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KEY QUESTIONS AND PROVISIONNAL PROGRAM

Alain Turc and Carole Ulmer, October 2010

In the wake of the financial crisis, the Monetary Union has gone through a period of unprecedented turbulence and the member states presently find themselves subject to massive budgetary constraints. If the union has been able to establish a mechanism of financial solidarity, which, it seems, helped to reassure the markets, it has been conditioned, it is fair, to the reinforcement of the budgetary discipline of the member states. But this discipline and this solidarity cannot exist without the construction of engines for higher and more sustainable growth. The Von Rompuy Task Force, which should publish its report in October 2010, is particularly committed to this issue of economic governance of the Union.

In order to render this strengthening of economic governance credible, it is impossible to ignore the EU’s budget. According to Alain Lamassoure, “the caliber and level of the EU budget are elements of credibility and strength for the Euro zone.” As the objectives of the ‘EU 2020’ strategy are being adopted, how are we supposed to implement them effectively if they are not accompanied by the necessary budgetary means?

The task is immense. For a real European budget to be implemented, it is necessary that the member states agree to share their sovereignty. This does not mean lose it, but rather renounce exercising it unilaterally. All agree on the fact that there now exists a real window of opportunity to “get to the other side” as Hervé Jouanjean, Director-General for Budget of the European Commission, elegantly put it on June 9th 2010 during our conference: “European Budget, Impossible or Necessary: Breaking the Taboo.”

Context has profoundly changed attitudes: the successive sequence of the 2008 bank Crisis and the 2010 Greek Crisis have had a great impact. The European Commission confirmed that it is also in the process of developing projects and ideas: “nothing is fixed.” It must present a report on the revision of the fiscal outlook very shortly. But Mr. Lewandowski has already expressed his willingness to open the discussion on own resources for the Union. For its part, the Parliament decided to the creation of a temporary Committee focused on preparing the report on the financial perspectives for July 2011. The machine is on track.

“An European budget cannot be conceived as a level above and separate from national budgets,” says Philippe Herzog. “To think of the budget as a puncture is a mistake,” adds Claude Fischer. To protect the current size of the European budget will be the first battle to fight against those who would like to use the crisis as a pretext to its progressive restriction.

Many experts propose the concept of “added value” of the European budget. A valuable concept that our team will strive to deepen and to support in pursuit of thorough work highlighting the synergies, the spending cuts at the national level and the economies of scale.

Another tricky issue: the dissensions concerning the structure of EU spending, specifically concerning the question of the possible re-nationalization of the CAP and the cohesion policies. The restructuration fields of the EU budget are not missing, there will be many debates and our team will contribute to them.

This vast project on the quality and efficiency of the EU budget needs to be launched under the same capacity as the national budgets are restructured today. The debate has barely begun; Confrontation Europe will participate to create this indispensible connection between the EU and its member states.

Jean-Claude Trichet had the courage to appeal to a budgetary federalism without which the EU economic and monetary Union will be in danger; some others, like Iain Begg, professor at the London School of Economics, evoke the possibility of creating a new type of EU budget for the euro zone. With them, Confrontations Europe decided to further study the lessons learned from this conference by setting up this team, dedicated to studying the renovation of the EU budget.

I/ OBJECTIVES

Questions:

In a profoundly renewed context of massive constraints on the national public finances, how do we come to better allocation of resources between the national and European levels?
How to reconcile the necessity to stabilize public finances and the need to maintain the European competitiveness and to prepare a more sustainable economic growth?

Axes of Work
To estimate the necessary financial resources for the EU to attain its objectives and carry out its politics as from January 1st 2014 ;
To provide new methods of governance and evaluation in order to improve the functioning of the EU system and increase the effectiveness of the EU budget.
To propose new methods of cooperation between the European, national and local levels.
To offer, in accordance with priorities and objectives a structure for future CFP, which identifies key areas of the EU’s activity.
To provide guidelines for an indicative attribution of resources between the different categories in the CFP and within these and in accordance to the proposed priorities and structure.
To clarify the relationship between the reform of the financing system of the EU budget and the allocation of these new resources.

II/ PROVISIONAL PROGRAM OF MEETINGS

1. What is the added value for the EU budget? Introductory meeting of the steering committee on October 13rd

How does one use the EU budget to deal with both the new challenges and persistent problems? How do we develop a better use of the EU budget to respond to the crises? How do we build the EU budget so that it serves as the basis for sustainable growth for Europe?

In a new context of austerity and of decline of national public finances likely to generate a decrease in the EU budget, it is the role of the EU budget and its added value that must be remembered and (re)constructed. Indeed, the news already shows us that the size of the budget is questioned again by certain member states even though others point out that European competence have only been growing and that the size of the budget is abnormally low in relation to the economic theory of a Union of States.

While these tensions are emerging, astute work must be conduced to highlight the synergies, the spending cuts at national level, and the economies of scale that are all provided by the EU budget. Many joint functions of growth and solidarity are subject to both national and EU funding. We want to clarify these links and design a much more efficient allocation of responsibility that is in everyone’s interest, and we want to do this in two horizons: the short-term horizon (the next financial perspectives) but also the long-term one.

2. What new methods of governance?

The publication of the Commission Communication and the Von Rompuy report will raise a whole new set of issues in term of governance. One may question the place of the budget in the European economic governance. Undoubtedly, the debate will be stimulating and it will be interesting to better understand the politically driven relationship that will clear up between the Commission, the parliament and the Member States. This analysis will unravel a series of questions.

What are the initial results of the projects conducted by the parliamentary commission SURE, in charge of developing new financial perspectives? What conclusions can one draw from the negotiations for the 2011 budget, the first budget to be adopted according to the new rules of the Treaty of Lisbon?

How to better coordinate work between the national parliaments and the European Parliament? Considering the idea of an Inter-parliamentary Conference, developed by Philippe Herzog in the 1990’s, Alain Lamassoure suggests holding an orientation conference on public finances and bringing together European and national representatives every Spring.

The member states are aware of the need to work together at the European level, but currently they are doing this through ad hoc procedures, and off-budget…and therefore without democratic control. Hence the importance “to reconnect the European and national debates on budgetary issues.”

3. New Own Resources

The debate is launched on the issue of budgetary resources: European tax and the “juste retour” argument are explosive ingredients of the latter. In order to defuse the debate, we need a priority work on the question of its own resources. The Lisbon Treaty allows this project. Today there is real potential to find a balance within the EU budget, between national contributions and own resources. Hervé Jouanjean wishes “to rupture the issue.” The idea is simple: the state will see its contribution reduced and the EU will have “several new resources of its own.” For Alain Lamassoure, the ideal would be to choose a resource that is generated by the existence of the Union itself and the Internal Market. Jean-Paul Mingasson mentions the return to the internal value-added Tax. And, politically, “two new sources of ideas become acceptable to public opinion”: a green taxation (ETC) and a taxation on financial transactions.

We hope to analyze the proposals and provide options that are feasible and economically rational, but also politically acceptable.

4. Measurement and Evaluation

An extensive project on the quality and efficiency of the EU Budget must be launched in the same capacity as the national budgets are being restructured today. To highlight the synergies and the joint gains, to work on a clearer common account between national and European budget, to create common aggregates and to emphasize the impacts of decisions on each other are all tasks that need to be tackled. On the other hand, it is all a set of budgetary innovations that could be thought out, notably to allow the EU budget to better play its role of incentive and not simple redistribution.

5. What new spending structure?

The disagreements arise concerning the structure of EU spending, especially concerning the issue of possible renationalization of the CAP and of cohesion. Stefano Micossi, Professor of Economics, suggests a new structure in three areas: common goods, redistribution and equity transactions. But care should be taken to reduce the effect of redistribution: active solidarity is essential. Jean-Paul Mingasson has highlighted the necessity to “Lisbonise” the structural funds by turning them towards the imperatives of competitiveness. Jacques Le Cacheaux and Ian Begg have outbid by proposing co-financing based on principles of incentive and conditionality. The idea of a chapter for temporary action merits further study.