"For 500 million Europeans in times of austerity"

...That was how EU Budget Commissioner Janusz Lewandowski presented his 2012 EU budget proposal, tabled today.

With such a heading it must include lots of belt tightening, better targeting and some relief for those European governments whose budget is already incredibly strained, right?

Unfortunately, not.

To the surprise of no one, the proposal includes increasing the budget by 4.9% (€6.2bn), around 2% more than average inflation in the EU. I don't know about you, but we wouldn't usually describe that as austerity.

Needles to say, given that all EU members are trying to cut spending, increase taxes and impose varying austerity levels onto taxpayers, we have a feeling that Lewandowski's proposal won't be met by cheers in many countries. Below we have a breakdown of what we estimate each country’s increased contributions to the EU budget will be under the proposal - based on the projected national share of contributions for 2011, as forecast by the Commission (it's a moving target since you're never be quite sure what the actual contributions are until the money is paid out.)

We're looking at a €769m (£680m) increase for the UK. This is dwarfed by the €1.2bn that is added to Germany's EU bill for next year under the proposal (quite apart from the €100bn+ in loan guarantees that the country's taxpayers are already liable for through the bail-out packages). The French, who are beginning to realise that they are now net contributors to the EU budget, are on the hook for an extra €1bn - not exactly pocket change. The Netherlands, whose Government is now asking uncomfortable questions about the EU's external aid (partly as a result of our recent report on the topic) are on the hook for another €309 million. For all the contributions see table below (click to enlarge - these figures are gross contribution, meaning that in reality some countries might actually get more cash back than what they pay in, for example Spain).

Comically the Commission's press release outlines the fact that "bills must be paid", alluding to the fact that the Commission has committed to various projects which still are running. This argument is weak. Although it's true that the EU budget can't run a deficit, meaning less room for manoeuvre compared to national budgets, there's no reason whatsoever why the Commisison, MEPs and member states can't come together to prioritise and re-shuffle, since funds are clearly getting tighter. Just as national governments are forced to prioritise. As we note in our response to the proposal, there's plenty of fat to cut in the EU budget, from the 50 or so EU quangos, to paying non-farmers not to farm, to recycling 'cohesion' funds between some of Europe's richest regions. And, seriously, does Europe really need projects like these...(click link for examples)

We're sorry, Mr. Lewandowski , this proposal is neither for "500 million Europeans" nor for "times of austerity". In fact, it's quite the opposite.

I Want Your Money Back!

EU institutions and member states are warming up for the negotiations on the post-2013 EU budget, which are just around the corner. French MEP Alain Lamassoure, who chairs the European Parliament's Committee on Budgets, said yesterday that national governments should avoid behaving "like 27 Baroness Thatcher around the table".

Unfortunately, his own country isn't likely to take his advice. Last week, French Europe Minister Pierre Lellouche outlined France's negotiation position on the next EU budget period, due to start in 2014*.

And it was pretty uncompromising and unrealistic stuff. Lellouche said that an increase in France's contribution to the EU budget "is not feasible" and that the austerity measures implemented by member states should be reflected by a reduction of spending at the EU level.

So far, so good. But then he went on to say that Common Agricultural Policy funding "must be kept at current levels, especially in regards to direct payments". The same goes for cohesion policy, which "puts the EU in a shop window" and needs to be safeguarded.

In terms of actual "cuts", Lellouche mentioned only one: the UK rebate. This has to be renegotiated he said, otherwise, "it would weigh a bit too much on France's contribution [to the EU budget]".

So Lellouche's wish list for the post-2013 EU budget:

- No increase in France's contribution
- Less spending at the EU level
- No cuts to CAP and cohesion funds
- No more UK rebate

Ridiculous. Lellouche seems to take an I-want-your-money-back approach to the upcoming budget negotiations. Not sounding like Thatcher at all...

And where, exactly, does he see the actual reductions meant to reflect austerity measures in member states?


*UPDATE

For the sake of accuracy, these are the exact words of French Europe Minister Pierre Lellouche during his hearing with the French Parliament's European Affairs Committee, based on the transcript available on the website of the Assemblée Nationale.

On the size of the EU budget post-2013:

“It is out of question that austerity only applies to member states and is not reflected by EU spending. The size of the EU budget must therefore be stabilised for the whole of the next financial framework”.

On the need to preserve a strong CAP:

“I would like to insist on a strong message: the EU must keep a strong Common Agricultural Policy […] The CAP budget must be preserved and, in particular, EU financing of direct aid [to farmers] must be kept”.

On the UK rebate:

“The next financial framework must deal with the revenue side of the EU budget, since the financing of the EU budget has become unfair and illegible. France is by far the largest net contributor to the various existing rebates - the British rebate, the VAT rebate, the 'rebate on the British rebate'. France disburses every year €2 billion to finance them, of which €1.5 billion only for the UK rebate, as France contributes to more than 25% of the British rebate. This situation can’t last anymore!”

A familiar showdown

Negotiations over the size and shape of the EU budget post-2013 are just around the corner. Expect no surprises about what the main battlegrounds will be (clue: the CAP and the UK rebate).

UK Chancellor George Osborne has already sent a clear message to his colleagues in the EU.

"We are not going to give way on the rebate, and people had better know that at the beginning of the process, because they'll certainly discover it at the end", he said earlier in the week.

But despite Osbourne's comments, French Budget Minister Francois Baroin (picture) still tried to test the waters during a visit to London yesterday.

"I have made many efforts and put on the table several arguments. But I have understood that the Britons had no intention of changing their stance", he said, adding that during the talks he had also made clear that French President Nicolas Sarkozy's position on the Common Agricultural Policy "is not negotiable".

In other words, we're alooking at a tricky, but painfully familiar, starting position for the budget talks.

Baroin concluded, "at least [...] these talks have shown the determination of both our countries to defend the respective positions". (Hmm, good thing these talks took place then - for a while there we thought that the UK and France would decide not to defend their respective positions...)

But there is a simple solution to this potential deadlock: let's opt for a similar deal to that which Tony Blair struck in 2005, when he infamously gave away £9bn of the UK's rebate in return for vague promises of CAP reform, which amounted to absolutely nothing in the end.

But this time, let's reverse the terms: France and other member states agree to cut the CAP by, say, 50% and repatriate regional spending for member states with a GDP of 90% or more of the EU average (France could actually agree to the latter solution even outside discussions about the UK's rebate and CAP, since the country is now a net contributor).

In return, the UK would promise a "review" or "health check" of its rebate - alongside other member states' rebates - in 2018, with the view to possibly scrapping it altogether.

Unfair? Unreasonable?

Let CAP take the Lyon’s share

Two weeks ago, in Merida (Spain), the UK’s new Agriculture Minister Caroline Spelman called for “reduction and re-orientation” of EU Common Agricultural Policy (CAP) spending. “We cannot leave aside the fact that Europe is without money”, she said.

Unfortunately, Ms. Spelman’s demands seem not to have made it across the Pyrenees. In fact, last Tuesday in Strasbourg the European Parliament’s Committee on Agriculture and Rural Development endorsed a report on the future of CAP after 2013. Unsurprisingly, the report wasn’t exactly calling for fundamental reform of the CAP – MEPs remain staunch defenders of this wasteful policy.

The text reads as follows: “To meet the new priorities and the expectations of all EU member States, the CAP budget amount needs to be at least maintained at 2013 levels in the context of the new financial perspectives”.

You don’t need to be a seasoned Eurocrats to understand that “at least maintained” probably means “increased”.

Now, this seems like business as usual – the UK is trying its best to reform a policy which is protectionist and 50 years out of date (and which still absorbs more than one third of the whole EU budget every year, despite the fact that less than 5% of Europeans work in the agricultural sector), with the usual suspects (the European Parliament, France, Spain, etc.) doing everything to stop such effort.

Only thing is, this time the report was drafted by… a British Lib Dem MEP! The MEP in question is George Lyon (see the picture above), representing Scotland.

In other words: while at home the coalition is preaching the need to cut waste and reform the EU budget, in Strasbourg a Lib Dem MEP drafts a report opposing any downsize of one of the most wasteful and irrational spending programmes in recent history – the CAP. That the Conservatives and the Lib Dems aren’t on the same wavelength on Europe is one thing, but that the Lib Dems are sending out such “mixed” signals on a key EU policy is concerning, to say the least…

Cash cow

On his CAP Reform blog Jack Thurston has a story that illustrates one of the many reasons why reforming the EU's wasteful and protectionist farming policies is so difficult. The post centres on Henrik Høegh, Denmark's newly appointed Farming Minister, who is a long-time recipient of EU farming subsidies.

Since 2000, he has received a whopping €604,787.00 from the Common Agricultural Policy and his son and daughter are also thought to be receiving EU cash. Indeed, Høegh is not the only farming minister to have been in receipt of EU subsidies.

In an outright conflict of interest, Mr Høegh is now responsible for signing his own subsidy cheques, but also, as a member of the EU’s Council of Agriculture Ministers, deciding on the future of the CAP.

As Thurston concludes: "With the long-term future of the CAP currently under debate, can the Danish people be confident that Mr Høegh will be pursuing the public interest rather than his own private profits?"

2.5 million tonnes of EU waste

Few things represent the absurd and outdated nature of the EU's budget as well as the weird butter and grain mountains. These mountains consist of surplus produce that Europe's farmers have been unable to sell on the market and that is instead bought up by the EU Commission under the Common Agricultural Policy. It is then stored in massive stockpiles providing the ultimate image of EU waste.

It's somewhat of a common perception that these mountains are a thing of the past - that they've disappeared following a series of reforms of the CAP (for which Tony Blair gave up £4 bn of the UK's rebate from the EU's budget).

Not so.

From Swedish agricultural magazine Land we learn (for those of you who aren't regular readers of the publication) that there's now some 2.5 million tonnes of surplus produce in store around Europe. 2.5 million tonnes! The butter and grain mountains appear to be growing again, following the Commission's decision last year to reinstate controversial "intervention buying" in the dairy sector (the phasing out of which was meant to form a central part of the CAP reforms promised to Tony Blair).

Tony's complete failure in the EU budget negotiations in 2005 is becoming more conspicouos by the day.

For a life without tobacco; for an EU full of tobacco producers

This is a theme we've looked at in the past, but just to remind readers of the absurdity of the situation we shall return to it. The European Commission has just launched "a new and innovative animated web series called Helpisodes" as part of its €72 million 'HELP - For a life without tobacco' campaign.

The Commission's press release explains that, "A total of 12 Helpisodes have been created. Each episode is one and half minutes long with the exception of the `pilot' which introduces the main characters (Helpers) and how they came to be together and were transformed into anti- smoking super heroes...The aim of these absurd and, above all, humorous Helpisodes is to communicate with young people in a language they understand and appreciate".

This is all a bit weird and over-the-top - like so many other Commission initiatives aimed at the younger generation (see the previous post for another example). But we're in no position to pass judgement on whether or not it works (it's no doubt a worthy cause). But is this really a job for the European Commission?

Remember, this is the same institution that - with the help of the farming lobby, the European Parliament and several member states - spent €293 million in 2008 to subsidise tobacco producers in the EU.

In other words: the European Commission spends €365 million on various tobacco programmes. €72 million of this sum is aimed at fighting tobacco while €293 million of it goes to promoting tobacco. To add to the mix, the EU has introduced tough regulations on cigarette advertising, including the “smoking kills” warning labels on cigarette packets. And in the latest twist, the Commission is now calling for an EU-wide ban on smoking in public places by 2012.

No wonder people are confused as to what the EU is all about...

There was a better way

The Economist's Charlemagne today claims that by opposing the incredible 60 percent rise of the British contribution to the EU budget, the Conservative Party is turning its back on "such ideas as promoting free trade, the pursuit of economic growth and the defence of Western values."

By doing so, Charlemagne risks perpetuating the myth that the only way of paying for the EU's new members to integrate was to increase an already bloated and misdirected EU budget.

Charlemagne summarises Tony Blair's 2005 budget deal as follows:

To cut a long story short, Mr Blair was snookered by the French, among others...The French very cleverly managed to force the British into a position where they had to choose between defending their rebate and cutting funds earmarked for the new member states from the ex-Communist block who had joined a year earlier.

The article goes on to argue that the Conservatives' hostility to the budget rise is "purely about British money going to Brussels" and that the increase was imperative for enlargement to be a success.

It says the Conservatives are dismissing one of "Britain’s greatest victories in more than 30 years of EU membership, securing valuable allies for the cause of Atlanticism and open markets and burying forever any thoughts of turning Europe into a federalist superstate."

Charlemagne concedes that Blair's budget deal was "not brilliant" as it was supposed to prompt a review and reform of EU agricultural spending which, surprise, surprise, has not so far materialised. It should also be noted that central and eastern European countries received a very poor deal when it came to their share of agricultural spending.

But the rest of Charlemagne's argument seems to rest on the notion that EU regional spending is a 'good' in itself. He writes that EU funds for new members "have a long record of improving infrastructure such as motorways, ports and railways for the general benefit of trade and growth."

If only it were so for the 50 percent of EU regional spending that is spent in the EU's 15 richest states. This money does nothing to boost trade and growth but is simply a money-go-round which helps keep countless EU (and UK) bureaucrats in work.

Of course, having invested so much political capital in enlargement, it is only right that the UK ensured that the EU takes its responsibilities to its new members seriously. What is not forgivable is that the UK failed to make others understand that enlargement fundamentally changed the 'rules of the game' and that the EU's budget should reflect that.

As we have argued in the past, the EU's regional policy needs fundamental reform. It simply does not make sense for the UK to send money to Brussels to only see it sent to countries of equivalent wealth to be spent on highly prescriptive and dubious projects. The EU's 'structural funds' should only be spent in countries that need it such as those whose GDP is 90 percent or below the EU average. The rest should be scrapped.

This is perhaps what Conservatives should consider arguing for. It would have many useful effects: Firstly, it would still allow money to be spent where it is needed most, thus fulfilling the UK's commitment to the policy of enlargement. Secondly, it would result in a net and gross decrease in the UK's EU budget contribution. And third, it would allow them the political victory of reclaiming powers from Brussels by returning regional policy to the UK.

Instead, it seems that Shadow Europe Minister Mark Francois is following the mantra of "try, try again" by saying he would offer a deal painfully similar to Blair's in 2005. The Telegraph reports that Francois is suggesting giving up more of the UK rebate, if the Conservatives "thought there was genuine reform available.”

Seeing as this worked so well in the past (not), why not play 'hard-ball' and actually refuse to agree the next budget at all, unless the new deal is palatable. This would force the EU to live on a budget paid out in 'provisional twelfths'. This is a bargaining chip which is only available every seven years. The Conservatives, if elected, will still have the energy and the room to manoeuvre in the next round of budget negotiations (due in 2011-12) and what better way to prove that they are serious about reforming the EU?