Rhein on Energy and Climate

After months of consultations and preparation the Commission has tabled its proposals for the 2014-20 financial framework which contain four major changes compared to the 2007-13 framework :

  • Small increase in overall expenditures;
  • Small cut in agricultural expenditures;
  • Significant efforts for simplifying spending procedures;
  • System changes on the revenue side.

Judging by the initial reactions from capitals and interest groups the negotiations will be long and conflictual. The “northern” – net contributing – member states press for a smaller budget, while the beneficiary countries are naturally in favour of raising EU budget expenditures.

But as EU budget expenditures represent no more than two percent of the combined expenditures of the 27 member states the overall volume is not what should matter. The key question is rather about the value-added of the EU budget: why should member states collect taxes, transfer a tiny fraction of these to the EU and get them back in some form or other from Brussels? Such redistribution must generate a net benefit for all member states to make sense.

By proposing an increase of expenditures of only two per cent over 2007-13 the Commission has steered a prudent course likely to be adopted as the final compromise.

It is rather on the composition of expenditures that the Commission has been too conservative,failing to use the budget as a powerful catalyst for making the EU more competitive, sustainable and fully employed by 2020.

To this end, the Commission should have proposed:

  • A more radical reduction of agricultural funding in favour of education &training, research & innovation, and investments in energy efficiency.
  • The creation of a € 100 billion soft loan facility to private/public enterprise start-ups and investments in research & innovation and energy efficiency. The EIB should manage these loans in combination with national development banks. Such loans would have a formidable leverage effect and force recipients to make a strictly efficient use of them.

The obligation for member states and regions to utilise their allocated funds to implement the Europe 2020 strategy goes into the right direction, but should be complemented by such a loan facility.

The continuation of the system of direct subsidies to EU farmers constitutes the biggest shortcoming of the 2014-20 financial framework. With € 282 billion they constitute the biggest single item of programmed expenditures. As the subsidies are allocated per hectare big land owners, especially in France, Germany and UK, will continue to be the main beneficiaries, whatever “capping” system may be agreed.

These payments do not fit into the 2020 objectives! They do not contribute to making the EU more competitive or sustainable, let alone create additional productive jobs.

In an era of increasing global food scarcity and rising food prices EU farmers should not find it difficult to sell their produce at remunerative price; and European food security is not at stake either.

Direct payments of € 300/hectare are only justifiable if all farmers were held to undertake concrete mitigation actions against green house emissions. After all, agriculture is responsible for 9 percent of EU green house emissions, the equivalent of total emissions from European motor cars! But so far agriculture has been exempt from EU energy and climate policy.

To address the issue, the Commission proposes that one third of the direct payments will be conditional to “greening efforts”. This is insufficient: all direct payments to farmers must be conditional to climate mitigating actions. Failing to obtain this, the budget provisions for direct payments must be reduced correspondingly in favour employment and innovation programmes.

The Commission proposals for amending the composition of budget revenues are overdue and deserve praise:

  • The EU needs to revamp its value added tax system. Sharing VAT revenues between member states and the EU, with the EU obtaining, say 2 percentage points from a standard VAT revenue, should be a normal a component of the VAT reform.
  • It is no less sensible to introduce a single financial transaction tax for the EU and have its revenues shared between EU and member states according to the importance of their financial transactions.

In conclusion, the Commission promise of turning the budget into a vehicle for underpinning the EU efforts towards smart growth, full employment, higher levels of training and ecological sustainability falls short of expectations in the absence of smarter methods of funding ( more zero interest loans instead of grants) and a radical change of direct agricultural subsidies.

But in view of deeply entrenched budget habits and a Franco-German “unholy alliance” the PAC the Commission may be pardoned for its prudence. Hopefully the EP will make some necessary amendments.

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