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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.
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 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?
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:
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."
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.
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.”
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