« Reforming the budget, Changing Europe  » Stefan Lehner Director, European Commission, Directorate-General for Budget Office of the Committee for European Integration Warsaw, 8 April 2008

Commission undertakes a review of the EU budget „In accordance with the conclusions of the European Council, the Commission has been invited to undertake a full, wide-ranging review covering all aspects of EU spending, including the Common Agricultural Policy, and of resources, including the United Kingdom rebate, and to report in 2008/2009.“ (Inter-Institutional Agreement between the European Parliament, the Council and the Commission, 17.5.2006)

Payments ceiling: Own resources and EU Financial framework (in % of Gross national income (GNI); till 2002: GDP) Enlargement -> EU15 Enlargement -> EU25 Enlargement -> EU27 Own resources ceiling (Change from GDP to GNI) Multiannual financial framework: ceiling for overall payments

Structure of the EU financial framework 2007 - 2013 Total: € 975 billion (in current prices)

EU Budget trends The profile of EU spending has changed considerably over 25 years. But has it changed enough? For example: The Common Agricultural Policy absorbed 61% of the budget in 1988. By 2013, the share of CAP spending could almost halve (32%), though CAP will stay a major part of EU spending.

Key objectives of the reform Analyse longer-term challenges and issues facing the EU See how European budget can be shaped to serve EU policies better and to meet challenges of the decades ahead Seek a new consensus on EU spending priorities, how the budget is managed and how to fund it. The review will NOT make a proposal for the next financial framework

Preparing for Tomorrow’s Challenges New policy challenges have emerged: Globalisation: Europe has to improve its capacity to adjust to structural change: Scientific and technological progress, innovation and mobility are getting more important. Energy supply, protection of the environment und of the climate : global demand for energy is growing, so is Europe’s import dependency. Europe is a leader in environmental protection, but the mitigation of climate change and of its consequences are main challenges in the future. Security and safety: E.g. increased demographic and income disparities and the instability of neighbouring regions increase migratory pressures. Solidarity: The pressure on the European way of life and its economic and social cohesion will increase. Globalisation has brought home the need for Europe to have an effective presence worldwide if it is to project its interests and values successfully.

EU facing stiff competition Asia leads the world in growth Source: International Monetary Fund, «Finance and Development», June 2006

Challenge: Boosting knowledge and innovation Gross domestic expenditure on R&D 2001 - 2005 Lisbon-target The EU is still far below the Lisbon target for research expenditure.

Challenge: Facing the consequences of climate change Changes by the end of this century compared to end of last century Changes in precipitation Changes in crop yields

Challenges for rural and maritime areas Climate changes: Significant consequences for rural and maritime areas Source: International conference « Climate changes »

Challenge: Securing a sustainable energy supply EU IMPORT DEPENDENCY (%) The EU’s dependency on foreign energy is increasing constantly

Challenge: Guaranteeing security to EU citizens New security threats are more diverse, less visible and less predictable Environmental disasters Fighting crime Food safety Consumer protection Disease prevention

Challenge: Promoting Solidarity & Cohesion In 2004, the top regions (with 10% of the EU population) had a GDP per head that was almost 5 times higher than that in the bottom regions (with 10% of the EU population). 4th Cohesion report, May 2007

Challenge: Engaging an interdependent world In an interdependent world, an effective presence and strong efforts to provide support are a vital necessity. Education Access to water Peace and Democracy Poverty

How to respond to the challenges: Which role for the EU budget ? Re-applying the principle of European value added/subsidiarity Discussing anew the level at which the objectives of the proposed action can best be achieved (EU, national, regional, local) Choosing the appropriate tool (the principle of proportionality) Coordination Legislation Public spending: National and/or EU The reform of the EU budget expenditure will emerge from a critical review of the new challenges and the existing obligations, in the light of the principles of European value added and proportionality

Significant shift in EU budget funding The EU budget is increasingly based on the GNI contribution, from 11% of the total in 1988 to 74% in 2013.

Financing EU policies - principles The current financing system has provided sufficient resources to finance the EU budget BUT Member States tend to judge policies primarily in terms of "national returns" and not so much in terms of the added value of policies for EU citizens.

Debates on net contributions led to a rise in budgetary «corrections» UK correction – 66% of the difference between contributions and its receipts Lump sum payments to the Netherlands and Sweden Reduced VAT rates and reduced UK correction payments for the Netherlands, Sweden, Germany, Austria Retention of 25% of traditional own resources for all Member States collecting them The financing of the EU budget has become incomprehensible

The challenge of reforming the financing system A consensus on spending priorities could facilitate a reform of the EU own resources. Should alternative sources be envisaged taking in to account the national sovereignty on fiscal policy? Could a new system better contribute to and support related EU policies? Should corrections disappear or be generalized ? The overall composition of the Union's own resources system will be an important element in the review

The Timetable Consultation Paper setting out the challenges and issues at stake Launch of public consultation phase Deadline for submission of contributions Political Conference Commission presents the Review 12th September 2007 15th April 2008 Autumn 2008 [2008]/2009

Consequences of the Review of the Financial Framework ? The European Council can take decisions on all the subjects covered by the Review, in full respect of the established rights of the European Parliament. The Review will also be taken into account in the preparatory work on the following Financial Framework (starting in 2014). The mandate was agreed by the European Parliament, the Council and the Commission, in the context of the May 2006 Interinstitutional Agreement defining the financial framework 2007-2013.

The Commission consultation A Commission website presents the issues and collects contributions: http://ec.europa.eu/budget/reform/index_en.htm Contributions can be sent until 15 April 2008 to budget-review@ec.europa.eu

« Reforming the budget, Changing Europe  » Stefan Lehner Director, European Commission, Directorate-General for Budget Office of the Committee for European Integration Warsaw, 8 April 2008