Commission publishes MFF budget proposals

The Commission’s proposals for the EU budget’s next Financial Framework (MFF) for 2014-2020 can be found here. Judged against the parameters I proposed to evaluate the MFF proposal from an Irish perspective, then the proposal is as good as we could have hoped for. RTE reported that “The Government has given a cautious response to the European Commission’s proposed 2014 to 2020 budget” which, given that this is the start of a difficult set of negotiations, is about as close to saying “we are delighted” as you are likely to get.

We can return to the financing side of the budget another day, including the proposals for new sources of financing the budget and the complex issue of rebates used to adjust the net contributions of some member states, These will be addressed in greater detail in the promised Commission draft for an own resources decision which has not yet been published.

On the spending side, the positive features from an Irish perspective are an overall budget which will see minimal growth over the period to 2020 (despite the protestations of the British press), the maintenance of the CAP budget in nominal terms, a formula for redistributing CAP Pillar 1 spending on the Single Farm Payment which will leave the Irish share untouched, and an increased budget for research and development, including a new ring-fenced element for agricultural and food research. In addition, the Globalisation Fund will be opened to farmers (opening the way for compensation for Irish agriculture in the event of a Mercosur trade deal).

From a communications point of view, the launch of the proposal was a bit of a disaster, with conflicting views over what the figures mean for the growth in EU spending. In part, this reflects a lack of clarity over differences between commitment and payment appropriations, but also confusion over the currency units in which the MFF is presented and the time periods being compared.

A common error is to ignore the fact that the figures for the 2007-2013 MFF are presented in current prices and those for the proposed 2014-2020 MFF in constant 2011 prices. For example, the New York Times writes in its report:

In all, the European Union would spend about €971.5 billion from 2014 to 2020 — though, when all spending pledges made in that time period are included, the figure would reach more than €1 trillion, crossing that psychologically important threshold. The respective figures for the last period, 2007-2013, were €925.5 billion and €975.77 billion, though the proportion of the bloc’s gross national income would remain the same.

The difference between €925.5 bn and €971.5 bn is the 5% increase quoted in media reports. However, the €925.5 billion in payment appropriations in current prices from 2007-13 cannot be directly compared to the proposed €971.5 billion in 2011 prices for 2014-20. The spending in the years 2007-10 in current prices would have to be inflated to 2011 prices and the spending in 2012 and 2013 would have to be deflated to make the appropriate comparison. While I have not done the figures, on balance the adjustments may narrow the differences between the two periods. On the other hand, some spending included in the current MFF is proposed to be funded outside the 2014-2020 MFF and should also be taken into account.

In terms of commitment appropriations, the increase proposed is from €145.7 billion in 2013 to €150.7 billion in 2020, both in 2011 prices, which is an increase of 3.5%.

Thus there will still be a small increase in real terms, contrary to the call from five member states that the budget should be frozen in real terms. Though as a share of the EU’s total GNI, the proposal would continue the downward trend in the share of the EU budget (from 1.06% to 1.00% in payment appropriations terms).

Whether the Commission proposal is the optimal budget from an EU perspective is, of course, a different question. Despite the rhetoric, the proposal does not represent a radical rethinking of EU spending priorities, with only a minor fall projected for the share of the agricultural budget. However, the Commission had consulted extensively with member states prior to its publication. It was determined to avoid the fate of its proposed MFF on the last occasion when it was simply ignored by the Council of Ministers in the course of their negotiations. It is reasonable to assume that the proposal represents the approximate centre of gravity of member state positions and the views of the European Parliament. But the wide variation in views around that centre of gravity means that there is a long way to go before the new MFF is agreed.

20 thoughts on “Commission publishes MFF budget proposals”

  1. This reminds me of a defaced ad I once saw in Islington tube station. The Canadian Muffin company had an outlet nearby and they had an ad on the escalators that asked “What do you mean? You have never eaten a Canadian Muffin ?” and some wag removed the “in”.

    So now the u has also been removed.

  2. In Sweden it is reported that all members of the Swedish parliamentary EU-committee are against the proposals. If that is true, then it is a rare case of complete consensus in the parliament.

  3. @ Alan Matthews

    Apart from the areas you have identified can you see other budget areas which Ireland might seek to access further?

    I’ve rather selfishly been looking at Culture, and there seems to be possibilities there.

  4. @Gavin

    You will find a description of what is proposed in the Education and Culture area if you look at the Policy Fiches document (Part II of the proposals) in the link I give at the top of the post. I extract the section on Culture specifically.

    “Europe’s cultural diversity is one of our greatest strengths, enriching and inspiring citizens and delivering real economic benefits. The economic and social role of the cultural and creative industries is increasingly evident, representing 4.5% of total European GDP in 2008 and accounting for some 3.8% of the workforce. The EU works in close co-operation with Member States in this area to harness the potential of the single market and to provide the right conditions for cultural and creative industries to prosper.

    The next generation of programmes funded by the EU budget will address the weaknesses that limit the growth potential of this sector, by tackling market fragmentation, strengthening competitiveness in the cultural and audiovisual sectors, and focusing on capacity building measures and support for the circulation of cultural works. ”

    It is proposed that the budget for the Creative Europe programme (which I assume also includes educational mobility as well as culture) will grow from €181 million to €273 million between 2013 and 2020 (both in 2011 prices).

  5. @ Alan Matthews

    Thanks very much for that. I didn’t express myself too clearly. I found and read the Culture section with interest.

    I was wondering if you could see other headings where Ireland could look it its advantage.

    Just for information, what they’re looking to fix in culture is as follows:

    Under the present regime, a EU cultural project could be applied for if arts groups from three different countries got together to co-create and share work. EG A theatre company from Ireland, France and Germany could jointly apply to commission a work that would be co-created and tour to each country. As you might imagine, this rather bent the artistic integrity of the work towards the funding criteria. Also, as noted in the report, this lead to rather one-off projects that left little lasting impact. Finally, little arts organisations (and most of them are little), simply don’t have the human infrastructure to put the time into finding partners and going through the nightmare of application.

    Cultural people have noted for a while now, that culture is being used to emphasise national difference to counter anxieties about a single Europe. A further problem here is that ‘national’ cultures are seen in rather monochrome colours (Green for us). So a music festival in Italy, funded this way, once sought international artists to perform. When the Irish contemporary classicists looked into it, they were politely rebuffed as they weren’y sufficiently ‘Irish’. What was wanted was trad fiddle music.

    The heavy emphasis on economic value of culture in the part you quote – though welcome in terms of the current funding slugfest – will also raise hackles amongst actual artists. See the current unease of artists in Berlin.

    http://www.irishtimes.com/newspaper/world/2011/0617/1224299069188.html

  6. Have to love this quote:

    ‘Mr Barroso warned: “There is no room for thinking about getting your fair share of your money back. The time has come to reform the system of rebates. It is of the utmost complexity.”‘
    http://www.bbc.co.uk/news/world-europe-13970135

    & even with the above quote it is claimed that the EU is not a transfer union…..

    And this one:
    ‘In addition to the budget, the commission is looking to change the way in which the EU gets its money – including EU-wide VAT and a tax on financial transactions.’

    Taxation will no longer be solely done at a national level. EU takes over what used to be a matter for national souverignty…..

    Interesting divide:
    Net-payers want greater efficiency in spending.
    Net-recipients want greater efficiency in collecting money to spend.

    I’d say it is better to focus reforms on getting value for money on the spending than on collecting more – sooner or later the finite resources will run out. Net recipients might have a different opinion?

  7. @ All

    FYI

    http://ec.europa.eu/commission_2010-2014/lewandowski/library/documents/pressConf_MFF_presentation_20110629_en.pdf

    It is worth noting that, because the UK rebate is based on the application of the percentage difference between between its share of “statistical VAT” and its share of “allocated expenditure” (i.e. the share of ALL countries has to be calculated) to the total of allocated expenditure, and being reimbursed 66% of the sum that results, anything that increases expenditure in the UK, ipso facto, reduces the amount of the refund. It has been calculated, for example, that the Treasury funds 70% of CAP expenditure in the UK as a result.

    Returning to the financing side on another day may be OK for the purposes of this blog, but not for the political debate underpinning the entire exercise. Italy has already told its parliament that it will not accept any prlongation of the net payment position in which it finds itself as a result of the current system

  8. @ All

    Apologies for the typos in previous message.

    Having gone through the slides, the most surprising element is probably the fact that the Commission has put a number on the amount of the lump-sum payments to be made to four countries, dropping Austria which never had a case in the first instance.

    But does any member state? That is the question!

    If one signs up to a club, logically one should participate fully in paying for whatever activities it undertakes, on the basis of an agreed subscription, pleading poverty not being an adequate excuse when one has veto control over the makeup and cost of the activities in question.

    The Commission’s approach is very clever. The statistics to assess contributions relative to wealth exist and in a series long enough to be fairly definitive cf. page 86 of the 2009 Financial Report.

    I would have little patience with the two countries – the UK and Sweden – that have not signed up to the full range of the activities of the club, especially as this allows them to escape certain disciplines that other members have to accept.

  9. Sweden and UK negotiated their conditions. Give & Take. Join if we get something. The give and take is normal in any negotiation except…

    Hopefully vetoes will be applied and reforms to at least equal value of any increased contributions will be done on the spending side before any framework gets accepted.

    The EU wouldn’t fail if a net-recipient country left, it would fail if the net-payers left.

    Socialists applied a reasoning about wealth and why it should be transferred. But who would work hard and save only to see the benefits go to someone else?

    I seem to remember that socialist central planning economies failed…

  10. @ Jesper

    The UK (with Denmark) has negotiated a permanent opt-out from the euro. Sweden has not. (In reply, if you choose to, please do not refer to the fact that the Swedish electorate voted no to the adoption of the euro – in response to a mishandled government campaign – but quote me the details of the detailed opt-out conditions that Sweden has negotiated).

    With regard to negotiated reductions in budget contributions, the four countries that have benefited from such reductions have done so on the coat-tails of the UK. The question is not whether these conditions have been negotiated – they have – but whether they should they be agreed to in the future.

    My view would be no except, perhaps, in the case of the UK for reasons of realpolitik which are also coming to the end of their shelf-life.

    My insistence on these points is not related the actual rebates but to the fact that the MFF cannot sensibly be discussed without having regard to them. It seems to me, on reflection, that the Commission has identified actual numbers in order to allow this to happen.

  11. @DOCM,

    whether or not Sweden will join the euro depends on whether or not Sweden will meet the criteria to join. Sweden currently does not meet the criteria, at the moment there are few in Sweden who wants Sweden to meet the criteria. Nobody knows when Sweden will meet the criteria -> nobody knows when Sweden will adopt the euro.

    The realpolitik is quite simple, a good negotiator gives nothing for nothing and a change in a previously agreed deal will require something in return.

    Hopefully the Swedish negotiatiors will do a good job. It will be interesting to see what the final agreement will be, what is clear is that in its current shape it has no chance whatsover to pass.

  12. @ Jesper

    What are the EMU criteria that Sweden does not meet?

    On your point with regard to negotiations, what you say is, of course, true but in the case of the EU they have to take place within certain already negotiated legally based parameters as set out in the treaties. These cannot be dined on a la carte which is what the UK and Sweden are endeavouring to do. The political point of major interest in the context of this thread is that the patience of other countries with this approach has come to an end (which explains why Cameron could get so few countries to sign up to his initiative on limiting the overall budget).

  13. @DOCM,

    the Swedish crown is allowed to float freely, Sweden is not member of the ERM II & it is a requirement to join the euro.

    It seems you’re arguing for everybody else to just do as they are told by the EU while at the same you’re arguing that Irish sovereignty is sacred. Forcing UK or Sweden into giving up their rights will set a nice precedent for the EU to force other countries in the EU (including Ireland) to give up their rights. Be careful about what you wish for, if Sweden or UK can be forced into increasing its contributions then what is to say that Ireland can be allowed keep the ‘double Irish’ option available and the low CT?

    If Irish sovereignty is to be respected then the sovereignty of others will have to respected -> The MFF cannot be imposed on anyone -> The MFF will be negotiated.

  14. @ Jesper

    We could bat this ball back and forth indefinitely but we have at least established that Sweden is choosing not to meet one of the criteria to enable the country to meet one of its treaty obligations viz. membership of the euro.

    You attribute to me an argument which is exactly the opposite of the one that I am making. Ireland, whether wisely or not, has signed up, to and is fulfilling, all her treaty obligations (after a series of referendum mishaps).

    The harmonisation of direct taxes is not one of these obligations.

  15. @DOCM,

    The frustration that you have with countries with rebates is matched in other countries frustration with Ireland making the ‘double Irish’ possible.

    A removal of the rebate is not an obligation. The countries with rebates applied for membership, negotiated the terms of membership and was accepted with the rebate. Hence, there is no obligation to give away the rebate for free. Therefore it is a matter of national sovereignty, exactly the same as direct taxes.

    If you’re not arguing that national soveriegnty is to be respected both for membership agreements and for direct taxation I have no idea what your argument is.

  16. @ Jesper

    You might understand my argument better if you confined yourself to the facts. No member state has negotiated a rebate on its budget contribution as part of its membership negotiations.

    I am not arguing about sovereignty one way or the other. I am simply saying that member states must negotiate in good faith within the parameters that have been agreed in the treaties.

    Sweden is in breach of her obligations in relation to the euro. France and Germany are in breach of the requirement that they stay within the agreed parameters when negotiating in an EU context in relation to direct taxation (and especially in the light of the assurances given to Ireland in the context of the ratification of the Lisbon Treaty).

  17. @DOCM,

    🙂

    Read this:
    http://www.euromove.org.uk/fileadmin/files_euromove/downloads/Rebate.pdf
    And then on to:
    Conclusions of the Presidency following the Fontainebleau European Council, 1984.
    and
    Article 269 of the Treaty. Unanimity is retained in the Constitutional Treaty (see Article I 54(3)).

    So the facts you’re referring to are what exactly?

    You’re arguing to remove the vetoes of countries. That is removing their sovereignty. You argue for Ireland to maintain sovereignty and the removal of the sovereignty of others. The good faith would be to let countries negotiate as per the current reality that the rebate exists and that the removal of the rebate can be vetoed.

    Your negotiation tactic has been used by Irelands representatives. It has gone as well as it was expected to do. Still you insist it was and is the right tactic.

    Sweden will join the euro, however, it is not yet certain when. If you don’t like Germany or France, don’t take their money.

  18. @ Alan Matthews

    FYI.

    http://www.euractiv.com/en/specialreport-budget/special-report-france-wins-round-cap-budget-battle-news-506285?utm_source=EurActiv+Newsletter&utm_campaign=89a58d4cbd-my_google_analytics_key&utm_medium=email

    It seems a pretty credible story to me. As the five largest countries account for over 70% of the budget and France and Germany for half that, the preliminary rough cut that they arrive at is likely to remain largely unchanged. The agreement – if confirmed – would seem to be a win-win situation for Ireland, assuming that we will have regions in transition.

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