The EU Budget - Success for the Bloc's Spending Hawks

The agreement on the EU budget for 2014-20 marks a political success for the bloc's spending hawks--and in particular for the British government, which going into the European Council on February 7th-8th had adopted the most hard-line position.

The agreement on the EU budget for 2014-20 marks a political success for the bloc's spending hawks--and in particular for the British government, which going into the European Council on February 7th-8th had adopted the most hard-line position.

After 18 months of difficult negotiations, EU member states finally agreed on the first-ever real-terms cut in the EU budget. Potential commitments to the EU budget during the 2014-20 will be capped at 1% of EU gross national income, with expected payments set at 0.95%. That's equivalent to around €960bn and €908bn, respectively, representing falls of 3.5% and 3.7% compared with the current budget. It's also well below the 5% increase proposed by the European Commission.

The difference between the €960bn package and the €972bn tabled at last November's summit, which ended in failure, is not exactly huge. The final result is also close to proposals put forward more than two years ago by a coalition of five states (Germany, Finland, France, the Netherlands and the UK), which is hardly surprising given that these countries together account for two-thirds of the net contributions to the budget.

Still, the British delegation returned from Brussels in a triumphant mood. The result was a considerable early success for the British prime minister, David Cameron, following his speech on January 23rd, which called for reforms to the EU, including tighter expenditure controls, in advance of a possible UK referendum on continued EU membership around 2017. Arguably, British influence played an important part in the final budget agreement, since the settlement is also lower than the German government had earlier indicated it was prepared to accept.

The reaction of the French president, François Hollande, was distinctly muted. France had hoped to isolate the UK in its refusal to agree a more ambitious budget and on returning to Paris Mr Hollande was forced to defend himself against criticism that he had been sidelined by an Anglo-German axis. France's aims in talks were rather confused, with officials seeking a stable budget overall, to protect agricultural spending and regional aid, and to boost spending to promote economic growth.

Of particular symbolic importance for the net contributors was that the ceiling for administrative spending was cut back in the final stretch of the talks (although it will still increase in comparison with the previous budget). The pay and perks of Brussels officials has been the subject of much unfavourable comment in British, German and other countries' press. The other big loser in the final round of talks was infrastructure spending on energy, transport and telecommunications. This marked a scaling back of the EU's ambitions, but overall funding for "growth and jobs", which includes research, infrastructure investment and education, received a significant boost compared with the last budget (up by 38%).

In contrast, the two largest areas of spending--agriculture and cohesion policies--suffered cuts. Income support to farmers falls by around 17%, though, controversially for some, it still accounts for around 29% of total spending. The related category of rural development, environment and fisheries accounts for a further 9% of the total, meaning that agriculture still accounts for the lion's share of the budget, even if it has fallen from around 70% of total spending 30 years ago. The use of agricultural funds has also changed considerably, with much less going towards price supports.

The other dominant category is spending on poorer regions. So-called cohesion funds suffered an 8% cut and in future will account for around 34% of the total budget. Some of these funds flow back to disadvantaged regions in richer member states, but the majority goes to eastern and southern Europe. Their share will also increase during the next seven years. The intense lobbying by Poland and other countries to maintain this spending indicates the continued importance attached to it. Although the Polish economy has performed well in recent years, the economic difficulties of Latvia, Lithuania, Hungary, Romania and Bulgaria remain considerable, even if they have attracted less attention than those of the troubled euro zone countries.

Overall, the budget talks demonstrated some willingness to better deploy the EU's collective resources to alleviating the pain of ongoing economic adjustment--including the creation of a €6bn youth employment fund--but arguably the budget negotiations represent a missed opportunity to re-orientate the EU's goals. Now that the overall spending ceilings have been agreed (though they still need approval from the European Parliament), it is to be hoped that member states and the Commission will make use of new provisions for greater flexibility over the use of EU funds to re-direct spending to newly emerging priorities. Just to take one example, regional spending, more should go to help business start-ups and the development of SMEs, which probably offer the best hope for boosting the EU's employment and growth prospects.


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