The EU budget of €130 billion needs radical reform. Spending should be reoriented towards areas of real European value added with a genuine supranational dimension – notably research and development (R&D), cross-border infrastructure, foreign and security policy, and development aid – and away from spending that mainly affects redistribution between member states. At the same time, the quality of delivery must be improved significantly.
These steps are demanded by the economic and budgetary difficulties of member states as well as the European Commission’s ambitious 2020 growth-based agenda. At a time when member states are facing unprecedented choices in public provision, it is intolerable that the EU budget should continue on a business- as-usual basis.
In October, the Commission put forward its own, frankly feeble, reflections on the need for change, and announced it would table legislative proposals in 2011 for the period after 2013, when the current agreement between Commission, Council and Parliament runs out. We think the EU can do much better for the economy and for European taxpayers.
Starting with reorientation, we propose a radical reduction of the nearly €100bn currently spent on agricultural and regional development schemes to €70bn in 2020, with further reductions after that. The futility of supporting farm incomes by way of the Common Agricultural Policy (direct payments to farmers based upon historical production yields, largely decoupled from actual production) can hardly be overstated.
Largely what it has done is to inflate land prices to the detriment of young (and other) farmers, who have to borrow even more money when they purchase farms, and increasedtheir vulnerability to financial-market fluctuations. So it is not just that CAP should be a low priority for a growth-oriented EU: it simply does not deliver benefits to the intended beneficiaries, the farmers.
The way forward is to boost markets for insurance products that can protect farmers against fluctuating input and output prices. We recognise the CAP will not be scrapped overnight – that would lead to a severe drop in land prices – so some temporary, targeted compensation is called for to manage the inevitable political backlash. As regards regional development, transfers to less affluent regions in median- and high-income EU countries should largely be scrapped: neither actual experience nor theory offers much support for the idea that moving billions of euros from capitals in richer member states to Brussels and back again to the same countries provides much value-added. Hence, these funds should be reserved for the new member states, to speed up their convergence.
As a second part of the reorientation, we propose a substantial increase in support for policies that genuinely produce public goods and value-added. A top candidate is basic R&D: support for new generations of energy technologies is a high priority. In addition, increased financing of cross-border infrastructure projects could improve the functioning of the internal market. Also, replacing overlapping bilateral foreign-aid programmes in the same recipient countries with joint EU projects might reduce the cost of delivery. Finally, broader internal and external security aspects of EU policies might need more funds in the future, provided that there is political willingness to deepen co-operation. As a whole, we would see ‘value-added’ elements of the EU budget rise from €20bn today to €50bn-60bn by 2020.
The net result of our proposed reorientation would be a major boost to prosperity and broader welfare in the EU, while keeping total spending as a share of gross domestic product unchanged, given a return to pre-crisis levels and trend growth rates. However, this policy package should also address low efficiency. Administrative costs associated with running CAP and regional-development programmes may equal 15 cents per euro spent.
The EU’s ability to get high-quality research for its money is hampered by complicated and unproductive administrative procedures, selection mechanisms and qualification criteria. Grants to EU infrastructure projects tend to be skewed by member states wanting to have their share of the pie. Evaluation studies of regional-development funds have problems identifying gains commensurate with spending. External valuations of the EU’s external development programmes also call for performance to be improved. There is a high risk of yet another missed opportunity to reform the EU’s budget.
The new institutional set-up after the adoption of the Lisbon treaty has boosted the position of the European Council and the European Parliament but has so far shown neither in their best light. We strongly recommend that they and others stakeholders rise to the occasion to maintain a strong and flexible Europe; the alternative is a budget that contributes to accelerated decline.
Kai Konrad – Max Planck Institute for Tax Law and Public Finance, Munich
Sixten Korkman – Research Institute of the Finnish Economy, Helsinki
Mauro Mare – Tuscia University, Viterbo
Jacques Pelkmans – College of Europe, Bruges
Jim Rollo – University of Sussex, Brighton
Janez Šušterši – University of Primorska, Koper
Niels Thygesen – University of Copenhagen