August 16, 2022

Austerity Aside, E.U. Plans to Spend More

BRUSSELS — With the European Union’s 27 nations facing years of austerity, and Greece nearly bankrupt, now might be a good time for the bloc to prepare to spend less.

Instead, top E.U. officials went into battle Wednesday for an increase in spending under a seven-year funding plan worth about €1 trillion, or $1.4 trillion.

While the financial crisis has exposed the need to modernize European economies, the blueprint presented Wednesday suggested only a gradual shifting of spending away from farm subsidies, which account for more than 40 percent of the bloc’s collective resources.

In all, the European Union would spend about €971.5 billion from 2014 to 2020 — though, when all spending pledges made in that time period are included, the figure would reach more than €1 trillion, crossing that psychologically important threshold. The respective figures for the last period, 2007-2013, were €925.5 billion and €975.77 billion, though the proportion of the bloc’s gross national income would remain the same.

The proposals from the European Commission, the bloc’s executive, look certain to cause friction with some of the main E.U. paymasters: its biggest member governments.

Last week, Prime Minister David Cameron of Britain, who has called for a real-terms spending freeze, protested the construction of a new E.U. building, questioning whether the bloc’s institutions “actually get what every member of the public is having to go through as we cut budgets and try to make our finances add up.”

“We are proposing an ambitious but, at the same time, responsible budget,” the European Commission president, José Manuel Barroso, said in a statement. “It is a realist proposal with which we can make a difference.”

Calling for a radical shake-up of the way that money is raised to finance the bloc, the European Commission proposed a financial transaction tax to replace the current system of contributions from member countries — something unlikely to be approved by national capitals.

It also wants to replace the special rebate that Britain gets on its contribution with a standard payment, rather than a calculation based on a formula that takes into account the difference between what it pays in and what it gets out.

But in terms of how E.U. cash should be spent, the ideas were much more timid. There would be only evolutionary changes in the agriculture budget, which, critics contend, distorts global trade and is often vulnerable to fraud or mismanagement. It is, however, strongly defended by one big beneficiary, France.

If the plans outlined Wednesday night were implemented, that share would ultimately shrink to about 36 percent.

The announcement Wednesday is just the start of a lengthy negotiation both with national governments and the European Parliament that will probably stretch out for at least 18 months.

But already the discussion has a familiar feel.

Despite years of complaints from countries that pay more into the budget than they get out, and a widespread acceptance that the European Union does not match its spending to its real priorities, the budget remains stubbornly immune to wholesale reform.

As long ago as 2003, the Belgian academic André Sapir described the budget as a “historical relic” that devoted too few resources to economic innovation and job creation.

His report was commissioned by the European Commission president at the time, Romano Prodi, but when it came up against strong vested interests, it was largely junked.

In addition to the issue of farm subsidies, there are also doubts about the effectiveness of the “cohesion” funds spent in the bloc’s poorer nation, and other “structural” funding for disadvantaged regions.

Though these would increase slightly, they would also be geared more to create employment.

The heart of the problem is that the budget has evolved over years and, as France has dug in over farm subsidies, others have fought for their own cash cows. In 1984, Britain won an annual adjustment to compensate it for the fact that it paid more into the bloc than it received. Since then, every British prime minister has defended the so-called British rebate.

“The budget was used as a political bargaining chip,” said Jorge Núñez Ferrer, an associate research fellow at the Center for European Policy Studies.

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