Nov. 21 (Bloomberg) -- European Union leaders meet in Brussels tomorrow for what promises to be an acrimonious fight over the bloc’s central budget with potential consequences far out of proportion to the sums involved.
In the context of the EU’s 10.7 trillion euro economy, the disputed budget increase is trivial, but deciding who gets what is always difficult. This year’s budget fight is and should be different.
The bloc’s 27 nations will meet in the shadow of a deep financial crisis, which is forcing governments and their electorates into painful change and sacrifice. By asking for a budget increase, the EU’s institutions, which employ more than 40,000 people, have failed to show that they recognize this. As a result, they don’t deserve the extra cash they’re requesting.
Let’s start, as briefly as possible, with the numbers. The European Commission is asking for a combined 2014-2020 budget of 1.033 trillion euros ($1.32 trillion), somewhere between a 4 percent and 6 percent increase, depending on whether friends or foes of the EU have their fingers on the calculator.
Lobbying for any increase in the current austerity climate strikes us as tone-deaf, given that the commission and the European Parliament have made only half-hearted efforts to cut staff, marginal agencies and perks. What’s more, they have not done enough to refocus spending on growth.
Yet things are not so easy. Net recipient countries, such as Poland and Spain, want a bigger EU budget no matter what. Net contributors, such as Germany and the U.K., don’t. The U.K. is threatening to veto any increase in the budget that’s above inflation -- a threat that isn’t winning the British any friends coming so soon after the veto they wielded against the euro area’s new fiscal treaty in March.
It would be nice if peace came to pass with a deal this week, ending what is a distraction from far more important issues. European Council President Herman Van Rompuy has proposed a compromise budget, reduced to 973 billion euros, and it’s a good place to start. If no deal can be reached, the EU has a year to get one. Rather than just continue to bicker over the numbers, Europe’s leaders should find a way to use the pressure of the economic crisis to restructure EU spending so that it maximizes value and growth. The budget remains too skewed toward agriculture; too much money amounts to cross-subsidization between wealthy countries, resulting in complex rebates (primarily for the U.K.); the targeting of development funds remains too hit or miss.
Although agriculture’s share of the budget has been falling gradually -- from 70 percent of the total in 1988, to 44 percent last year, according to European Commission figures -- it’s still too high. The commission’s proposal for 2014-2020 would reduce spending to 37 percent -- but that strikes us as still out of proportion to the less than 2 percent that the sector contributes to Europe’s economy. Rebates should disappear and the budget should be redesigned so that wealthy countries no longer subsidize one another. France can take care of its own farmers, yet it currently gets 17 percent of EU agricultural funds. The U.K. can fund development in its own poorer regions.
Other changes are needed, too. A study this year by the EU’s Court of Auditors on port infrastructure projects funded by the EU concluded that 11 of the 27 studied were ineffective. EU auditors have also found that about 5 percent of money spent on all cohesion projects was lost to fraud, incompetence or other problems. The commission has proposed changes, including a shift of focus from building traditional infrastructure, such as roads and ports, to green projects, including flood defenses. Those changes need to be put in place.
The EU is no more wasteful than most of its member governments. Union administration soaks up only 6 percent of the EU budget. However, if governments are being asked to reform, the EU should, too. Anomalies remain that are inexcusable at a time when Greek health-care services are being cut to the bone in the name of austerity. For example, the European Parliament still spends roughly 180 million euros a year maintaining a second, purposeless home in Strasbourg, France, to which the 754 members of Parliament, their aides and documents have to decamp for one week in every month.
The commission argues, not unreasonably, that at a time of sagging growth in specific countries, a common, redistributive budget should kick in. But until the budget is thoroughly revamped, with anomalies ended, agriculture spending slimmed and development funds made more effective, the EU is unlikely to get the public support needed for an increase. For that to happen, the EU needs to make voters think that it uses money better and more cleanly than their own governments do.
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