The budget is affected by enlargement on the revenue and on the expenditure side. However, enlargement only was one reason for the growth of the EU budget over the last decades. It was also due to the extension and expansion of policies and the introduction of new budgetary lines (e.g. aid). The EU
budget grew from 1970 to 2004 from 3.5 bn to 99.7 bn EUR (Figure 5.2).
The dominance of CAP over the budget was already established in the EC6 and was maintained in every round of enlargement and fi nancial package.
The average share of the CAP developed from 66 per cent (Delors I) to 51 per cent (Delors II) to 43 per cent (Agenda 2000). It will, according to the Commission’s proposal (European Commission, 2004a and Table 5.6 below), reach 47 per cent in 2008 before going back to a share of 40 per cent in 2013. Overall expenditure for CAP slowly decreased over the years and money was saved for other tasks, namely to fi nance cohesion policy which developed as the most dynamic and also most ‘wanted’ fund on the part of acceding countries. The southern enlargements of 1981 and 1986 led to a doubling of the expenditure on Structural Funds (Allen, 2000, p. 249) which made up around 32 per cent of the budget in 1993. The average share of the structural policy remained the same for Delors II and Agenda 2000 period (35 per cent of the overall budget). Following the Commission’s proposal it will increase signifi cantly in the next fi nancial perspective 2007–2013 and reach 51 per cent on average (European Commission, 2004a and Table 5.6 below), and will be the most dynamic category of expenditure. Special arrangements such as the cohesion fund to improve capacities to join the euro zone were prolonged because no explicit rules for graduation were established. In the Agenda 2000 Structural Funds for the new member states are twice as high as for CAP.8 They were limited with the help of an absorption threshold of 4 per cent of national GDP as maximum transfers from the EU to national budgets. This approach was, however, contested by the candidates. While they had to accept it in the course of accession negotiations they will cause controversy between cohesion countries and net contributors in negotiations over the next fi nancial perspective 2007.
Table 5.4 Impact of successive enlargements of the EU
(Based on Increase in Increase in Increase in Change in per 1995 data) area (%) population (%) total GDP1 (%) capita GDP (%)
EC9/EC6 31 32 29 –3
EC12/EC9 48 22 15 –6
EU15/EC122 43 11 8 –3
EU25/EU15 253 223 94 –144
Notes:
1 In purchasing power parities.
2 Including German unifi cation.
3 GD enlargement: Eurostat (2000).
4 Statistisches Bundesamt: Europäische Union 2004, Wiesbaden, 2004.
Source: European Commission (1997b), p. 22, updated.
1970
EC-6 – 1973 EC-10 – 19
81
EC-12 – 19 86
Treaty on Eur
opean Union – 1993 EC-15 – 1995
Treaty of Amster
dam – 1999
Treaty of
Nice – 2003EU-25 – 2004 0
20 40 60 80 100 bn€
Agriculture Structural Funds Other expenditure Source: EU Commission: Financial Report 2002/German Ministry of Finance, 2004.
Figure 5.2 Growth of budget/growth of EU membership and treaty revision, 1970–2004
120
Table 5.5 Development of own resources ceiling (million ECU)
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000* 2001* 2002* 2003* 2004* 2005* 2006*
Total appropriations
for commitments 45.303 46.885 48.900 50.950 52.800 69.177 69.944 72.485 75.224 77.989 80.977 84.089 92.025 93.475 93.955 93.215 91.735 91.125 90.660 Total
appropriations
for payment 43.779 45.300 46.900 48.600 50.100 65.908 67.036 69.150 71.290 74.491 77.249 80.114 89.600 91.100 98.360 101.590 100.800 101.600 103.840 Appropriations
for payments
as % of GNP 1.12 1.14 1.15 1.16 1.17 1.20 1.19 1.20 1.21 1.23 1.25 1.26 1.13 1.12 1.18 1.19 1.15 1.13 1.13 Margin for
unforeseen
expenditure (%) 0.03 0.03 0.03 0.03 0.03 n.a. 0.01 0.01 0.01 0.01 0.01 0.01 0.14 0.15 0.09 0.08 0.12 0.14 0.15 Own resources
ceiling as % of GNP 1.15 1.17 1.18 1.19 1.20 1.20 1.20 1.21 1.22 1.24 1.26 1.27 1.27 1.27 1.27 1.27 1.27 1.27 1.27 Note: * Total appropriations including appropriations for payments available for accession.
Source: EU Commission: Financial Report 2002/German Ministry of Finance, 2004.
121
The own resources ceiling developed from 1.15 per cent of GDP in 1988 (EC12) to 1.20 in 1992 to 1.27 per cent of GDP in 2004 (EU25), which equals 1.24 per cent of GNI (Table 5.5).
While the budget grew steadily in absolute fi gures, the battles between the member states concerned the own resources ceiling and their fi nancial contributions as well as the expected transfers they receive from the budget.
Thus the perspective of the so-called net payer or net recipient shapes preferences of member states in the bargaining process on fi nancial and reform packages. The return from the EU budget depends on the design of the policies. That is why the fi nancial perspective is directly linked to a reform of policies. The Delors I package (1988–92) had to take into account the Southern enlargement, the Delors II package (1993–99), the EFTA and Agenda 2000 (2000–2006) the eastern enlargement (Laffan and Shackleton, 2000). Agenda 2007 will, however, be the fi rst fi nancial perspective that must be agreed by consensus among 25 member states and will thus refl ect also the new constellation of interests and proliferation of actors and potential veto players. While the Convention had proposed to decide on the next but one multi-annual fi nancial framework by Qualifi ed Majority Voting (article I-54, 4 Draft Treaty of a Constitution for Europe), the TCE now only foresees that the European Council may decide by unanimity to use Qualifi ed Majority Voting (Article I-55, 4 TCE). Thus each member state retains its power to veto decisions.
The own resources ceiling maintained the level of 1.24 GNI from the EU15 to the EU25 and according to the Commission proposal, even beyond in an EU27 (Tables 5.5 and 5.6). The difference lies in the real spending of money. In 2003/04 appropriations for payments totalled only 0.98 per cent of GNI. The Commission now foresees a higher ceiling for the next seven-year period (on average 1.14 per cent). In particular net payers reject this fi nancial perspective. They want to limit payments to 1.00 per cent;
that is, continue the status quo from the EU15 to the EU25/27. However, in this scenario the budget would also grow in absolute fi gures because of GDP growth in the EU. According to the Commission proposal (European Commission 2004a and Table 5.6 below), payments should increase from 116.5 bn euro in 2006 to 143 bn euro in 2013, which amounts to an increase of 22.8 per cent (payments) and even 31 per cent (commitments reaching 158 450 bn in 2014). This projection is based on an optimistic annual growth rate of 2.3 for the EU (2.2, for EU15; 4.1 per cent for ten new members).
On the revenue side the system of own resources was considerably affected by the introduction of the so-called British rebate which amounts to 66 per cent of the UK’s annual net contribution. It should compensate for the disadvantages the UK had. Because of the structure of its agriculture it could benefi t only little from CAP payments that dominated the EU budget. Thus
the accession of the UK accentuated the imbalance of the EC budget, which was driven by French preferences in CAP. The agreement of Fontainebleau in 1984 was not achieved through a reduction and reform of CAP. Instead, on the revenue side a special correction mechanism for the UK was introduced so that the balance between British receipts and contributions improved. The example is also typical in that accession negotiations are not the arena for Table 5.6 Agenda 2007 (million € at 2004 prices)
Appropriations for
commitments 2006 (a) 2007 2008 2009 2010 2011 2012 2013 1. Sustainable growth 47 582 59 675 62 795 65 800 68 235 70 660 73 715 76 785 1a. Competitiveness for
growth and employment 8 791 12 105 14 390 16 680 18 965 21 250 23 540 25 825 1b. Cohesion for growth
and employment 38 791 47 570 48 405 49 120 49 270 49 410 50 175 50 960 2. Sustainable management
and protection of natural
resources 56 015 57 180 57 900 58 115 57 980 57 850 57 825 57 805 Of which: Agriculture –
market-related expenditure
and direct payments 43 735 43 500 43 673 43 354 43 034 42 714 42 506 42 293 3. Citizenship, freedom,
security and justice 1 381 1 630 2 015 2 330 2 645 2 970 3 295 3 620 4. The EU as a global
partner (c) 11 232 11 400 12 175 12 945 13 720 14 495 15 115 15 740 5. Administration (d) 3 436 3 675 3 815 3 950 4 090 4 225 4 365 4 500
Compensation 1 041
Total appropriations
for commitments 120 688 133 560 138 700 143 140 146 670 150 200 154 315 158 450 Total appropriations
for payments (b)(c) 114 740 124 600 136 500 127 700 126 000 132 400 138 400 143 100 Appropriations for
payments as % of GNI 1.09 1.15 1.23 1.12 1.08 1.11 1.14 1.15 Margin available (%) 0.15 0.09 0.01 0.12 0.16 0.13 0.10 0.09 Own resources ceiling
as % of GNI 1.24 1.24 1.24 1.24 1.24 1.24 1.24 1.24 Notes:
(a) 2006 expenditure under the current fi nancial perspective has been broken down according to the proposed new nomenclature for reference and to facilitate comparisons.
(b) Includes expenditure for the Solidarity Fund (1 billion in 2004 at current prices) as from 2006. However, corresponding payments are calculated only as from 2007.
(c) The integration of EDF in the EU budget is assumed to take effect in 2008.
Commitments for 2006 and 2007 are included only for comparison purposes. Payments on commitments before 2008 are not taken into account.
(d) Includes administrative expenditure for institutions other than the Commission, pensions and European schools. Commission administrative expenditure is integrated in the fi rst four expenditure headings.
Source: European Commission (2004a), p. 29.
changing the acquis. The only hope is that reforms are pursued in parallel.
The continuation of the British rebate is challenged in each negotiation on the fi nancial perspective. The constellation is one country against all others who have an interest in abolishing the mechanism. Agenda 2000 established better conditions for net payers like Germany and the Netherlands because their share in fi nancing the rebate was reduced, at the disadvantage of all others, including the new members of 2004 who have to pay more. Against this background the Commission proposed the introduction of a general correction mechanism (as presented in the Commission’s report on the own resources system in 1998 and as unsuccessfully proposed by the German government in 1997/98 with regard to the Agenda 2000 negotiations) and phase-out of the British rebate between 2008 and 2011 (European Commission, 2004a, pp. 36–8 and Agence Europe, 15 July 2004, p. 9). Any member state with a net contribution beyond 0.35 per cent of its GDP would benefi t from a 66 per cent reduction in the contribution. However, as the UK would lose from this arrangement compared to the status quo it will be diffi cult to reach a consensus, while the Commission tries to split the front of net payers by isolating the UK. One of the main advantages of a general correction mechanism would be fairer burden sharing and probably a more transparent system. Another improvement in terms of transparency could be achieved through a tax-related revenue system, for example on VAT, corporate income or energy. The ECT also leaves open the option of a genuine EU competence in taxation.
Traditional cleavages also persist as regards Agenda 2007: between the net contributors and the net benefi ciaries, for example over the own resources ceiling and between reform-oriented countries and adherents of the status quo, for example with a view to regional policy and CAP. This translates into a differentiated constellation of interests in the EU25: the six net payers (Germany, France, the UK, the Netherlands, Austria and Sweden) who have already signed a letter9 in favour of limiting the budget to 1.00 per cent of GNI (payments) as well as Denmark and Finland are opposed by the cohesion countries of the EU15, namely Greece, Spain and Portugal, while Ireland is in a phase of graduating from this status and redefi ning its mid- term interests. Other countries, such as Belgium, Italy, Luxembourg, and the richer new members Malta and Cyprus, have not yet taken a decision on the own resources ceiling. The new members from Central and Eastern Europe oppose the 1 per cent ceiling and also want to abolish or increase the 4 per cent absorption quota on transfers from the EU budget for structural policy. As this was a key provision to limit costs of eastern enlargement, the net payers will certainly defend this absorption rate. It also refl ects the preference of the net payers for a top–down approach while the cohesion countries – supported by the Commission and wide parts of the EP – favour
a demand-driven, bottom–up approach. Again a compromise has to be found between the hard liners on both sides.
At the Berlin Summit in 1999 the fi nancing of the CAP was far more controversial than it will be in the case of Agenda 2007. As part of the internal EU bargaining over a common position in the accession negotiations – in October 2002 a compromise on the CAP was agreed that reaches far into the future and very much refl ects French interest in preserving the status quo. The European Council had fi xed CAP expenditure up to the year 2013. Expenditure for market support and direct payments would increase from about 45.5 bn EUR in 2006 to around 50.5 bn EUR in 2013; in real terms (measured in constant prices 2004 and with an assumed infl ation rate of 2 per cent) expenditure would even decrease from 43.7 bn EUR in 2006 to 42.3 bn EUR in 2013 (Ahner, 2004). As a result of tough accession negotiations the new members (and later on also Romania and Bulgaria) are phased into the system of direct payments up to 2013, although the EU had originally denied their eligibility. The principle of equal treatment of all members – new and old – is upheld. Reform proposals to co-fi nance direct payments through national budgets were rejected, most vocally by France.
It is very unlikely that this agreement will be questioned. This, however, means that the bargain on the distribution of funds in the next budget as well as proposals for saving money will be centred around the second biggest category of expenditure, that is structural policy. In this regard the cleavage exists between countries which want to concentrate funds to the relatively poorest countries and regions, that is, the new members and others falling below the 75 per cent threshold of the per capita GDP and those who cross this level as a result of their improved relative position in a larger and poorer EU (statistical effect) and insist on a continuation of transfers in absolute terms (under old Objective 1 and 2). The Commission proposes to spend around 78.5 per cent on the convergence objective, including the statistical effect regions, namely in Spain, the UK, Germany, Finland, Portugal and Austria (European Commission, 2004b, p. 12). Roughly 52 per cent of the funds (objective 1 and 2) would go into the new member states (Agence Europe, 13 February 2004). This shows again the strong political bias for the old member states. The Commission presents a new approach and puts the so-called Lisbon objectives under the sub-category ‘competitiveness for growth and employment’ alongside the cohesion policy. In 2013 one-third of the funds for sustainable growth shall be spent under this sub-heading.
This is opposed by some member states which insist on the aim of regional policy as laid down in Article 158 EC-Treaty to reduce ‘disparities between the levels of development of the various regions and the backwardness of the least favoured regions, including the rural areas’. At a time when social and regional disparities in the enlarged Union signifi cantly widen,10 the
Commission seems to be concerned that the old EU15 countries would lose interest in regional policy once funds are really concentrated on the poor new members. Therefore long phasing out and horizontal programmes (community initiatives) are included in the proposals.
Negotiations on Agenda 2007 will be diffi cult because of the controversial issues and the new constellation of actors and interests in the enlarged EU but also because of timing: the calendar for elections in key member states, such as the UK (fi rst half 2005) and Germany (autumn 2006) and the calendar for referenda on the TCE in ten or more member states (!) will only leave a narrow time window. The intention of the heads of state and government is to agree on the package up to June 2005, which would be after a referendum on the TCE in France, and before a referendum in the UK. Domestic politics will reduce the room to manoeuvre and negotiations might run into deadlock.