Budget rumbles in Brussels

The summer break has come and gone and with the European Parliament back in session, Commissioners back from their yachts and their fonctionnaires back at their desks, the future of the EU budget is back in the spotlight.

As part of the December 2005 heads of government agreement on the 2007-2013 financial perspective it was agreed that there would be a midterm ‘budget review’ in 2008-09 which would look at all areas of the EU budget. including the two hottest political potatoes – the large share of funds going to the CAP and the British budget rebate. The review began with a big public consultation led by the then Budget Commissioner Dalia Grybauskaite, who pulled no punches in describing the budget as largely out of tune with Europe’s current and future challenges. However, she left the Commission early to become President of Lithuania and with delays to the Lisbon Treaty ratification the review process slowed to a standstill.

The future of the budget hit the headlines late last year with the leaking of an early draft of the Commission’s communication on the future of the budget. This suggested share going to the CAP and Europe’s regional policy needed scaling back to free resources for innovation, energy security, climate change and jobs. The document, which is understood to have been drafted by Commission President Barroso’s close advisers, was immediately disowned by a handful of outgoing Commissioners who saw it as a threat to their own budget lines.

We now learn that the Commission’s revised communication will be published in the first week of October (expect leaks before that). Budget Commissioner Janusz Lewandowski is said to favour “evolution over revolution” and in an interview with the German newspaper Handelsblatt the Commissioner suggested a reduction in the CAP budget. This week his officials have suggested the CAP budget could decline to around 33 per cent of the total (down from the current 40 per cent). MEPs with close links to farming lobbies are already raising the alarm. Irish MEP Mairead McGuinness said

“The Budget Commissioner sees a future with less spent on agriculture and more on research and innovation. His words are part of a softening up process, preparing the ground for a lower agriculture budget”

Yet Lewandowski is clearly taking a more cautious approach than previous Commissions. A decade ago the Prodi Commission suggested the CAP budget be cut to 30 per cent of the total EU budget. Prodi was eventually outmaneuvered by his own Agriculture Commissioner Franz Fischler and the CAP budget has increased each year since then with the bulk of it being ring-fenced up to 2013 under the terms of a deal made by French and German heads of government back in 2002.

Meanwhile, current Commission President Barroso, in his first ‘State of the Union’ address, steered clear of saying anything concrete on the future of the CAP that might frighten the horses. He called for “an open debate without taboos”, argued that the EU budget should be directed “where it leverages growth & delivers on our European agenda” and said that farm policy should contribute towards achieving global food security and the sustainable management of natural resources and reversing biodiversity loss.

One issue that looms large over the CAP is the possible extension of national co-financing, which applies to every other part of the EU budget, to CAP farm subsidies. This would help countries that are net contributors to the budget and might free up resources within the EU budget for other areas. It’s a move that seems to have been accepted by influential parliamentarians like Paolo De Castro MEP, chairman of the Agriculture Committee and is thought to be favoured by the French government.

In a possible sign of things to come in relation to co-financing, the Czech Republic government has decided that it will no longer make voluntary nationally-financed contributions to top-up CAP direct payments to Czech farmers and landowners. These optional payments have been taken up by all of the new member states during a transition period in which the EU funded contribution covers only a share of the total payments that can be made. The amounts involved have been substantial. In 2010, for example, the Czech government had topped up EU farm subsidy payments by €271 million. In the same year Poland topped up its farm subsidy payments by €1.1 billion, Hungary by €529 million and Bulgaria by €267 million.

There can be no doubt that if the CAP sees more national co-responsibility the idea of farm subsidies as ‘free money from Brussels’ will fade. Co-financing will focus minds in national finance ministries on whether voters would scarce national public funds should be spent on farm subsidies while cuts are being made in other areas like health, education, defence and housing.

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