1. FINANCIAL PERSPECTIVES Challenges and Options IAIN BEGG Visiting Professor European Institute, LSE

2. As it stands today, the EU budget is a historical relic Marco Buti and Mario Nava ‘Towards a European Budgetary System’ EUI Working Paper, May 2003

3. BACKGROUND AND ISSUES Stagnation of the EU economy Stagnation of the EU economy Overall budget unlikely to grow as % of GDP Overall budget unlikely to grow as % of GDP –The letter from the six net payers Uncertainty or disquiet about: Uncertainty or disquiet about: –Current composition of spending…not just the CAP –Identifying a European added value in EU spending –Controls on fraud and managerial capacity Concern about slow pace of ‘Lisbon’ agenda Concern about slow pace of ‘Lisbon’ agenda

4. THE EU BUDGET TODAY Barely 1% of EU GNI [Member States: 47%] Barely 1% of EU GNI [Member States: 47%] Financed by four ‘own resources’ Financed by four ‘own resources’ –GNI (4 th ) resource now dominates UK rebate and partial abatements for AU, DE, NL and SW UK rebate and partial abatements for AU, DE, NL and SW Set in medium-term Financial Perspective Set in medium-term Financial Perspective

5. EU BUDGET BY POLICY, 2003

6. IF WE START AFRESH… Spend, regulate or co-ordinate? Spend, regulate or co-ordinate? –The choice among modes of EU policy-making Economic justifications for EU level funding Economic justifications for EU level funding What to look for in European added value What to look for in European added value Priorities for EU level, given small scale Priorities for EU level, given small scale –If not agriculture, what? Scale of budget Scale of budget

8. NET CONTRIBUTIONS Arise almost entirely on the expenditure side Arise almost entirely on the expenditure side –Increasingly messy abatement mechanisms No easy answer No easy answer –Political support for net transfers fragile –ad hoc systems require regular renegotiation –UK and others may be fair, but cause friction Something for everyone has important political ramifications, even if economically dubious Something for everyone has important political ramifications, even if economically dubious

9. THE 10 th FEBRUARY PROPOSALS Five new headings Five new headings –But still largely the same policy functions –Agricultural ceilings frozen in real terms –Some orientation towards ‘Lisbon’, but limited Proposal for generalised abatement Proposal for generalised abatement Scale rising by 25% over 7 years Scale rising by 25% over 7 years Ultimately… more of the same Ultimately… more of the same Hence an opportunity lost Hence an opportunity lost

11. ISSUES FOR DEBATE The budget’s role in economic management The budget’s role in economic management –Study needed of case for ‘federal’ stabilisation The case for spending on new demands The case for spending on new demands Budgetary control a running sore Budgetary control a running sore Is there a viable solution for net contributions? Is there a viable solution for net contributions? –The Commission’s generalised correction plan… Integrated public finances – utopia? Integrated public finances – utopia?

12. FINANCIAL PERSPECTIVES Challenges and Options IAIN BEGG Visiting Professor European Institute, LSE