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    Is EU Budget European Voice 051007

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    Bruegel
    The EU budget is small and fairly inflexible, with expenditures dominated by two large redistributive policies. The agreement to carry out a through review of the EU finances by 2008 / 2009 was disappointing. Globalization, technology, the demographic transition, climate change, energy, migration, internal and external security are all noted in the report.

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    Is EU Budget European Voice 051007

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    Bruegel
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    The EU budget is small and fairly inflexible, with expenditures dominated by two large redistributive policies. The agreement to carry out a through review of the EU finances by 2008 / 2009 was disappointing. Globalization, technology, the demographic transition, climate change, energy, migration, internal and external security are all noted in the report.

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    The EU budget is small and fairly inflexible, with expenditures dominated by two large redistributive policies. The agreement to carry out a through review of the EU finances by 2008 / 2009 was disappointing. Globalization, technology, the demographic transition, climate change, energy, migration, internal and external security are all noted in the report.

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    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    19 views3 pages

    Is EU Budget European Voice 051007

    Uploaded by

    Bruegel
    The EU budget is small and fairly inflexible, with expenditures dominated by two large redistributive policies. The agreement to carry out a through review of the EU finances by 2008 / 2009 was disappointing. Globalization, technology, the demographic transition, climate change, energy, migration, internal and external security are all noted in the report.

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    of 3

    Back to basic with the EU budget

    It is often argued that the EU budget is largely the product of successive inter-governmental side-
    payments with little economic rationale. It is small and fairly inflexible, with expenditures
    dominated by two large redistributive policies - the Common Agricultural Policy (CAP) and the
    Structural and Cohesion Funds - which together will still account for almost three quarters of total
    expenses by 2013. But, although the last round of negotiations for the Financial Programme
    2007-2013 was disappointing and brought about little change, there was one hopeful outcome,
    namely, the agreement to carry out a through review of the EU finances by 2008/2009. The
    European Commission has now officially launched this review process with the recent publication
    of its consultation paper “Reforming the Budget, Changing Europe”. Its main message is clear:
    the EU needs to look forward.

    The Commission does well in stressing that the name of the game when it comes to the EU
    budget is change. Globalization, technology, the demographic transition, climate change, energy,
    migration, internal and external security, as well as the increasing income disparities within the
    EU, are all noted in the report to be key elements in determining the course of EU policies in the
    future. Nonetheless, it is important to keep in mind that it is just a very first step towards
    meaningful reform.

    Many of the key issues related to the reform of the EU budget have been long established. First,
    there is the general conflict between Member States who are net contributors and net
    beneficiaries in terms of the budget size. This tension arises, for the most part, from the skewed
    distribution of expenditures, and has lead to a number of adjustments, such as the UK rebate.
    The revenue structure of the EU budget has also come into question, especially in terms of the
    need to move towards a European tax instead of relying on national treasuries. All of these issues
    are markedly compounded by the Eastern Enlargement and the associated increase in the
    Community’s heterogeneity in levels of development, economic structure and preferences.

    Against this background, however, what remain less clear are the different policy alternatives
    available and the trade-offs implied by each option. Mapping policy choices requires a though
    assessment of both current and potential expenditure programmes. All policies need to be
    assessed and proven to have value added for the Community. And this necessarily means
    reviewing the performance of all EU programs, especially those that take up a significant
    proportion of the funds. The current review process is a great opportunity, but one that has to
    start with a clean slate.
    The Commission does publish annually a Cohesion Report intended to assess the impact of both
    cohesion and structural funds, and has started a “health check” of the agricultural policy as well.
    Understanding the impact of policies on key outcomes, such as growth and inequality, is
    fundamental for designing expenditure policies. But it has to be done right, of course.

    Let’s take the case of cohesion policy as an illustration. The Commission appears to take as
    given the effectiveness of cohesion and structural funds in reducing cross-country and regional
    disparities, but the existing evidence is weak at best. The 4th Cohesion Report, issued in May
    2007, argues that the cohesion policy of the Union has a large and positive impact on growth in
    recipient countries. Even if one accepts these estimates– and the multiple assumptions
    embedded in the models used – this exercise says nothing about the alternative use of those
    resources. At the end of the day, EU funds do not fall from the sky. The relevant question is
    whether cohesion funds are the most efficient redistribution instrument available. Nobody can
    really answer this question today.

    In terms of regional convergence, the story is still frailer. For starters, there is no comprehensive
    database – at least not readily accessible - of the use of structural funds at the regional level in
    the EU. The information needed is spread among local authorities at a very decentralized level. It
    needs to be aggregated to allow for a full review of the policy. This lack of ex-post centralization
    of information is shocking since this means that there is no appropriate monitoring and evaluation
    of the use of these funds. Without this information, it is clearly not possible to carry out a causal
    impact analysis of regional funds. As a result, claims about the effect of structural funds on
    regional disparities are based on simple correlations.

    A suitable evaluation of the use of regional funds should provide answers to three key questions.
    First, what is the economic rationale behind the Community’ expense i.e. whether the EU is the
    level at which regional redistribution is to be carried out. Second, whether the goal is achieved by
    the policy. And third, whether there are other more efficient mechanisms to reach the goals set.
    While the tools exist to have an informed discussion on the first issue (even though agreement is
    elusive), the development of instruments to be able to respond to the last two enquiries is still on
    its early stages. The same principles would apply to the evaluation of other EU policies where it is
    possible to identify the beneficiaries.

    The truth is that nobody knows what the impact of EU expenditure is, and this is discouraging
    moving ahead in the reform process. Now that the formal discussion on EU budgetary reform has
    been ignited, the Commission needs to get back to the drawing board and think hard about policy
    evaluation design. This is the first step in improving the effectiveness and efficiency of budget
    delivery, one of the central questions put forward in the Commission’s paper.

    “Reforming the Budget, Changing Europe” is successful in stressing the need for Europe to adopt
    a budget that allows it to successfully take on the new challenges of this century, but there is
    need to go back to fundamentals. Appropriate policy evaluation is the natural place to begin. An
    independent and rigorous evaluation of EU policies, however, is currently not possible with the
    existing data and institutional limitations. Going forward often implies taking a step – or two –
    back.

    Indhira Santos, Bruegel

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