Charlemagne: A modest proposal

It is time to rethink the entire European Union budget

WHAT on earth is the European Union budget for? It is too small (taking up just over 1% of EU-wide GDP) to have any serious economic effect. To judge by the wrangling before this week's EU summit in Brussels, it has become mostly an opportunity for countries to air their pet grievances and to demand their money back. If there is a deal on the budget this week, it will be an agreement reached for its own sake, because EU leaders cannot bear to be blamed for yet another summit failure. And if there is no deal, it will similarly be a disagreement for its own sake - because France rather likes the idea of putting Britain, which holds the rotating EU presidency, in the dock for one more financial fiasco.

Yet if there was ever a good moment to think hard about how the budget might be better designed to advance the Union's stated aims, it ought to be now. The "financial perspective" is negotiated once every six years. That ought to create enough time to step back a bit and consider some first principles. The present negotiation is also the first since French and Dutch voters rejected the EU constitution in the summer, creating another good opportunity to ask whether the club is still spending its money on the right things. What would a budget look like if it took the EU's goals at all seriously?

The answer would presumably start by considering some of the things that might advance the cause of "ever closer union" (the preamble to the Treaty of Rome) as well as others that might promote growth and stability (once again, these are formal EU aims). A case could be made for some regional aid, on the ground that it advances ever closer union by helping to narrow the differences in income and infrastructure around Europe. Over one-third of the budget goes on such regional aid, so this bit at least passes one test.

The EU may, for this reason, be right to try to smooth out differences between countries - although there have also been several studies that query how effective its regional funds have actually been in practice. But the case for its intervening within countries is much weaker. That would surely be better done by national governments, which are likely to have greater knowledge of which regions and which projects merit support. Yet the EU gives help both to the poorest ("objective 1") areas of the Union and, even within rich countries, to their poorer regions. This second form of help (to objectives 2, 3 and 4, in the jargon) offends against the Union's principle of subsidiarity, which lays down that public intervention should take place at the lowest appropriate level of government.

As it happens, the EU has not shown itself to be particularly good at equalising income between countries, either. The two biggest net recipients of EU cash per head are Belgium and Luxembourg (because of the EU institutions located there). One of Europe's richest countries, Ireland, comes out above all but two of the new member countries from central and eastern Europe in net receipts per head. It seems equally perverse that Greece should get twice as much money per head as does Cyprus, or that Slovenia, the richest of the new members, should get more than Poland.

The principle of subsidiarity, as well as the aim of fostering economic growth, can sometimes justify financing things at European rather than national level. But the list is quite short. It might include the European Commission itself, as policeman of the single market; a few pan-European transport projects; common border controls; research that tends often to underfunded nationally (many Europeans consider that America's generous federal spending on research helps to give its economy a competitive edge); and, perhaps, some foreign aid (a single EU aid budget could avoid much of the duplication that confronts recipients of European aid, although the EU aid programme has often been criticised for being ineffectively delivered). As some of these items are now national, a sensible EU budget might even be bigger in certain areas.

Shrinking Brussels

But it would be a lot smaller in others. For what such a budget would certainly not include is the largest single item of current spending, agriculture, whose share of the total will actually rise, under the British presidency's compromise plans, from around 40% now to almost 45%. The common agricultural policy (CAP) is hard to justify on any "European" grounds. It does not contribute to economic growth. And, although one of the original bargains underlying the European project was that France would open its market to German exports in return for German taxpayers subsidising French farmers, the CAP today offers almost nothing towards the goal of ever closer union.

Moreover, the CAP also offends against the principle of subsidiarity. Most Europeans would be better off if there were no farm support at all. But if there is to be some, it should surely be doled out nationally, because only national governments have the expertise (and the political authority) to run what has increasingly turned into a personal income-support system for one particular interest group. Indeed, as the past few weeks have shown once again, CAP spending is not only divisive but has also helped to turn the entire EU budget into what the 2003 Sapir report, "An Agenda for a Growing Europe", memorably termed "a historical relic".

There is no question that the EU budget is broken, whether or not member countries manage to reach a deal at this week's summit. There is equally no question that a more rational budget would require huge changes in the pattern of spending and in the sources of finance. The Sapir report urged radical reform, but true to form the European Commission took the report, said thank you, and put it in the back of the drawer with the best linen, never to be used. Shame.