The EU Budget explained

29th November, 2012 10:37 am

We are hearing a lot at the moment about the EU Budget and the wrangling surrounding it.  I thought it would be a good time to write a blog about what the EU Budget actually is and what could happen if no agreement is reached.

There are two different budgets in the European Union; one is the annual budget which sets spending levels each year.  The next, and the one causing the current controversy, is the Multiannual Financial Framework (MFF), which is a seven year spending plan for the EU. It defines the maximum amounts for each major category of spending (e.g. structural funds, agriculture, research and innovation and development spending).  The current MFF (2007-2013) is due to expire and an agreement must be reached on the new MFF by the end of the year.

Though the negotiations are ongoing, the final budget, if it is agreed, will be in the region 0.8-1trillion euros for the entire seven year period.

That is a lot of money, but still only amounts to around 1% of the EU’s GDP; this is especially low when you consider that, at the national level, budgets in the EU average 50% of GDP.  Also, something worth pointing out is that none of this money is borrowed and contributes in no way to any national debt.

The budget is proposed by the European Commission and is then amended and approved by the European Council and European Parliament.  The European Council must pass the budget unanimously for it to go through.

At the moment the Commission is proposing what they call a “freeze” in the next MFF, using the 2013 maximum expenditure level plus 2% inflation. The Commission have also placed some items, for instance the Global Monitoring for Environment and Security (GMES), “off budget”, which will have to be paid for by the member states.

The Council is split on the issue with the many of the net recipients wanting to go along with the Commission proposal (or higher) and the net contributors who want a smaller budget. Two groups emerged in the Council – “Friends of better spending” and “Friends of Cohesion”. The current Council proposal is for a EUR 79 billion cut compared to the Commission’s draft budget. The consequence of that would be to reduce the amount for structural funds (used to address inequalities between member states) from EUR 354 billion (2007-2013) to EUR 309 billion (2014-2020). CAP would also be reduced.

The European Parliament, which must approve the budget for it to pass, has made its position on the MFF clear. It believes that the level proposed by the Commission is not sufficient. The EP calls for an increase of at least 5% above the 2013 ceilings. The EP also voted in favour of scrapping rebates and correction mechanisms and reform of the own resources system (e.g. linking the EU budget to a financial transaction tax and new VAT tax).  The Labour members of the European Parliament, myself included, voted against the proposed 5% increase , preferring to support a real terms freeze.

As things stand now, if a compromise cannot be found, the maximum expenditure level, plus inflation, for the 2013 budget rolls over until an agreement can be reached.  This would result in a budget far exceeding the proposed real terms freeze.

 Mary Honeyball is a Labour MEP for London
  • KonradBaxter

    “Also, something worth pointing out is that none of this money is borrowed and contributes in no way to any national debt”

    So where does it come from then? I’m afraid i’m not clear.

    If the EU could get its budget signed off then that would be a major step in the right direction for the whole EU.

  • Mike Stallard

    Do enjoy your huge salary and perks. I understand the wine cellar in Brussels is quite extraordinarily good.

  • jaime taurosangastre candelas

    The EU budget should be large enough to pay for the time and necessary facilities of the number of international public servants needed to oversee a free trade area. Nothing more. No need for a European Commission, European Parliament, or agricultural subsidies.

    It is very odd to state that none of this money is borrowed or contributes to any national debt. Very few nations in the EU are running budget surpluses (I can only think of Sweden and Hungary), and so all national contributions apart from those countries in surplus can be accurately described as funded by debt. If the EU stopped trying to spend its’ way into importance, the level of required contributions would fall and some of the individual nations’ austerity measures could either be eased off or the same amount of money focussed internally in Keynesian stimulus.

    • Quiet_Sceptic

      Easier said than done though – the EU like all bureaucracies will justify and defend itself and if it voluntarily started cutting it’s budgets it would be forced to contract, reduce its importance and shed staff. It isn’t going to do that voluntarily, it’s only going to do that when those funding it force those changes upon it.

      • jaime taurosangastre candelas

        Yes, you are correct. We can only hope that this will happen, but it seems unlikely to be of volition. Alternatively, the man-made stresses in the Euro project may well cause the Euro to collapse explosively and national currencies, policies and sovereignties come back. That would be an alternative path to the same end, but one of terrifying consequences for individual citizens. Greece now has 58% youth unemployment, their futures being thrown onto the fire in the hope that middle aged Eurocrats can save their stupid little project. They cannot.

        What a crime it is that our Euro politicians have allowed this situation to come around.


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