The European Centre for International Political Economy (ECIPE) is a rare creature among Brussels think tanks: first, it advances a strong free trade agenda and second, it does not rely on EU institutions for its funding (its website says that its ‘base funding’ comes from the Free Enterprise Foundation in Sweden). Earlier in the summer EPICE published a briefing paper about the CAP written by Valentin Zahrnt. There’s not a whole lot new in the paper and there is a lot in common with a policy brief I wrote for the Centre for European Reform back in December 2005. The author comes down firmly on the non-trade-distorting, public money for public goods agenda advanced most strongly by Sweden, Denmark and the UK (and more moderately by the Netherlands).
Zahrnt wrote an op-ed piece in yesterday’s Wall Street Journal Europe which summarises the position:
“Limiting the CAP to those targeted instruments that efficiently promote societal objectives would allow the EU to give back certain competencies to the member states. If subsidies are paid only for such services as preserving open spaces, enhancing scenic variety and promoting animal welfare, they will only minimally distort trade. In this case, the threat of trade distortions in the EU’s internal market cannot serve as a justification for having a common agricultural policy. Agricultural subsidies could be largely left to national authorities that are in a better position to pursue local preferences, with locally responsive policies that are financially more responsible.”
The last sentence is perhaps Zahrnt’s principal original contribution to the debate, but it is an important one. Fiscal decentralisation of the CAP is an idea that even France – for so long the defender of the status quo but due to become a net-contributor to the EU budget sometime after 2012 – may one day come round to. Zahrnt’s other interesting idea – related to the first – is the notion of linking co-financing rates to the amount of ‘European value added’ that a policy instrument exhibits. He writes:
“The EU co-financing rates should be adapted to the cross-border effects of each measure so as to reflect the European interest. Preventing pollution that spills across boundaries, such as nitrate in rivers, may justify financial contributions from the EU budget: as polluting member states do not face the full environmental costs, they will not invest sufficiently into clean farming practices on their own. The same applies to protecting species that are scarce or endangered from an EU wide perspective. Predominantly national or local objectives, such as enhancing scenic landscape values or offering early-retirement schemes for farmers, should not be financed through the EU.”
A spotlight on European value added is an idea that has been advocated by Jorge Nuñez Ferrer a research fellow at CEPS, who has probably written more widely on the EU budget reform debate than anyone else. But I’ve never seen it spelled out with such a clear link to co-financing. Definitely an idea worth further elaboration.