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The EU’s 2012 Budget

Introduction

In April 2011 the Budget Commissioner, Mr Janusz Lewandowski, proposed that the EU budget for 2012 be 4.9 per cent higher than that for 2011 (less in real terms).  Several large Member States, including the UK, have instead called for there to be no increase in the budget and for reductions in some areas of spending over the next few years.

This paper looks at the proposals of Mr Lewandowski, current EU spending plans and the arguments of Member States who oppose any increase.  The procedures for the consideration of the draft budget and its adoption are set out in a separate SEE paper, ‘The EU’s Budget Procedure’.  Details of the proposals for spending for the period from 2013 onwards can be found in ‘The EU’s Financial Framework from 2013’.  Both papers are available on the European Movement’s website.  The final budget is expected to be adopted in the autumn of 2011.

The Proposed 2012 Budget

The European Commission adopted the draft EU 2012 budget on 20 April 2011; it was published the same day.  It proposes a 4.9 per cent increase in the overall payments budget (the EU distinguishes between payments it will make in a particular year and commitments, which may run over several years) for 2012, making the total budget €132.7 billion (or 1.01 per cent of forecast EU Member States’ gross national income in 2012).  This compares with a 2.9 per cent increase for the 2011 budget – again a cash increase and not one in real terms.

For the second year in a row, the draft budget proposes freezing administrative expenditure, necessitating reductions in some support costs relating to buildings, IT and other areas.  For the third year in a row, the Commission is also not requesting the creation of any additional posts.  Current administrative expenditure amounts to 5.6 per cent of the EU budget and the total salary bill in 2011 is €2.31 billion; by way of comparison, the NHS spent 6 per cent of its budget on managers and administrative staff in 2009/10, the Scottish police services 25 per cent and Welsh education administration 32 per cent.

But the Commission is proposing significant increases in spending in other areas.  The increases proposed by Mr Lewandowski are:

  • research programmes – 13.3 per cent (to €7.6 billion);
  • structural and cohesion funds – 8.4 per cent (to €45.1 billion);
  • competitiveness for growth and employment – 8.1 per cent (to €12.56 billion);
  • justice and home affairs – 3.7 per cent (to €1.5 billion);
  • agriculture, fisheries and rural development – 2.8 per cent (to €57.9 billion);
  • EU as a global player – 0.8 per cent (to €7.2 billion).

The Commission justifies the increases in the research, structural funds and competitiveness programmes as necessary to meet the bills of programmes started in previous years and because these programmes will help to deliver the economic growth Europe needs.  Mr Lewandowski described the draft budget as, “a delicate balancing act combining austerity and growth boosting measures for 500 million Europeans”.

Perhaps anticipating criticism from the UK, whose Prime Minister was one of five EU leaders to call last December for restraint in future EU spending, Mr Lewandowski highlighted the example of the £100 million UK-Ireland electricity interconnector as one of the projects supported by the EU which depended on the increased budget for its funding. 

Current EU Spending Plans & the MFF

The EU is part way through the 2007-2014 MFF (multi-annual financial framework), which was agreed before the financial crisis began and the European economy went into recession.  The original MFF had proposed an increase of about 12 per cent for 2012 so the proposal tabled by the Commission for a 4.9 per cent increase amounts to a reduction against the original plans, reflecting, in the Commission’s view, the balance between austerity and the need for growth. 

The EU had already switched the emphasis in its budget to supporting measures to encourage sustainable economic development from spending on agriculture since CAP spending peaked at 70 per cent of the budget in the 1980s (now down to about 30 per cent in direct support).   Since the financial crisis, the EU has focused further on measures to support growth and competitiveness and the increase in funding for programmes such as research reflects that.  The 2012 proposals direct about 43.5 per cent of the budget towards the Europe 2020 growth strategy programmes.

Member State Views

Concern about growth in the EU’s budget has been developing for some time, particularly among the net contributors.  In December 2010 the leaders of five Member States – the UK, France, Germany, Finland and the Netherlands – wrote to the President of the Commission arguing that the EU could not be exempt from the efforts that Member States were making to bring their public spending under control.  They proposed that in the remaining years of the current MFF (i.e. up to and including 2013) EU spending should not rise by more than inflation.  They further proposed that in the next MFF from 2014 EU spending should be stabilised by restricting the commitment appropriations (in other words, the EU’s longer-term expenditure commitments) to a level not exceeding that for 2013 with a growth rate below inflation – i.e. a cut in real terms. 

This letter was important because it sought to influence two separate EU debates – that about the budgets for 2012 and 2013, and that for the MFF for the period beyond 2014.  Clearly, because the leaders were seeking to base future spending on the 2013 budget, the level of that budget would be very important.  The letter therefore set the tone for the future debates about the 2012 and 2013 budgets.  Clearly, by suggesting that the EU’s budget should fall in real terms from 2014 onwards, the leaders were also signalling that the period in which the EU’s budget had risen steadily (in real terms) should come to an end. 

The process of agreeing the 2011 budget had proved to be extremely difficult.  Thirteen Council members eventually agreed on an increase of 2.9 per cent but the Parliament, exercising its greater budgetary powers under the Lisbon Treaty for the first time, had tried to stick to its position of an increase of 6.19 per cent (in line with the Commission’s original proposal).  The Parliament did agree to 2.9 per cent in the end but only after it had tried – and failed – to persuade the Council to promise that the EU would raise more of its resources through own resources rather than by direct payments by Member States. 

Inevitably there are differences between Member States about spending priorities and in terms of the overall spending envelope, between net contributors and net beneficiaries.  The UK argues that there is sufficient headroom within existing budgets for the EU to reprioritise its spending from low to high priority areas – especially from administrative costs and the CAP to those programmes concerned with economic growth.  Other Member States will take a different position.

Analysis & Next Steps

The European Parliament has already expressed – in a report from its budget committee subsequently endorsed in a plenary session – its support for the Commission’s draft budget.  Some critics have suggested that the Parliament operates in a reverse of the “no taxation without representation” situation; it has power but no responsibility for the financial consequences of its decisions as it is Member State governments and taxpayers that have to find the resources.  Nevertheless, the Parliament is a significant player in the budget process because its agreement is required alongside that of the Council before the budget can be passed. 

Those Member States who have taken the view that the 2012 budget should reflect the austerity budgets of many EU countries are unlikely to change their position.  This sets the stage for a repeat of last year’s confrontation about the budget between the Council and the Parliament. 

As the final vote of the Parliament on the 2012 budget is not expected until 1 December 2011, the budget-making process has some way to run.  Although the debate on the next MFF is a separate process, inevitably there will be some cross over between that debate and the one on the 2012 budget.  The Commission may hope that its proposals to cut the EU’s staff by five per cent during the next MFF period and to make changes to the terms and conditions of EU staff now without increasing their pay will help to persuade the net contributors to the EU budget to accept its proposals for 2012.  Such an assessment is almost certainly over-optimistic.

July 2011

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