MFF baton passes to Van Rompuy: further cuts proposed compared to Commission proposal

The President of the European Council Herman Van Rompuy has now tabled his proposal for expenditure and financing in the EU’s MFF for the 2014-2020 period for discussion. The document will be tabled at the next General Affairs Council scheduled for 20 November. It is then not clear if Van Rompuy will have time to rework the numbers before the 22-23 November European Council which will convene solely to discuss and, if things go according to plan, agree on the Council’s view on the new MFF.
The draft starts with the last version of the MFF negotiating box developed by the Cyprus Presidency but revises the numbers, again in a downward direction. This post takes a look at the main changes proposed in the headline numbers and in the proposals for agriculture contained in the Van Rompuy proposal.
Overall MFF expenditure

First, the ballpark figures. In evaluating the proposal it is necessary to be clear about what is being compared to what. The Commission’s revised proposal in June 2012 amounted to €1.033 billion euro within the MFF, plus a further expenditure of €58 billion outside the MFF (large scale space projects, emergency aid reserve, solidarity fund, flexibility instrument, the Globalisation Adjustment Fund and the European Development Fund for ACP countries). Thus, the total budget proposed by the Commission was €1,092 billion.
The figures in the draft proposal suggest a cut of €60 billion in items originally included in the MFF. However, large scale space projects, emergency aid and the agricultural crisis reserve have now been moved inside the MFF, so the €14.5 billion which was pencilled in for these schemes should also be added to the savings, giving a reduction of €74.5 billion.
In addition, Van Rompuy proposes to cut spending on the items remaining outside the MFF (solidarity fund, flexibility fund, EDF) by €6.2 billion, giving an overall reduction of €80.7 billion. Because some of the original extra-MFF funds were crisis budget lines, the money allocated to these lines might never be used, so the extent to which they represent a real reduction in available resources might be disputed. The total reduction for the MFF items alone (including the items now moved inside the MFF) is 7.1%.
The table shows the distribution of expenditure under the MFF headings in the Commission’s revised proposal in June 2012, the Cyprus Presidency’s second revised version of the MFF negotiating box in October 2012, and the Van Rompuy proposal. In total, Van Rompuy proposes an MFF of €973.2 billion, and a total budget (including the remaining items outside the MFF) of €1,011 billion.

If we look at the distribution of the reductions, a different picture emerges as compared to what the Cyprus Presidency proposed. The structure of the budget shows a small shift towards a more forward-looking budget (with smaller proportionate reductions for competitiveness which includes the research budget in particular). Agricultural spending at face value would go down by €21.7 billion. However, adding the agricultural crisis reserve which previously had a separate budget of €3.5 billion brings this figure up to €25.3 billion, or a 6.7% reduction, more or less in line with the overall cut in the MFF as a whole.
Ignoring the agricultural crisis reserve, Van Rompuy proposes a percentage cut in rural development spending twice as large as Pillar 1 spending. If, however, we add the original agricultural crisis reserve figure to the Pillar 1 figure, the Pillar 1 reduction increases to 5.8%. However, this is still less than the reduction in Pillar 2 spending which is 9.3%.
Those who feared that rural development would take a disproportionate share of any reduction in the overall budget have seen their fears confirmed in this latest proposal (see also the discussion on flexibility below). It is rather remarkable that the Commission has not yet produced its proposed allocation of rural development payments between member states. I am not sure that member states will want to sign off on the overall MFF without knowing these numbers.
Agricultural policy proposals

The Van Rompuy proposal also makes explicit some CAP numbers and policy positions which were left uncertain [in square brackets] in the last Cyprus Presidency proposal. On the convergence of direct payments across member states, the proposal confirms the Commission’s original MFF formula for redistribution.

“All Member States with direct payments per hectare below 90% of the EU average will close one third of the gap between their current direct payments level and 90% of the EU average in the course of the next period. This convergence will be financed by all Member States with direct payments above the EU average, proportionally to their distance from the EU average.”

However, the length of time for this convergence has been extended to 6 years from the financial year 2015 to financial year 2020. The Cypriot proposal, inherited from the first Danish version of the negotiating box, was that this convergence would take place over 4 years from 2015 to 2018. New member states, and particularly the Baltic countries, will no doubt feel aggrieved by this suggestion.
This proposal can be compared to the convergence formula suggested by the COMAGRI rapporteur on direct payments. Because the convergence formula is included in the MFF, it is a Council decision which the Parliament can only accept or reject as a whole. The Parliament would not reject the MFF solely on the basis of the convergence formula, so comparing the two gives us some insight into the extent to which the Council is listening to the Parliament in formulating its proposals.
The COMAGRI rapporteur’s position is more favourable to the new member states although it has still to be approved by COMAGRI as a whole and we have yet to see what compromise amendments might be proposed in that committee:

“..the national envelopes for direct payments should also be adjusted so that in Member States with a current level of direct payments per hectare below 70% of the Union average, that shortfall is reduced by 30%. In Member States with a level of direct payments between 70% and 80% of the average, the shortfall should be reduced by 25%, and in those Member States where the level is more than 80% of the average it should be reduced by 10%. Following application of these mechanisms, the level received should not, in any Member State, be less than 65% of the Union average.”

Van Rompuy states that, in order to adjust the overall level of expenditure under Heading 2, the EU average level of direct payments in current prices per hectare will be reduced over the financial years 2015-2020. Gone is the specific Cypriot Presidency degression formula of a reduction of at least 0.27% per annum. No target figure to replace its overall reduction of 1.3% in direct payments has been inserted.
It is not clear whether this omission has any real significance given that the target 2020 ceilings are included elsewhere in the document. However, it makes it difficult to establish the implied nominal cut in direct payments as the 4.7% figure shown in the table covers market management measures as well as direct payments. Update: Roger Waite, the Commissioner’s spokesman, confirmed yesterday that the cut in direct payments alone is -4.88%.
Van Rompuy proposes to make use of the financial discipline mechanism to create the financing for any potential call on the new agricultural crisis reserve. The size of this reserve is set at €400 million per year (a total of €2.8 billion compared to the Commission’s proposal of €3.5 billion).
The reserve will be established by applying at the beginning of each year a reduction to direct payments using the financial discipline mechanism. The amount of the reserve will be entered directly in the annual budget and if not required for crisis measures will be reimbursed as direct payments. In this rather neat way he achieves the flexibility to shift resources between market management and direct payments within the Pillar 1 heading.
Greening
Greening is maintained at 30% of the annual national ceilings, although with a clearly defined flexibility for the member states relating to the choice of greening measures. A number of member states had argued for a reduction from the 30% but this has been rejected, presumably because it would have fatally undermined the rhetoric that this CAP revision is about greening the CAP. However, the introduction of a ‘menu approach’ to greening at the member state level, plus the possibility of ‘green by definition’ designations at farm level, suggest that the very limited environmental impact arising from the Commission’s proposals will be even further diluted.
Capping of the direct payments for large beneficiaries will be introduced by member states on a voluntary basis. Capping was never going to be very effective in any case, given the formula used, so this is more a recognition of political realities than something with major practical consequences.
Possibly the most significant change in the Van Rompuy proposal is the greater flexibilities given to member states to shift resources between the two CAP pillars. Member states will be able to shift 15% of their direct payments ceiling to Pillar 2 (the Cypriot Presidency had suggested 10-15%). However, in a defeat for those calling for more targeted CAP payments, Van Rompuy would allow all member states (not just those with low average payments per hectare) to transfer up to 15% of their rural development money to Pillar 1. Depending on the number of member states that avail of this option, the percentage reduction in rural development spending could be as high as 23% compared to the Commission proposal.
Finally, Van Rompuy has opted for the lowest figure for co-financing rates in the range proposed by the Cyprus Presidency. For example, the co-financing rate in less developed regions will be generally 75%, and 50% in developed regions, where the CP had left open the possibility that the rate could be as high as 85% in less developed regions and 55% in developed regions.
The Council meeting next week

Whether Van Rompuy has gone far enough to meet the demands of the net contributor countries or not remains to be seen. Some reports put Germany’s target level for the overall budget (including the extra-MFF items) at 1% of gross national income in the next MFF, which implies a figure of €957 billion. This would require a €135 billion cut to the Commission’s proposal, which amounted to €1,092 billion all included. On that basis, the Van Rompuy compromise lowers the overall ceiling for the seven-year spending period to just above €1,010 billion, still around €50 billion more than this German demand which has the support of a number of other member states.
On the other hand, as a rather sensible post by Ian Begg writing specifically in connection with the UK rebate points out, this sum of money is peanuts in the context of overall EU finances and if this were the only issue on the table, Heads of State should simply split the difference and go home. But distributional issues and how the overall outcome will affect member state net balances will loom larger in the minds of leaders.
The night(s) of the long knives are fast approaching.
Photo credit Fotopedia CC licence

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