Jacques Chirac and Gerhard Schröder

As French President Jacques Chirac and UK Prime Minister Tony Blair sparred over the EU Budget at the Brussels summit, the Taoiseach Bertie Aherne insisted that the EU constitution can still be saved, saying he believes France and the Netherlands could vote again after most of the other 25 member states have ratified. Aherne said that he hoped the French and the Dutch would "speak again" on the constitution as analysis has shown that the referendums didn't fail because of issues to deal with the constitution.

Public disenchantment with the EU may not be directly linked with particular clauses of the constitution, however, it's ridiculous to compartmentalise them. Despite the wishful thinking, it's also very patronising to Dutch voters when its own government says that another referendum will not be held as the first one reflected deep concerns about the EU project. Besides, Aherne has good reason to talk up the prospects of reviving the chances of the constitution being ratified, instead of addressing the issue of fundamental reform of European Union policies, iincluding economic policies in eurozone countries, which is essential for the future success of the euro. 

The six EU countries — Germany, UK, France, the Netherlands, Sweden and Austria fund 75 percent of the EU Budget and as Figure 4 below shows that Ireland heads the ranking of per capita receipts from the Common Agricultural Policy, Ireland has no pressing reason to change the allocation of 40 percent of the EU budget from agriculture which only accounts for 4 percent of EU GDP.

Source: Future Financing of the European Union report, UK House of Lords European Union Committee

It is good news that the summit failed to agree on the EU budget for 2007-2013 and broke up without agreement. 

Luxembourg prime minister, Jean-Claude Juncker fought valiantly to produce a traditional fudge and showed his frustration when he said that he would refrain from giving Britain any advice on how to handle its presidency of the EU, which starts in three weeks, since it had shown itself unwilling to heed any counsel.

The European Parliament Building, Strasbourg, Farnce. The building is used on average four days each month. Another building for the Parliament is being completed in Brussels at a cost of almost €1 billion

The budget is just one of many issues that need addressing. It accounts for 2 to 2 ½ per cent at most of EU25 GDP while average public expenditure across the EU was 48.5 per cent of Member State GDP in 2003 (see Figure 1). However, when a building for the European Parliament (EP) in Brussels costs almost €1 billion when there is another very costly building in Strasbourg, that is used for four days each month, EU citizens have a reason to question priorities. Moreover, it is clear that direct elections to the EP haven't resolved the so-called "democratic deficit" and the institution is an irrelevance for EU citizens. Even if it acquired additional powers under the EU constitution, the question that should be asked is would its abolition be missed in a Europe where more day-to-issues were left to Member States rather than centralised in Brussels? 

Source: Future Financing of the European Union report, UK House of Lords European Union Committee

A 2003 report to the European Commission by a group of experts led by André Sapir, a Belgian economist, argued that the only justification for EU level spending is genuine and demonstrable added value. Therefore the Budget should focus on those areas where it is best able to make a contribution to growth and solidarity in Europe. The report proposed a budget based on three funds which would each contribute to growth: 

• a fund for economic growth, divided into Research & Development, education and infrastructure;
• a convergence fund to help the new Member States achieve a greater level of affluence, divided into investments in institution building and human and physical capital;
• a restructuring fund aimed at facilitating the resource allocation necessary due to deeper and wider economic integration, which would provide aid to the agricultural sector and aid to displaced workers in general. Agricultural spending would be cut to 15 per cent of the total budget.

Professor Sapir told the UK House of Lords European Union Committee that the current structure of budgetary allocation defeated the purpose of a Community budget: 

"At the moment, in many areas this EU budget is not properly an EU budget; it is simply a way to transfer money from citizens…to other citizens…I do not think that is the purpose of an EU budget."

He concluded that from an economist’s perspective the current budget structure was "a mismatch between the objectives that have been put forward and the instruments". Professor Helen Wallace, a member of the Group of Advisors chaired by Professor Sapir, made the case for the budget to be spent on policies which were recognised as "collective" goods, in the common interest of all members of the European Union. This is where the current budgetary allocation to the Common Agricultural Policy was regarded as deficient, since "expenditure on French agriculture is not widely understood outside France as a collective good." 

Source: Future Financing of the European Union report, UK House of Lords European Union Committee

The ceiling for direct subsidies under the Common Agricultural Policy (CAP) has been fixed until 2013, following a decision by the European Council in 2002. This decision means that the budgetary allocation for support payments, which make up the bulk of agricultural spending, is a no-go area according to President Chirac. 

Source: Future Financing of the European Union report, UK House of Lords European Union Committee

Source: Future Financing of the European Union report, UK House of Lords European Union Committee

A necessary reform agenda

In recent months, the EU has been beset with a surge in textiles and shoes from China. Last Wednesday as Italian shoe workers protested in Brussels, EU Trade Commissioner Peter Mandelson said that the European Union and China will face continuing tensions over trade unless European businesses respond rapidly to China's growing manufacturing clout. While stressing that he could not “ignore politically” the distress signals from European manufacturers, Mandelson said he was ready to challenge politicians who suggest that “we can pull the economic blanket over our head and somehow the economic hurricane will pass.”

Labour market - employment - employment rates by age group
Employment rates for age group 55-64		(OECD)
Persons in employment as a percentage of population in that age group
	1990	1991	2001	2002	2003
Australia	41.8	39.3	46.3	48.2	50.1
Austria	..	..	28.2	27.6	30.1
Belgium	21.4	21.6	25.2	25.8	28.1
Canada	46.3	44.5	48.3	50.4	53.0
Czech Republic	..	..	37.1	40.8	42.3
Denmark	53.6	51.7	56.5	57.3	60.7
Finland	42.8	40.6	45.9	47.8	49.9
France	35.6	34.8	36.5	39.3	36.8
Germany	36.8	35.9	37.9	38.6	39.0
Greece	40.8	39.0	38.0	39.2	41.9
Hungary	..	..	23.5	25.6	29.0
Iceland	..	85.4	85.6	87.2	..
Ireland	38.6	38.9	46.6	48.0	49.3
Italy	32.6	32.1	28.0	28.9	30.3
Japan	62.9	64.4	62.0	61.6	62.1
Korea	61.9	61.2	58.3	59.5	57.8
Luxembourg	28.2	23.2	24.8	27.9	..
Mexico	..	54.1	52.1	53.1	53.8
Netherlands	29.7	28.0	38.8	41.8	43.5
New Zealand	41.8	41.6	60.7	63.4	64.4
Norway	61.5	61.2	67.4	68.4	68.8
Poland	..	..	29.0	27.9	28.6
Portugal	47.0	49.3	50.0	50.9	51.1
Slovak Republic	..	..	22.3	22.9