "cozy". Money and the dilution of identity seem to be at the core of Dutch worries over the direction of the EU. However, it seems important to note how integration and supranationalism is seen as an important way of defending the influence and role of small states in the EU struture. While sovereignty may be viewed as being lost through the ending of the veto and supervision by the Commission, small states seem to view this as (generally, though it depends on the area), as protecting their position and opening up new opportunities to influence Europe's direction. Supranationalism can be a goal of nationally-minded member state governments too, it seems.


Multi-annual budget:

This is a big issue as it will be decisive in the EU's capabilities over the next few years (and therefore also decisive on how new Lisbon institutions such as the EEAS develops, and it is being decided in an atmosphere of austerity. Though there's undoubtedly a large element of self-interest in the EP's defence of the budget, and lobbying for increases, there is a good argument that you cannot increase the responsibilities of the EU institutions without having the money available to effectively carry out its duties.

The Dutch position seems to be that they are quite happy to continue paying as a net contributor, as the internal market is so important to the Netherlands, but CAP and the Cohesion Funds are areas where the Netherlands wants to see cuts and reforms. They want the EU budget to be set at around 1% GNI, and have priorities for the EU: Frontex (immigration control at the EU border), energy & climate, and the EEAS, among others. Therefore they want cuts in CAP and Cohesion funds to pay for increases elsewhere. The Dutch seem to view agriculture spending as necessary to aid declining villages and for the maintanence of the countryside ("landscape preservation"), but are otherwise looking for the CAP section of the budget to be reduced heavily. Cohesion funds are viewed as a good policy to help make the poorer member states wealthier, and therefore more able to buy more goods from the richer member states (the thought also occured to me that this is also a good strategy to steadily increase the number of net contributors; or rather slowly spread the burden of contributions). However, cohesion funds should focus on the poorer member states and not be directed to the wealthy countries' poor regions as well. There was a mention of asking for a rebate if the Netherlands didn't get its way, but this was heavily downplayed (my impression was that they viewed it as a childish strategy that wouldn't win them any friends and would be counter-productive in their coalition-building strategies).

My own thoughts on this are that CAP clearly needs to be reformed (as Kingma pointed out, the newer member states will soon join the CAP fully and this will add to the strain on the budget), but I doubt that restricting cohesion funds to only the poorer countries is a good idea in the long run. Perhaps I'm biased because I come from a poorer region, but I think that all member states need to be involved in the cohesion fund, and that if you break their link with it (in that they feel that they're not getting anything out of it), it will come under increasing pressure for cuts despite its value for the good of the internal market. What is clear is that the EU is definitely a "transfer union" and always has been. It consists of a number of different policies transfering money for different projects to help out poorer regions and areas, as richer areas benefit from larger and freer markets. I would personally defend this transfer union as being a social and economic good, though it could do with reform. Still, the battle over the budget is likely to be vicious, as the EU is in some ways a rudimentary welfare state for states, and battle lines have already been quite firmly drawn.

Introducing rebates into the equation would be highly damaging, as rebates are paid for by other countries (I'm reminded of a story of the Polish government asking the British government how much more they would need to pay to join the EU because of the British rebate [it was a sore point obstructing enlargement negotiations]. That image of a poorer country asking how much it would need to pay a richer country - and a champion of enlargement at that - due to its own obstructionism of the budget is something that sticks with me as a symbol for just how selfish and immoral rebates are).


Immigration and asylum:

With Geert Wilders' PVV supporting the minority coalition government, this is obviously a big issue in the Netherlands today. Justice and Home Affairs may be a big European focus for this Dutch government, as Kingma suggested that JHA was an area where the Netherlands wanted to see more action. The Lisbon Treaty moved JHA firmly into our "Union method", so this area could see a leap in activity. The challenge for the Netherlands here is to convince the other member states that they don't want to re-nationalise immigration, but to toughen the rules on illegal immigration. Immigration is such a big issue across many member states that they might be able to win some support for changing the system. Also, there are lots of "Dublin cases" before the European Court of Human Rights on the current system, and this could generate pressure for refrorm as well (the Dublin system is where immigrants into the EU are sent back to the country they first entered so that they can't "shop around" the member states - there have been complaints particularly about the Greek processing of applications).


Enlargement:

This touches on the identity, money and influence concerns of the Netherlands. The Dutch government wants tougher enforcement of the enlargement conditions to ensure that there is the legal and institutional change necessary to join, and that the EU moves away from the old practice of giving in to pressure to enlarge quickly. Kingma raised the prospect that a Dutch parliament may end up refusing to give the green light to enlargement if it felt that the candidate country hadn't fully reformed.

Naturally Turkey is a big topic, but it wasn't really directly addressed on its own. However, in the question-and-answer session, it was suggested - but not directly said - that the Netherlands may be negotiating or hoping that the Turkish government would accept some conditions on its voting weight. I stress that this was not directly or explicitly said, and that I am getting this impression from something said by someone talking in their second language rather than their mother tongue. Still, enlargement has seen restrictions on the free movement on workers and access to CAP funds, so if a "privillaged relationship with the EU" is unacceptable for Turkey and other member states, then I wouldn't be surprised if the idea of gradual integration and gaining of rights in the institutions hadn't surfaced in some national administration. If such an idea has surfaced, I hope it will be resisted.

Quoting Auditors

I read this yesterday, when I was looking at the Wall Street Journal's article on member states who contribute the most to the EU pot per head of population (both with and without the more direct streams of revenue, showing that it is possible to have clear data on how much is collected where through a direct tax). I've often read the arguments against the use of the Court of Auditors' reports on the EU accounts as simply proof of corruption, due to the lack of oversight in the member states' spending of the EU pot, and the requirement that all the accounts need to be cleared for the overall accounts to get the clean bill of health.

Well, this is the quote from the financial report, 2008 (PDF):

"Clean bill of health on EU acc ounts by auditors

The European Court of Auditors’ annual report delivered promising news in 2008.
It confirmed the positive trend in the management of payments, showing that the majority of payments checked were correct, with most policy areas only affected by less than 5 % of errors and, in certain areas, such as direct aid to farmers and administrative expenditure, less than 2 %. Errors were still too frequent in certain areas, particularly where grants have been managed by national authorities, such as for cohesion policy.

Acknowledging the results of the Commission’s sustained efforts to modernise its accounting systems, the European Court of Auditors lifted its last remaining reserves on the EU accounts. The Commission is currently one of the few public administrations worldwide that operates full accrual accounts, giving it a comprehensive overview of its current and future assets and liabilities. Together with FEE, the European Federation of Accountants, it jointly organised a conference on the state of play and future prospects of accrual accounting in the area of public sector management. The main documents related to the conference can be found here: http://ec.europa.eu/budget/documents/conf_accounting_1008_en.htm"

Of course, this doesn't mean that more scrutiny isn't necessary (see this article for a diagram on how money is spent in the EU). It may be sensitive for national administrations to audit themselves and present clearer accounts. It was disappointing when a Dutch suggestion for member states producing a certificate of good health of their own spending of EU funds was given the cold shoulder. As recent events have shown, sometimes visits from European auditors can turn up interesting facts in national and regional administrations.