Union dons a financial strait-jacket

Date: 09/10/1997

NEXT year's European Union budget is being prepared against a daunting backdrop of enlargement, monetary union and growing political concerns over unemployment.

“One of the aims of the 1998 budget is to avoid member states paying more towards financing enlargement in the future, so we have to be very careful and find real value for money. 1998 will not be the first time that a budgetary margin will be established, but it will be significant,” explained German Christian Democrat MEP Stanislaw Tillich, who is preparing the European Parliament's input to the spending estimates.

In marked contrast to the relatively free-spending days of the early 1980s, the value-for-money hallmark was firmly stamped on next year's EU budget from the moment it emerged from the European Commission in the spring.

Indeed, although nudging around 90 billion ecu, it is still some 4 billion ecu below the legal ceiling on Union expenditure set by EU leaders back in 1992.

Despite the financial strait-jacket, anxiety about the stubborn nature of unemployment in the Union has persuaded EU governments, prompted by France, to pay greater attention to job creation strategies in the run-up to the introduction of the euro.

Those concerns are now running through the negotiations on next year's expenditure and lie behind the major innovation in the 1998 budget, an employment package which MEPs will be asked to support when they give their initial opinion on the spending estimates in a fortnight's time.

Responding to a request from Luxembourg Premier Jean-Claude Juncker, the Parliament is aiming to bundle together a number of job-generating measures which will eventually find themselves on the agenda of the Union's mid-November employment summit.

A budget injection of several hundred million ecu over three years is likely to be used to back a far larger loan contribution from the European Investment Bank. These funds would be directed specifically at small, innovative firms with fewer than 55 employees and used to provide loan guarantees, start-up risk capital and reduced loan interest rates.

If all goes well, some MEPs estimate that the money might eventually generate 200,000 jobs, although they acknowledge that perhaps half of these might have been created without any extra EU involvement.

“We want to make sure the money gets to the places where it is needed. What this will do is provide a signal to member states, because after all, it is they which have the major tools to tackle unemployment,” explained German Social Democrat MEP Detlev Samland, the chairman of the Parliament's powerful budget committee.

But, in a typical example of how the Parliament uses its budgetary powers to extract other concessions, MEPs' support for the employment package will come with a price tag attached.

They are insisting that in exchange, EU governments should agree to the necessary legal base which would enable the Parliament to channel further funding to innovative small businesses in future years.

If member states prove unwilling to pay the price, Euro MPs are likely to refuse to endorse the employment package when they take their final vote on the budget in December.

With the challenge of enlargement now hanging over every aspect of Union business, the Parliament is also preparing to use its budgetary powers yet again to encourage a redeployment of European Commission personnel.

The threat of withholding funds for staff salaries has been used to good effect by MEPs in the past to beef up the Commission's anti-fraud unit. This time, the tactic will be directed at reinforcing the institution's external relations department by encouraging the deployment of extra staff for the team handling the enlargement negotiations.

In another break with previous practice, some much needed fine-tuning is being introduced into agricultural spending, which accounts for almost 50&percent; of total EU expenditure.

In addition to the possibility of freezing some payments in a reserve fund, changes in the way the Commission drafts its estimates are likely to make them more accurate than ever before. Instead of relying on budget forecasts drawn up in April before the main harvests, which invariably overestimate the costs involved, the Commission will table revised estimates for the Common Agricultural Policy within the next few weeks.

“This will provide an accurate picture of what is required in the following year. It will ensure greater efficiency, help member states as they prepare for monetary union and will bring us closer to a proper budgetary procedure,” explained Tillich.

While in the short term the Union's eye is inevitably on next year's expenditure levels, longer-term strategists are already looking to the budgetary challenges on the more distant horizon and MEPs, in particular, are examining how they can turn these to their advantage.

The framework for that analysis has already been set by the Commission's Agenda 2000 programme with its commitment to enlargement, reform of agricultural, regional and social policies, and adherence to the present ceiling on EU spending.

Many in the Parliament believe that achieving all three goals is highly unlikely, if not impossible, especially over the seven-year period from 1999 to 2006 envisaged by the Commission.

This scepticism is underlined in draft reports prepared by Greek Christian Democrat MEP Efthymios Christodoulou and Spanish Socialist member Joan Colom I Naval.

Colom I Naval warns that to peg spending at a maximum of 1.27&percent; of Union gross national product for such a lengthy period would be premature and risk underestimating the real problems.

Instead, he is recommending that the time span be reduced to three years from 1999 and that any decision on whether to increase the amount paid by member states to the annual budget should be determined by the state of the Union's economy and linked to reform of the EU's institutions and core agricultural, regional and social policies. This approach is rapidly gaining support within the Parliament.

The stakes involved are huge and, although the final decisions lie overwhelmingly with member states, they will have to take account of the Parliament's views both because of the budgetary lever it can use to influence other policies and because MEPs must formally approve every accession agreement before an applicant for membership can join the Union.

The Parliament has already begun staking out its position. It is pointedly making its endorsement of expenditure on various three- to five-year EU programmes, such as on research and development, conditional on the Commission's scenario of reform and enlargement being achieved without extra costs proving accurate.

Samland believes that the forthcoming review of the EU's finances offers an opportunity to introduce far greater flexibility into the system. Instead of continuing to hand back unspent funds at the end of the year to member states, he argues that these could be placed in a special reserve fund and used to prepare for the Union's enlargement.

Many MEPs would also like to see a less rigid distinction between different categories of expenditure and believe it should be possible to move funds more easily from one policy area to another.

The changes, if eventually agreed, would lead to a major shake-up in the present budgetary arrangements. At the moment, the range of medium-term spending programmes running over several years means that - despite the rhetoric - the scope for real negotiation each year is limited to little more than 1.5&percent; of the budget. But as Christodoulou acknowledges “because we have only a limited amount of money to play with, we concentrate on principles”.