The European Council on 22-23 November will be test of the Union's will to deliver an ambitious EU budget 2014-2020 for the European Union. The European Parliament which, must approve the proposed budget, is not prepared to accept a smaller EU Multiannual Financial Framework (MFF) than the current one. Some would argue that this might be illogical or even irresponsible given the austerity climate that pervades some parts of the European Union. In fact, the very opposite is true. Vociferous calls for cuts in the EU budget may be popular, but they are not economically sound. After all, cutting back on the EU budget means cutting back on the most powerful form of economic stimulus available in the EU. At a time of crisis, we need that stimulus more than ever to promote growth and jobs.
The EU budget is not large but it is important, it represents only some 2% of total government expenditure in the union, and is more than 45 times smaller than the sum of government expenditure in the member states. The EU budget is primarily an investment budget and that 94% of its total returns are invested in the member states themselves or for external priorities of the union. For many regions and member states, public investment would be minimised or impossible without the contribution of the EU budget.
The EU budget is a part of the solution to enable Europe to emerge from the current crisis by promoting investments in growth and jobs and helping member states tackle the present structural challenges, in particular loss of competitiveness, rising unemployment and poverty. If we are serious about a master plan for growth, we need to provide the necessary means. The EU budget is an investment vehicle that boosts economic growth and creates jobs. For example it finances crucial pan-EU transport and energy links. It helps to foster innovation and boost research and development. The EU budget leverages investment, allows for economies of scale, and cannot run a deficit.
The Europe 2020 strategy for re-launching the European economy, approved by all the EU member states requires that the EU does more at European level. The heads of government cannot keep giving the EU more and more tasks to perform and, at the same time, cut its budget; that is simply asking the impossible. Put simply, an ambitious EU needs an ambitious budget. All European Union member states and the European Parliament have committed to a common growth strategy. It is called Europe 2020 and it is a comprehensive response to the challenges the EU is facing. The Multiannual Financial Framework is one of the main tools for delivering the Europe 2020 strategy. It is a budget for growth and investment. We can not speak all the time about the need for growth and afterwards not be coherent when proposing the means for investment.
Part of the solution to growth is a strong EU Cohesion Policy. It should remain a key investment tool for our countries. Furthermore, cohesion policy benefits the entire union by strengthening the internal market and increasing economic convergence as well as channelling investments to areas of potential growth and supporting structural reforms in member states.
What about the revenue side?
The European Parliament strongly believes that the divide between opposing camps of EU member states led by the net contributor countries to the EU budget, on the one hand, and by the net beneficiary countries of the EU budget, on the other, in a system which creates a purely accounting-based vision of 'fair return' is incomprehensible and unattractive to the European citizen.
The financing of the Union budget should return to a genuine system of own resources. In the medium term, we must end existing rebates and other correction mechanisms. The proposals on a financial transaction tax (FTT) and a new EU VAT as own resources, which are aimed at reducing the share of member states' GNI-based contributions to the EU budget to 40% by 2020 are welcome. The financial transaction taxation is not only just for society but could constitute a new revenue stream which would reduce member states' contributions to the EU budget.
The negotiations on the Multiannual Financial Framework are a test of the European Union's ability to act in the interests of European citizens and are a test of whether the union can live up to is promises. EU government leaders in proposing an ambitious budget at the summit on 22 and 23 November, not only will they be doing the right thing for Europe, they will find support in the European Parliament and in the Committee of the Regions, they will also be showing to the wider world that Europe is capable of taking tough decisions.
Follow Martin Schulz on Twitter: www.twitter.com/martinschulz