THE EU BUDGET

1
THE EU BUDGET

• Introduction
• Crisis and reforms
• Revenue and Expenditure
• Net payers and net contributors
• http//europa.eu/pol/financ/index_en.htm

2
Introduction

• Governments and money
• roots of parliamentarism
• Budget reflects policy priorities and national
  preferences
• EU peculiarities
• National governments use budget arguments for
  justification of membership

• - Democratic control
• - No taxes
• CAP
• UK rebate

3
Budgetary Crisis

• Until late 1970s the De Gaulle Budget
  reflecting strong French agricultural interests
• 1980 and 1984-88 budgets rejected
• 1. Spending beyond limits of own resources (CAP
  70 of budget)
• 2. EP dissatisfied with power to only control
  part of the budget
• 3. Size of UK Budgetary contribution
• Solution
• Inter-institutional agreements
• budget reforms
• financial frameworks
• UK rebate equivalent to 66  of its
  contributions

4
The British Rebate

• Budget dispute started with accession
  negotiations UK felt disadvantaged by CAP
• (Britain was the third poorest country in the EC)
• Correcting mechanism demanded (1974) but not
  implemented
• Britains net-payment in the 1970s 60m (until
  1976), 369m (1977), 822m (1978), 947m (1979)
• 1984 British rebate settled at 66
• 2005 Britain is the third wealthiest EU country
  (rebate at about 3b/year)
• 50 of the rebate is being paid by Italy and
  France

5
1988 and 1993 reforms

• Delors packages I and II
• EU budget maximum linked to 1.2 of EU GNI (since
  1993 1.27 2005 1.24)
• National contribution linked to GNI
• Attempts to limit then reduce CAP spending
• Agreement to doubling of structural funds

GNIGDP net income from other countries GDP
consumption investment government spending
(exports - imports)
6
1999 reforms (Agenda 2000)

• Stabilisation of total expenditure
• CAP spending only marginally increased
• Decrease in structural fund spending
• UK rebate untouched

7

• The 2006-2013 financial framework dispute in 2005
• Months of haggling
• Initial draft from the Luxembourg presidency
• 1.06 of EU/MS GNP
• British presidency
• suggested an 8 cut on expenses (CAP and
  Development fund)
• 1.03 of EU/MS GNP
• Rebate untouched
• Compromise
• a 862 billion package (1.045 GNP)
• 10.5bn euro cut of British rebate (20)
• Review of CAP in 2008
• January 2006 EP rejects compromise, solution in
  spring

8
The Budget Procedure
9
EU Expenditure
Non-compulsory (54)
Compulsory (46)
- Structural funds - Internal policies - External
policies - Administration - Pre-accession aid
CAP
Growth of EU Budget
10
Budget year 2005
11
Proposed Budget for 2007
12
2007 Budget
13
2008 Budget
14
Own resources

• Traditional own resources
• customs duties
• agricultural duties and sugar levies
• The VAT-based resource, derived from a uniform
  rate to the value added tax (VAT) 1 (down to
  0.5 since 2004)
• The GNP-based balancing resource (fourth
  resource, derived from a uniform rate to Member
  States' gross national product (GNP)
• fixed during the budgetary procedure

15
Sources of EU Revenue (2002)
16
Contributions of the Member States
17
Budget of EU and member states compared

• EU (2005) 116.5 b Euro
• Germany (2001) 250 b Euro
• France (2001) 266 b Euro
• Italy (2001) 389 b Euro
• US fed. budget (2001) 2.280 b Euro
• EU budget represents 1.06 per cent of GNP of
  member states
• Budget is so small, because expensive policies
  (social welfare, education, health, defence)
  still nationalised

18
Net payers and net contributorsbefore Eastern
Enlargement (in Billion Euro)
19
Percentage of GNP 
20
Financial Perspective 1999-2006
21
Financial Perspective 2007-2013
22
The budget authority, financial control (OLAF)

• Fraud approx. 10 of annual budget disappear
• 1999 Santer Commission resigns after allegations
  of loss over financial control
• Last scandal Eurostat (2003)
• UCLAF/OLAF (now independent)

23
Conclusions

• Budgetary process has become a mechanical one
• Budgetary process is still a source for political
  struggle
• - conflict over powers - Arguments over basis of
  own resources - Disputes over funding balance
• Budget is combination of little parts rather than
  a whole coherent package

24
Class questions

• To what extent has the EU solved its budgetary
  problems, especially with regard to the
  enlargement?
• What are the financial control mechanisms and
  how are they working?
• Is this another instance of the democratic
  deficit?