Diapositiva 1

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TOPIC 5 THE EUROPEAN BUDGET Financial
Perspectives Expenditures and revenues future
reforms. Prof. Carlos Mulas-Granados Departame
nto de Economía Aplicada-II UNIVERSIDAD
COMPLUTENSE DE MADRID
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1. HISTORY OF THE BUDGET

• 1. The early years (1958-1970)
• The first European Economic Community budget, for
  1958, is adopted by the Council, on the basis of
  the Commissions proposal and after getting the
  Parliaments opinion.
• The first EEC budget is very small and covers
  administrative expenditure exclusively.
• As the EECs objectives are translated into
  policy commitments, the budget grows to implement
  these, for example through the European Social
  Fund.
• The European Agricultural Guidance and Guarantee
  Fund (EAGGF) is launched in 1962, and
  agricultural expenditure soon makes up the
  majority of the budget.
• In the early years, financial contributions from
  each of the six Member States account for the
  Communitys revenue.

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1. HISTORY OF THE BUDGET

• 2. Community gains own resources (1971-1975)
• Once the major policies, including the European
  Social Fund, common customs policy, and common
  agriculture policy are up and running, more
  stable sources of revenue are required.
• The system of own resources is agreed,
  replacing financial contributions from the Member
  States. Three own resources are introduced
  customs duties and agricultural levies, stemming
  directly from the implementation of EEC policies,
  and a transfer from each Member State based on
  VAT.
• Initially, the VAT resource is set at a maximum
  of 1 of the share of the economy to which VAT
  applies, assessed on a common basis across all
  Member States.
• At the same time, with revenue now accruing
  directly to the Community, the Parliament gains
  greater influence in the adoption of the annual
  budget.
• Denmark, Ireland and the United Kingdom become
  members in 1973.

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1. HISTORY OF THE BUDGET

• 3. Parliament gains role (1975-1982)
• Parliament gains further powers on budgetary
  matters as the own resources system comes fully
  into force. From 1975, Parliament has the last
  word on non-compulsory expenditure (compulsory
  expenditure results directly from the Treaty of
  Rome, such as most agricultural expenditure, or
  from international treaties), and can reject the
  budget.
• A new institution, the Court of Auditors, is set
  up to verify the financial operations of the
  Community institutions and assess the
  effectiveness of their financial management
  systems, replacing the smaller, less powerful
  audit board.
• In 1979, the first direct elections to the
  European Parliament give the institution greater
  democratic weight, so strengthening further its
  position and legitimacy as one of the two arms of
  the budget authority. However, Council and
  Parliament find it increasingly difficult to
  resolve differences during the annual budget
  process.
• Greece becomes a member in 1981.

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1. HISTORY OF THE BUDGET

• 4. Overcoming conflic ts in the budget process
  (1982-1987)
• In this period, expenditure grew to finance the
  common agriculture policy, to strengthen existing
  policies, in particular the European Social Fund
  and the European Regional Development Fund, and
  to launch new policies such as the common
  fisheries policy, the first research framework
  programme and the integrated Mediterranean
  programmes.
• However, increased expenditure brings the
  question of budgetary imbalances into the
  spotlight. The UK considers its contribution to
  financing the Community disproportionately high
  in relation to its relative prosperity. This is
  because its agricultural sector is small, whilst
  the economic base on which VAT applies is
  proportionately higher than that of other Member
  States. A decade of discord is brought to an end
  with the 1984 agreement on a mechanism to apply a
  correction, reducing the UKs payments into the
  Community budget.
• At the same time, the recurring differences
  between Parliament and Council cause increasing
  problems in the budgetary process.
• Spain and Portugal become members in 1986.

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1. HISTORY OF THE BUDGET

• 5. The first financial framework (1988-1992)
• With the need to resolve the annual budget crisis
  due to disagreements between Council and
  Parliament, the Commission proposes that the
  three institutions set binding multi-annual
  expenditure ceilings for each category of
  expenditure.
• The three agree the Communitys first financial
  perspective, covering the period 1988-92 which
  coincides with the programme to complete the
  internal market by January 1993.
• The financial perspective seeks to limit the rise
  in agricultural spending whilst substantially
  increasing expenditure on cohesion policies.
• At the same time, a new own resource, based on a
  proportion of each Member States gross national
  product is added to the three existing ones. This
  matches payments by Member States more closely to
  their wealth (while the UK correction mechanism
  is continued).
• The ceiling for own resources is introduced, and
  limits the Community budget to a maximum of 1.20
  of Community GNP in 1992.

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1. HISTORY OF THE BUDGET

• 5. The second financial framework (1993-1999)
• The Treaty on European Union (Maastricht Treaty)
  introduces a range of new policy areas including
  common foreign and security policy and justice
  and home affairs, as well as creating the
  Cohesion Fund to invest in infrastructure in the
  poorest Member States.
• A new set of financial perspective is agreed for
  the period 1993-99, to include all of these
  additional fields.
• The ceiling for own resources is raised to 1.27
  of GNP in 1999.
• On the expenditure side, spending on structural
  and internal policies is significantly increased,
  and the resources for external action are
  increased by more than half. Arrangements to
  limit increases in agricultural spending are
  continued.
• Austria, Finland and Sweden become members in
  1995.

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1. HISTORY OF THE BUDGET

• 6. The third financial framework (2000-2006)
• For the first time drawn up in euros, the
  financial perspective for the period 2000-06
  focus on the need to double assistance to the
  countries which have applied for EU membership.
• On the other hand, many governments are
  pre-occupied with stabilising public expenditure,
  not least because of the fiscal discipline
  required to join the euro area.
• Therefore, whilst a new pre-accession strategy is
  created to assist the central and eastern
  European candidate countries, agricultural
  spending is held stable and cohesion expenditure
  is checked by refocusing on areas of highest
  priority.
• While the UK correction is retained, a new
  mechanism reduces the share of Germany, the
  Netherlands, Austria and Sweden (the countries
  with the largest negative budgetary balances) in
  funding the EU budget.
• Czech Republic, Estonia, Cyprus, Latvia,
  Lithuania, Hungary, Malta, Poland, Slovenia and
  Slovakia become members in 2004.

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1. HISTORY OF THE BUDGET

• 7. The current financial framework (2007-2013)
• The current financial framework, for 2007-13,
  focuses resources on improving the EUs
  competitiveness (the Lisbon Strategy for growth
  and jobs) and cohesion, whilst the amount devoted
  to agriculture is to be reduced over the
  seven-year period.
• The own resources ceiling is maintained at the
  previous level (recalibrated to 1.24 of gross
  national income (GNI)).
• The method of calculation of the UK correction is
  revised, by progressively excluding
  non-agricultural expenditure in the countries
  which joined the EU in 2004 and 2007.
• Additional measures will further reduce the
  contributions of Germany, the Netherlands,
  Austria and Sweden.
• Bulgaria and Romania become members in 2007..

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1. HISTORY OF THE BUDGET

• 1. The revenues

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1. HISTORY OF THE BUDGET

• 1. The expenditures

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2. CURRENT STRUCTURE
What for?
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2. CURRENT STRUCTURE
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2. CURRENT STRUCTURE

• Who are net contributors and net recipients?
• Members contribute to the EU budget roughly in
  proportion to the size of their
• economy.
• They are most likely to receive big EU cash
  injections if they are poorer than
• average, or if they have large, inefficient
  farming sectors.
• Biggest new member states from Central Europe
  have become
• major net recipients of EU funds.
• Germany, the EU's biggest country, is the biggest
  net contributor overall. It
• receives less from the EU budget than France and
  Spain, and it pays in more.
• However, the biggest contributors per head of
  population are the Netherlands
• and Sweden, with Germany in third place.
  Following at a certain distance are the
• UK, Austria, Denmark and France.

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2. CURRENT STRUCTURE
Who are net contributors and net recipients?

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2. CURRENT STRUCTURE
Who are net contributors and net recipients?

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2. CURRENT STRUCTURE
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3. CURRENT BUDGET CASE OF SPAIN
1. The agreement (2007-2013) in perspective
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3. CURRENT BUDGET CASE OF SPAIN
1. The agreement (2007-2013) in perspective

• Loss in Natural resources category (mainly
  agriculture), and a gin in expenditures for
  competitiveness (Lisbon effect) and Cohesion
  spending (Enlargement effect).
• But CAP and Regional policy spending will still
  absorve almost 80 of Budget

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3. CURRENT BUDGET CASE OF SPAIN
2. Results for Spain
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3. CURRENT BUDGET CASE OF SPAIN
2. Results for Spain

• THE EU PASSED A CRUCIAL BUDGET AND SPAIN
  CONTRIBUTED TO THE AGREEMENT.
• THE BUDGET IS MORE MODERN (MORE MONEY TO LISBON
  POLICIES).
• BUT STILL CAP AND BRITISH REBATE HAVE TO BE
  SOLVED.
• SPAIN IMPROVED FROM THE INITIAL COMMISSION
  PROPOSAL IN MORE THAN 5.000 MILLION (BUT LOST
  39.000 MILLION)

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4. THE ISSUE OF THE BRITISH REBATE

• What is the rebate?
• The rebate in any given year is equivalent to 66
  of the UK's net contribution in the previous
  year. The rebate in any given year is equivalent
  to 66 of the UK's net contribution in the
  previous year.
• Result of the Fointaineblau Summit (1984) and
  Thatchers I want my money back

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4. THE ISSUE OF THE BRITISH REBATE

• 2. Who pays the rebate?

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4. THE ISSUE OF THE BRITISH REBATE

• 3. Who contributes most to the EU budget?

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4. THE ISSUE OF THE BRITISH REBATE

• 3. Who contributes most to the EU budget?

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4. THE ISSUE OF THE BRITISH REBATE

• 4. Does it still make sense?

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5. FUTURE BUDGET 2013-2020
The European Commission has launched a
consultation process

• SEE PRESENTATION.
• WATCH SPEECHES
• http//ec.europa.eu/budget/reform/index_en.htm