Reforming the EU Budget: In Case the Greek Debt Re-Emerges or Worse

_ Natalia Kondratyeva, PhD in International Economics, Associate Professor,  Higher School of Economics. Moscow, 11 May 2018.

Money “in reserve” – this is what the European Commission needs. Interestingly, the Commission qualifies both the fall in prices of dairy products and the Russian ban on imports of certain agricultural products as cases that require emergency measures. But the crucial thing is the strengthening of the economic and monetary union to protect it from the so-called asymmetric shocks.

The European Union is preparing a regular overall budget reform. The sharpness of the discussion is caused by the debt problems of the middle-income countries, parasitism of the countries of the fifth expansion wave, and finally, the prospect of a major donor, the UK, leaving the European Union. On the one hand, the European Commission (EC) is not interested in the heating of passions. Knowing that the adoption of the next budget plan for the period after 2020 entails the need for its ratification in the member states (such is the rule), it wants to persuade the national parliaments to maintain the current volumes of the overall budget and range of tasks while strengthening its stabilization functions. On the other hand, the Commission needs money to create reserve capital, in case a situation similar to the Greek debt or worse emerges.

The initial position of the EC was explained in June 2017 in the Reflection paper on the future of EU finances. In years 2014-2020 the low-performing regions of the EU will get 370 billion euros. Without this money, a “pull-up” to the average level is impossible. It is significant that for the catching-up countries of the European Union, the money from the structural funds of the overall budget are commensurate with their own state investments in development. They are equivalent to 80% of public investment in the economy of Croatia, 65-75% of Portugal, Latvia and Lithuania, 55% of Poland, Slovakia and Bulgaria, 50% of Romania and Estonia, 40% of the Czech Republic, Hungary, Greece.

Today, the main sources of budget revenues – more than 70% – are the contributions of member states that depend on the volume of their gross national income (GNI). The European Commission believes that such an order of income generation led to an unexpected problem for it. Namely, the attention of the member states was focused on how much they pay to the EU budget and whether they “get back” from it as much. In fact, the European Commission itself regularly provided relevant statistics and created a reason for reflection. Not surprisingly, now the EC reaps the fruits of its own comparisons and previous reforms. Now it is literally compelled to force states to pay to the budget. How? By a bold word. Today it calls “narrow-minded” those donors and recipients who ignore the added value that comes to them from pooling resources or belonging to the largest economic and trade zone in the world.

However, passing through the national parliaments the increase in contributions of the member states to the overall budget was not achieved either in 2007 (after the fifth wave of EU enlargement), or in 2014. It is unlikely that this will happen in 2020.

What remains is the rationalization of budgetary expenditures. The EC recipe is as follows. First, maximum transparency of the budget, exclusion of corruption, accountability, information support and openness of projects for public discussion. Second, the transition from seven-year plans to five-year plans for combining with the mandate of the European Parliament and the Commission (so that institutions can better control the budget execution).

Third, the “punitive” measures. Payments in support of structural reforms can be suspended in case of failure to comply with the requirements of the European Semester or migration policy. Today the so-called principle of conditionality exists nominally, but has not yet been applied.

One day, the application of this principle will lead to the desired effect: the money remaining in the budget will strengthen its reserve function (the flaw of the current system lies precisely in the lack of broad opportunities for taking emergency measures; until now the reserves were spent mainly on eliminating the effects of natural and man-made disasters).

Money “in reserve” – this is what the European Commission needs. Interestingly, the Commission qualifies both the fall in prices of dairy products and the Russian ban on imports of certain agricultural products as cases that require emergency measures. But the crucial thing is the strengthening of the economic and monetary union to protect it from the so-called asymmetric shocks.

Source: http://valdaiclub.com/

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