Blog Post

Same old Europe

The deal on the Multiannual Financial Framework 2014-2020, which will regulate the EU’s annual budget, is a missed opportunity. As in the past, the EU was captive to agonising negotiations in two separate European Councils for just a handful of money. The process clearly indicates that the EU budget is still perceived as an entitlement budget, from which each national government tries to extract the highest possible return.

By: Date: February 14, 2013 Topic: European Macroeconomics & Governance

In Prospect Magazine.

The deal on the Multiannual Financial Framework 2014-2020, which will regulate the EU’s annual budget, is a missed opportunity. As in the past, the EU was captive to agonising negotiations in two separate European Councils for just a handful of money. The process clearly indicates that the EU budget is still perceived as an entitlement budget, from which each national government tries to extract the highest possible return.

Compared with the deal struck for the previous MFF of 2007-2013, the only noteworthy difference concerns the size of rural funds. Back in 2005 national governments had agreed to devote 0.45 per cent of their GNI (gross national income) to spending on agriculture. Now the share is down at 0.39 per cent of EU GNI for a total budget that, if fully exploited, will barely reach 1 percent of EU GNI. Everything else is roughly unchanged including competitiveness and growth, which together account for 0.47 per cent of EU GNI against 0.46 per cent in 2007-2013.

Compared with 2007-2013, resources have been shifted from the cohesion to the competitiveness chapter—but this is partly cosmetic. Most of the funds under both headings have similar objectives, so they should not be treated separately. Also, not all of the planned spending in the competitiveness chapter materialises. In 2011, the European Commission had to de-commit more unused funds for the competitiveness chapter than for the cohesion chapter.

The politics may not have changed but there are two important new factors to account for, which concern the policy of the EU budget. One is that throughout the crisis the EU budget was used as a guarantee to provide financial assistance to countries in difficulty, whether they were in the eurozone (through the European Financial Stabilisation Mechanism) or not (through the Medium-Term Financial Assistance). To avoid exposing the budget to risks, the EU regulation establishing the EFSM stipulated that the value of the guarantee cannot exceed the “own resources” margin (the difference between own resources, ie the EU’s revenue, and payments). As own resources have now been set at 1.23 per cent of EU GNI, the margin for 2014-2020 is 0.28 per cent of EU GNI. Using the EU budget as a guarantee is a newish function for the budget—it may well be further explored in the future.

The second factor concerns the role of the European Parliament under the new Lisbon Treaty. It will have to give its consent to the agreement on the MFF for 2014-2020. Most importantly, it is co-legislator for about 70 pieces of law out of a total of 80 that are meant to specify some of the technical details accompanying the framework agreement. While the European Parliament can only accept or reject the MFF, it can propose amendments to this more technical accompanying legislation. This is an area in which, without being accused of jeopardising the the whole MFF 2014-2020, the Parliament can try to make a difference.

The process that led to the MFF 2014-2020 is the same as past MFF negotiations. Some changes at the margin are visible, but anything dramatic would require a complete rethinking of the governance of the EU budget, from own resources onwards.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article More on this topic More by this author
 

Podcast

Podcast

The macroeconomic policy response to the COVID-19 crisis

From the European Stability Mechanism (ESM) to "coronabonds", the EU seems to be struggling to find an appropriate mechanism to tackle the economic crisis created by the COVID-19 pandemic. What is really the best option? And how do we ensure that, once the pandemic is over, we return to sustainable debt levels and competitive economies? This week, Giuseppe Porcaro is joined by Lucrezia Reichlin, professor of Economics at the London Business School, Grégory Claeys and Guntram Wolff to discuss the macroeconomic policy response to the COVID-19 crisis.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: March 31, 2020
Read about event More on this topic
 

Past Event

Past Event

The Sound of Economics Live: The macroeconomic policy response to the COVID-19 crisis

Which macroeconomic policy response is the best option to deal with the crisis currently unfolding and will ensure that the recovery will be as quick as possible?

Speakers: Grégory Claeys, Giuseppe Porcaro, Lucrezia Reichlin and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 31, 2020
Read about event
 

Past Event

Past Event

CANCELLED: How adequate is the European toolbox to deal with financial stability risks in a low rate environment?

Bruegel is delighted to welcome the governor of the Central Bank of Ireland, Gabriel Makhlouf. He will deliver a keynote address about how adequate the European toolbox is to tackle financial stability risks in a low rate environment. Following his speech, a panel of experts will further discuss the topic.

Speakers: Gabriel Makhlouf, Guntram B. Wolff and Agnès Bénassy-Quéré Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 31, 2020
Read article More on this topic More by this author
 

Blog Post

The fiscal consequences of the pandemic

The likely economic depression triggered by coronavirus will pose a serious fiscal challenge to some euro-area countries. Given the special circumstances of the pandemic, a European solution is needed, involving more European Central Bank purchases, a significantly increased European Stability Mechanism and some degree of mutualisation of the pandemic-related economic costs.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: March 30, 2020
Read article Download PDF More on this topic
 

External Publication

Facing the lower bound: what will the ECB do in the next recession?

In responding to the global financial crisis, the ECB has pushed its monetary policy into unchartered territories . Today, it appears increasingly constrained by persistently low interest rates. This paper seeks to understand this challenge and assess whether its toolkit would allow the ECB to weather a European recession.

By: Aliénor Cameron, Grégory Claeys and Maria Demertzis Topic: European Macroeconomics & Governance Date: March 27, 2020
Read article More on this topic
 

Opinion

Europe needs a Covid-19 Recovery Programme

Policymakers need to think long-term and start planning a broad investment scheme to reboot the European economy.

By: Grégory Claeys, Simone Tagliapietra and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: March 27, 2020
Read article
 

Blog Post

COVID-19 Fiscal response: What are the options for the EU Council?

It is time for the EU Council to make quick progress on the fiscal front and announce something as soon as possible to show that it taken full measure of the severity of the situation.

By: Grégory Claeys and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: March 26, 2020
Read article More on this topic More by this author
 

Blog Post

What the EU should do and not do on trade in medical equipment

The European Union has introduced export controls on some medical supplies. This was a mistake. It should announce that it is withdrawing the measure, and call on other countries to do the same.

By: André Sapir Topic: European Macroeconomics & Governance Date: March 25, 2020
Read article More on this topic
 

Blog Post

Coronavirus and the politics of a common fiscal instrument

Coronavirus means many European Union countries will soon face major increases in their sovereign debt burdens, exacerbated by the sudden collapse of economic activity. What should the European Union do to address these debt problems?

By: Mark Hallerberg and Stavros Zenios Topic: European Macroeconomics & Governance Date: March 25, 2020
Read article Download PDF More on this topic
 

External Publication

How has the macroeconomic imbalances procedure worked in practice to improve the resilience of the euro area?

This paper shows how the Macroeconomic Imbalances Procedure (MIP) could be streamlined and its underlying conceptual framework clarified. Implementation of the country-specific recommendations is low; their internal consistency is sometimes missing; despite past reforms, the MIP remains largely a countryby-country approach running the risk of aggravating the deflationary bias in the euro area. We recommend to streamline the scoreboard around a few meaningful indicators, involve national macro-prudential and productivity councils, better connect the various recommendations, simplify the language and further involve the Commission into national policy discussions. This document was prepared for the Economic Governance Support Unit at the request of the ECON Committee.

By: Agnès Bénassy-Quéré and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: March 24, 2020
Read article More on this topic More by this author
 

Blog Post

What should be done to reduce euro-area spreads?

Spreads are rising again in the euro-area at the worst possible time, when fiscal policy is needed to fight the coronavirus pandemic and the related economic shock. This blog post reviews the main options available to European policymakers, their feasibility and potential effectiveness to deal with this issue.

By: Grégory Claeys Topic: European Macroeconomics & Governance Date: March 18, 2020
Read article More on this topic More by this author
 

Podcast

Podcast

How can the EU prevent our economies from shutting down?

From flights cancelled and restaurants closed to companies either slowing or stopping their production, COVID-19 is shutting our economies down. How can the EU reboot them? What should be our fiscal and monetary response to the pandemic? Will our economic system ever be the same once everything is over? This week, Guntram Wolff is joined by Jean Pisani-Ferry and Maria Demertzis to discuss the EU's response to the coronavirus.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: March 18, 2020
Load more posts