UK House of Lords reviews 2010 EU draft budget

In a recent report, the UK House of Lords European Committee criticised the European Commission’s proposals for the 2010 European Communities budget for maintaining a very high level of spending on agriculture, and failing to shift adequate resources to stimulus measures to aid economic recovery. It expressed frustration that, in the middle of an economic crisis, the proportion of the budget going to agriculture remained so large.

It identified a particular problem for the funding of the second tranche of the European Economic Recovery Programme. This was the stimulus package of €5 billion agreed in March 2009, of which €2.6 billion was to be funded from the 2009 budget and €2.4 billion from the 2010 budget. Because of the limited margin between the Financial Perspective ceiling and proposed appropriations for Heading 1 of the budget Sustainable Growth, last year it was agreed to fund the energy infrastructure projects by transferring some of the unused margin under Heading 2 (mainly agriculture) to Heading 1. The tortuous route to reaching agreement on this budget reallocation is well described in a blog post on the European Journal site.

The same problem arises with the 2010 draft budget, in that there is not enough of a margin in Heading 1 to fund the second tranche of the EERP. Apparently, in the political agreement last year, it was agreed that the remaining €2 400m would be funded through a “compensation Mechanism” to be defined. At the conciliation of the 2010 and 2011 budgetary procedures, the European Parliament, the Council and the Commission will examine all available sources that could provide for the compensation of funds. Presumably the most likely source is a further transfer of the margin in the agricultural budget to Heading 1.

The EERP, along with the Food Facility, highlight the inherent tension between agreeing a medium-term financial framework for budget spending with identified ceiling amounts for major expenditure categories, and the need to maintain flexibility to respond to particular needs or crises as they emerge. One of the ways to maintain flexibility is to insist on margins of a sufficient size, although there are a number of member states who argue that unused funding should be returned to them rather than reallocated to other headings. This is likely to be one issue touched on in the Commission’s response to the budget review expected later in the year.