DEBATES ON THE FUTURE BU DGET OF THE EUROPEAN [613133]

156
DEBATES ON THE FUTURE BU DGET OF THE EUROPEAN
UNION

Claudia Diana SAB ĂU-POPA, Sorina COROIU
UNIVERSITY OF ORADEA, FACULTY OF ECONOMIC SCIENCES

Abstract:
This work deals with the way of improvement on the financiation of the European
Union, with the modification of the expenses profile of the Union, due to the
changing of the priorities of the economical politics, and with the dissensions
existing between the member states, concerning the Common Agricultural Policy
which is, nowadays, in a process of simplification. The work is based on some
debats regarding the budgetary review 2008/2009 to which the European Comission
was engaged. We consider that the review has few chances to end with a vaste budgetary reform if it is assimilated to political debats on the priorities of the Union
regarding the expenses, because it must fo llow also the institutional reforms from
the point of view of the structure and way of functioning of the communiy budget system.

Key words: UK Correction, Budgetary Review, Common Agricultural Policy, GNI
Resource.

JEL classification: F36 – Financial Aspects of Economic Integration

In the present, the General Community Budget is in a phase of fundamental restructuring, dictated by the changings of the priorities of the economical politics,
because of the evolution of some endogenous factors, such as the enlargement and
intensification of the integration, or some exogenous factors such as the increase of the
dependance of the energy, of international migration of workforce and of the climatic
changings. The structure of the expenses of the general community budget has considerably
changed over the time as the allocated amounts were concentrated on a relatively few
objectifs. While at the beginning of the integration process the budget of the three
Communities covered entirely the administ rative expenses, the communitary budget
from 2007 became an operational one, oriented to the financial support of the development which is sustainable through the objectifs: economical increase and
occupation of workforce 38,4%, the cons ervation and administration of natural
resources 47,9%, European citizenship, freedom, security, justice and external actions
of the Union 7,3%.
The European Union Budget must assure to its contributors the obtaining of the best level of the added value of its funds. The expenses of the European Union
demonstrate the solidarity, the transparency, and even more than that, the achieving of
the political objectifs of the Union, but, at the same time, there are also some domains in
which the communitary expenses are not justified at all or in which the obtained results
are limited. That´s why the general community budget must cover the expenses in order to permit:
a) development of social responsability in the communitary espace, in the
meaning of the increase of the concurrence for the resources and markets, and the increase of the appearance of some market places of big dimensions
in the extra-community space which may become provider of products and
workforce, competitive for the Union;

157b) increase of the scientific and technological progress through the
encouragement of the development of knowledge, mobility, grade of
competivity and innovation;
c) transformation of the community space in an economy based on knowledge,
through the development of the information technology and professional
performances;
d) modification of the structure and demographical balance, as well as the
confrontation with the tensions caused by the migration1.

The two main incoming sources of the European Union, the personal resources
based on VAT and GNI (Gross National Incomi ng) which represented 79, 41% from the
general community budget in 2007, include many national contributions, are provided
by the National Treasuries and are sometimes present as expenses in the National
Budget. As a consequence, the member states have often a tendency to judge the
policies and community initiatives in terms of the profit related to the national
contributions, instead of evaluating first of al l the global value of realization of some
policies at the level of the community.
In May 2006, an agreement between the European Parliament, the Council and
the Commission was reached at, according to which it must be realized a fundamental
review of the European Union Budget whic h covers all the expenses of the E.U.
(especially the Common Agricultural Policy) and E.U.´s own resources (including the
compensation in favour of England). Undoubtedly, the review of the Common
Agricultural Policy´s expenses is a prerequisite for any major reform of the EU´s
expenses. But this review remains impossible as long as an agreement is not established
between the member states who sustain the Common Agricultural Policy and those
opposing to this policy. The European Commission will examine the way in which this
budget functions and can be obtained the best balance between continuity and response
to the new challenges, and, as well the be st method to provide the necessary resources
for the financiation of EU policies and whethe r it functions properly in a Union with 27
member states.
Since 1984 Great Britain benefits of a reduction of its contribution to the
Community Budget, known as the ˝British rebate ˝ or ˝UK correction ˝ . The mechanism,
of which method of calculation is so complexe, regards the refund of 66% of the
difference between the greater payments made by Great Britain to the community
budget and the fewer expenses paid by the European Union on the territory of Great
Britain. Nowadays, while the part of Great Britain in the communitary GNI is 16,98%, its part in the financiation of community budget is only 12,2%. The ˝British rebate ˝ is
financed by the member states of the European Union, depending on the pro rata of their
GNI in the communitary GNI.
In his report from 7 October 1998 on the functioning of the system of own
resources, the European Commission expr essed important rese rves regarding the
budgetary balance and criticized the relevan ce of the term of budgetary imbalance,
considering that the methods of calculation and evaluation of budgetary balance don´t
take into account but partially the advantag es the member states benefit of their
belonging to the European Union. It underlines that the correction mechanism in the
favour of Great Britain presents technical inconveniences, it does not fits any longer
nowadays, and through the extreme complexity of its method of calculation, the
principle of transparency and budgetary simplicity is not respected. Indeed, none of the

1 1 Ana Bal coordonator Scenarii privind evolu țiile comunitare în domeniul competitivit ății, politicii de
coeziune și politicii de dezvoltare regional ă, SPOS 2007,Institutul European din România , Bucarest,
December 2007, p.12

158economical, budgetary and social foundations which lead to the adoption of the UK
correction mechanism, endures today.
The report of the French deputy, Alain Lamassoure, concerning the future of European Union´s own resources, which was approuved by the European
parliamentarians on the 12 March 2007, proposes a reform in two phases:
• the first phase : the new system will base on the gross income : each member
state will contribute with 1% of it. The abolition of ˝any budgetary privilege
for any member state ˝ will be a key element of this period and will include the
abolition of the ˝British cheque ˝, until 2013.
• the second phase povides the gradual introduction of an authentic system of
own resources which may replace th e national contributions until 2014. This
system will be able to include taxes already existing in the member states, such as the share participation to the payments of the VAT or the share of the taxes
on the energy consumption. Other options would be the taxes on the financial
transactions, on the transport or telecommunication services, the tax ˝eco ˝. The
fiscal sovereignty will belong continually to the member states.
But according to the opinion of the Eu ropean Court of Auditors, it is very
difficult to realize an elaborate reform of the system of own resources of the
Community, if the debats concerning this matter is aasociated directly to the
negotiations regarding the financial ceilings and the amounts to be allocated to the
community policies (as it happened on several occasions).

In the same time, the main dissensions between the member states of the Union
regarding the expenses of the European Union are related to the expenses concerning
the Common Agricultural Policy. Despite the integration of agricultural policy and regional development allowed by the Agenda 2000 and the creation of the two pillars,
the expenses related to the common oganiza tion of the markets and the direct payments
absorbed in 2007 almost three quarters of the credits allocated to the ˝Conservation and
administration of natural resources ˝. Five of the member states of the European Union
(France, Germany, Spain, Italy and Great Britain) absorbed in 2007 63,7% of the total
expenses of the Common Agricultural Policy. Only France, one country, absorbed in
2007 19% of them and this is one of the reasons why it has an offens ive interest in the
maintaining of the actual mechanism of sustaining. An unequal distribution exists also within the member states.
The enlargement of the European Union on the 1 May 2004 with the twelve
East-Central European countries had consequences on the implementation and
functioning of this policy, caused especially by the increase of the number of farmers
which put a high pressure on the community budget in conditions in which Community´s average GDP decreased. For this reason, it became necessary a new
approach of the Common Agricultural Policy.
Germany, one of the greatest net contributors to the community budget wants a
reduction of the agricultural expenses, Sweden, Danemark, Holland, Great Britain
reinforcing this budgetary reorientation. Fr ance, Austria, Belgium, Luxemburg, Spain,
Ireland, Italy, Portugal are the member states who defend the idea of maintaining the
amount of agricultural expenses of the European Union, as well as many other states
recently entered into the Union. France arrived to the front of this coalition. Through the
Minister of Agriculture and Fishing, it presented at the Council of the Ministers on the
20-21 March 2006 a memorandum on the implementation and the future of the reformed Common Agricultural Policy. This memorandum agreed by twelve of the
member states (Chypre, France, Spain, Greece, Hungary, Ireland, Italy, Lituania,
Luxemburg, Poland, Portugal, Slovenia) and also approved by Romania and Bulgaria,

159presents a defensive position of the maintaining of the Common Agricultural Policy
reform from 2003 until 2013.
So, in October 2006, the Department of Agriculture and Regional Development of the Commission elaborated a working document for an action plan dedicated to the
simplification of the Common Agricultural Policy which was submitted to debats. This
action plan is a concentrated exercice of ˝technical simplification ˝ and ˝political
simplification ˝. Probably the most ambitious project is that of the ˝simplification of
agricultural policy ˝ which will concern actually the reduction of the complexity of this
policy by the improvement of the support offered to the agriculture and by the
development of the instruments for the policy of regional development.
The supporting instrument of the Common Agricultural Policy for the future financial perspective should, in our opinion, be contructed so that it may satisfy as well
the objectifs on a short term concerning the minimal incomings, as the objectifs on long
term concerning the modernization of the regional area of the Eastern and Central
European countries, adhered to the EU on the 1 May 2004, and also Romania and
Bulgaria.
2

The budgetary reform from 1988 of the Delors Commission could be realized
due to the fact that the member states were convinced of the necessity to increase the
dimensions of the general community budget and of the doubling of the resources
amount for the economical and social cohesion in order it may be established an internal
market in an enlarged and heterogenous Union. In fact, beyond the fact of giving
consistency to the principles of cohesion stated in the Single European Act, this
budgetary reform was an attempt of solving a series of structural problems of which was
suffering the community budgetary system since the middle of the ´70: chronic lack of
resources, absence of a budgetary discipline concerning the agricultural expenses and
endless disagreements between the Council of Ministers and the European Parliament,
which prevented regularly the elaboration of the anual community budget. The reform
from 1988 of the Delors Commission was successfu lly realized due, first of all, to the
relation established between the budgetary reform and the completion of the internal
market. This successfully completed reform leads to several conclusions
3. The first of
them is the necessity to approach with prio rity the structural problems. Many factors
explain the lack of concordance between the European Union´s resources and its needs,
some of them of political nature (the tendency of the member states to give priority to
˝their net balance ˝), others more technical (the poor quality of the evaluating data, lack
of instruments necessary to the integration of these data in the process of budgetary
planification). The second conclusion refers to the necessity to intervene simultaneously
in all the aspects of the Union´s budgetary system: expenses, resources, procedures. If
we refer to the priority given to the ˝net balances ˝ within the budgetary negociations,
several factors explain why some of the member states are more than eager to maintain and reinforce their net balance: the increasing inadequacy between the political
priorities of the Union and the structure of its expenses, the contribution based on the
GNI which is now the main source of fina nciation and the characteristic of the actual
decisional process in the budgetary domain (ri ght of veto of the member states). We
consider that it is absolutely necessary to reduce the amount of contributions based on
the GNI on the total of community resources. We also consider that it is primary to
eliminate the right of veto of the member states who threaten to use it in order to

2 Pierre Boulanger Les arbitrages budgetaires , Competition, Cooperation, Solidarite, Projet PAC 2013,
published on the website www.notre-europe.eu , August 2007, p.4
3 Eulalia Rubio Le réexamen du budget de l ′UE : poser les questions dérangeantes, Notre Europe,
www.notre-europe.eu , March 2008, p. 24

160confere to the communitary decisions an or ientation more proper to their national
interests.
The community budgets from 2000-2006, and even more than that, the budgets
from 2007-2013 are characterized by two new features. On one hand, it takes place a
fundamental changing between the objetifs to be financed and the disponible funds. On
the other hand, EU didn´t take into consideration the positive corelation between the
dimensions of the community budget and the enlargements of the integration. All the enlargements of the European Union made necessary the signifiant increase of the
community budget, because they implied the appearance of new objectifs claiming for
financiation. This can be observed already after the adherence of England, Danemark and Ireland in 1973. Even the enlargement in 1995, when the three developped
countries: Austria, Finland and Sweden, adhe red, had as effect the increase of the
expenses of the community budget (and of course its incomings). The greatest
enlargement from the history of the European Union, that in 2004, took place in the
spirit of reduction from the very beginning of the general community budget. The budget for 2007-2013 seems to be even more reduced, the attention being focused on
the support of the future but also of the objectifs of the Community.
Besides, the fundamental dilemma concerning the future of the Union´s budget
didn´t change at all. The main question is wh ether it is possible to create and finance a
competitive European Union of a percentage of the member states´ GNI in the XXI century.
Regarding this aspect many comparisons can be made. One of them is the
budget of the federal states, within which a signifiant part, sometimes 10% of the
national incoming is meant to be used to cover the expenses of the federation, including
here those meant to be used for the direct budgetary compensations from the regions
having a different level of development. But in these cases, it is about a political union
(USA, Australia, Canada, German y, Austria and Balgium).
Another comparison refers to the nationa l bugets of the member states of the
European Union. While 30%-50% of the gross national incoming of the member states
is centralized in their national budget, th en redistributed to di fferent objectifs, the
European Union has only 1% of the GNI, that is equivalent to 2%-3% of the national
budget. These proportions could be changed if the member states reviewed their
national and communitary priorities, giving priority to the communitary objectifs based
on the future perspectives of supported development.
The duality, that characterizes nowadays the financial aspect of the European integration, hardly can be maintained on a long term, first of all because the Monetary
Union operates with the participation of 16 member states, while the members of the
Union remain sovereigns on their fiscal policies. The maintaining of a unique currency
needs the coordination of the fiscal policies. The greatest challenge for the general
community budget would be the situation in which no real convergence take place between the member states participating to th e Monetary Union. We can state thus that
the future of the Monetary Union is similar to that of a ˝bomb ˝ which could imply a
fundamental reconsideration of the general community budget.
In the debats and opinions regarding the future of the community budget, the
role of global provocations should not be neglected. ˝The Solidarity Fund ˝ which is
already included in the budget for 2007-2013 is meant to finance, to the limit of 500
billion euro/yeat, the quick transformation of those companies which will become the
main victims of the globalization. The analysis of the political circumstances in which will be included the future
budgetary negociations shows the fact that the review has few chances to end with a
vaste budgetary reform if it is assimilated to a political debat on the Union´s priorities in

161matter of expenses. Beyond the debat on the expenses, the budgetary review for
2008/2009 must also follow the institutional reforms from the point of view of the
structure and way of functioning of the community budget system.
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