EU budget faces radical overhaul

Date: 11/01/1996

By Rory Watson

THE EU is facing demands for the most radical overhaul of its budget in the Union's history as it tries to square rising costs with expanding ambitions.

Changes being mooted would reform the way the 86-billion-ecu budget is financed, abolish rigid distinctions between expenditure categories, raise new questions over the UK's budget rebate and change the balance of power between governments and the European Parliament.

A unique combination of pressures is coming together as the European Commission prepares its 1997 expenditure plans and moves to put budgetary considerations at the heart of policy-making for the first time. The Commission will break new ground on 31 January by holding a brain-storming session to examine the financial and staff implications of future EU initiatives.

The exercise takes place against a background of financial stringency. While EU spending in 1996 will be 8&percent; higher than last year, it is expected to rise by only 4&percent; in 1997, with much of the increase already allocated for regional and social spending.

Budget Commissioner Erkki Liikanen warns: “We face a very tight budget for internal policies and administration. This means the Commission will be faced with serious priority decisions.”

Possible options include axing certain programmes, across-the-board percentage cuts in some areas, or the selective reassessment of certain policies.

Meanwhile, MEPs are developing their case for change as Dutch Liberal MEP Laurens Jan Brinkhorst, a former government minister and ex-director-general of the Commission, prepares the Parliament's strategy for the 1997 budget.

He argues that the traditional separation of compulsory and non-compulsory spending is now unworkable. The first, accounting for half of total annual spending, is almost entirely made up of agricultural expenditure and is determined by EU governments alone.

“The fact that half the budget is outside the Parliament's control is untenable. It is clear

we are entering a phase of agricultural under-spending and the Parliament cannot do anything about the extra money involved, as it just flows back to member states,” says Brinkhorst. “Yet if you look at the former Yugoslavia, Carl Bildt can only get money if the European Parliament finances it from the EU budget.”

Brinkhorst believes the lesson is clear. “We should have full budgetary and legislative co-decision. This will mean governments having a greater say in foreign affairs financing and the Parliament a greater say in agricultural expenditure.”

Spanish European Affairs Minister Carlos Westendorp, who chaired the Reflection Group which has prepared the ground for this year's Intergovernmental Conference (IGC), also believes the expenditure distinctions are “clearly obsolete” and should be abolished.

The IGC will witness the opening salvoes of the battle to reform financing of the budget. With domestic public expenditure on a tight rein, Germany and the Netherlands increasingly resent the scale of their EU net contributions, which they fear will rise with enlargement.

“We do not have problems in contributing, but we are a country of moderate wealth and we make very high payments. We are the largest per capita net contributors and will be even more so towards the end of the decade,” said a senior Dutch official.

The Dutch government is now committed to challenging the special budgetary rebates enjoyed by the UK and Germany. Critics argue there should be a closer link between a country's relative wealth and its EU payments.

Despite certain controversy over the new financing formula, governments want work on the scale of the EU's future budgets to start as soon as possible.

Liikanen accepts financing of the budget is now irrevocably on the EU agenda, but urges caution. “The net contribution discussion will be with us from now on. But I hope member states will not be too short-sighted. Often those with strong economies benefit most from the internal market. If we have too mechanical an approach to European integration, then we lose the heart and soul of the process,” he says.