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28th Mar 2024

Brussels to kick off key EU budgetary review talks

The European Commission is this week due to formally kick off a review of its over 20-year-old rules on EU spending.

In a political paper - seen by EUobserver - Brussels lists the new priorities the bloc could concentrate on and suggests reform of outdated budgetary tools, such as funds for farmers or the UK's annual repay from common coffers.

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  • The EU is set to start a long debate on how its budget should be spent (Photo: European Commission)

The document, called "Reforming the budget, changing Europe", is set to be presented by EU budget commissioner Dalia Grybauskaite on Wednesday (12 September).

It aims to open a debate on changing the way the EU spends its money. The review was called for by EU leaders in 2005, following bitter wrangling over the current seven-year budgetary plan.

"It is time for a Europe-wide reflection preparing the ground for a renewed consensus about the direction of EU spending policies able to meet the challenges of the next decade and beyond," the draft paper reads.

But as it is the very first contribution to the review process due to culminate in 2008 and 2009, the document suggests questions and possible alternatives rather than presenting Brussels' own ideas on where exactly the reform should lead.

The review debate is going to feature high on the forthcoming political agenda, with the French government already signalling it wants to focus its six-month period at the EU's helm in late 2008 to conduct the discussion.

Obvious priorities and cuts in EU spending

The EU executive has also opted to remain silent on the critical question of when major changes in the bloc's spending should come along.

The silence revolves around a 2002 backroom deal by Germany and France which fixed agricultural spending at its current generous level until 2013.

The agreement between France's Jacques Chirac and Germany's Gerhard Schroeder was then presented as a done deal to other member states – riling several of the more reform-minded countries.

Three years later, a big budget fight between the UK's Tony Blair and Mr Chirac centred around reducing farm funds before 2013.

At the moment, the EU still pays more than 40 percent of its €100 billion annual budget as direct aid to farmers, with the most going to French farmers.

The commission's review paper does not comment on this particular issue, with one high-level official suggesting: "The answer to this question is clearly missing there and weighs down the effective value of the document. Without it, it's no big deal."

At most, the paper asks policy-makers whether the currently applied seven-year "financial frameworks offer the right vehicle to bring about change" and openly confirms that the historic budgetary review "will be complemented by preparatory action in key spending areas," such as a "health check" on farm and regional policy.

Brussels is quite concrete in listing the new priorities it assumes the EU should concentrate on in future, namely scientific and technological progress, Europe's aging population, social and economic gaps between regions, climate change, energy, migration, security and foreign policy.

It notes that due to the size of the EU budget being "relatively small compared to national and regional budgets," the bloc may in the future be "unable to finance all actions which might be deemed better funded at the European level."

How to stop political wrangling?

The commission also highlights the problem of the EU's own resources and correction mechanisms, touching on two political hot potatoes: a possible EU tax and the UK's annual rebate from the EU budget.

Currently, the main source of the EU budget is the national contributions based on the member states' gross national income (GNI) which have over the years surpassed customs duties, VAT payments and agriculture levies.

In 1988, the GNI resource made up less than 11 percent of common coffers, in 2013 it will be 74 percent.

The shift towards more payments directly from national capitals has been accompanied by rising opposition in those countries that contribute significantly more than they get back from re-distributed EU funds.

Brussels notes that member states' treasuries tend to list national contributions to the EU budget as "an expenditure item" in their national budgets.

As a result, the countries "tend to judge EU policies and initiatives in terms of returns compared to their national contributions, rather than looking first at the overall value of pursuing certain policies at the European level."

Finally, the review paper puts a question mark on the current system of pay-backs to the UK - as a result of the deal negotiated by Margaret Thatcher in 1984 - and to some other net contributors, such as the Netherlands, Sweden, Germany and Austria.

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