EU budget debate advances

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The likely size of the EU budget in the next financial perspective period (the length of which still remains to be decided, whether 2013-2000 or 2013-2024) became a little clearer last month with the publication of a letter to the President of the European Commission signed by five Member States including France, Germany and the UK as well as the Netherlands and Finland.

This called for an increase in payment appropriations over the 2013 by no more than the rate of inflation, thus maintaining the size of the EU budget constant in real terms. The letter called for commitment appropriations to increase by less than the rate of inflation. It is significant that the letter did not call for a cut in the absolute size of the budget, which has been happening in some Member States.

Proposing the new financial perspective is the prerogative of the Commission, which will make its proposal in July this year. And Commission officials were careful to downplay the significance of the letter, as it is important that the Commission does not appear to be taking its cue from the member states.

Maintaining the EU budget in real terms would imply that its importance as a share of EU GDP would fall over time, assuming real growth in the EU economy. This position is opposed, in particular, by some of the new Member States led by Poland which seek to retain the same share of the EU budget in EU GDP over time, which would see a real increase in its resources.

However, as reported by Euractiv, not all the new Member States seem to feel equally strongly about this. What seems more important for these countries is to maintain the flow of funds under cohesion policy and to bring about a more equal distribution of CAP payments. These issues are more important than the overall size of the budget per se.

This may not be an impossible circle to square. Remember that CAP payments are fixed in nominal terms. Assuming an annual inflation rate of 2%, then an EU budget fixed in real terms would have 14% more nominal resources to play with at the end of 2020. This could allow meeting the new member state demands without affecting the (nominal) transfers currently received under the CAP by the old Member States.

Such an outcome would, of course, be an extremely conservative and status quo-oriented response to the challenge of designing an EU budget fit to underpin the Europe 2020 strategy, but it does suggest that the parameters of the debate are narrower than is sometimes assumed.

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