Date: 3 May 2004

Speaker: Philippe Maystadt, President of the European Investment Bank and Chairman of its Board of Directors
Chairman: H. Onno Ruding, Chairman of the CEPS Board of Directors

 
Maystadt opened his speech with a preliminary observation on the Commission’s proposal for the next EU budget plan (“financial perspectives”), which will run from 2007 to 2013. He remarked, contrary to rumors about an upward revision of the EU’s budget, that the Commission intends to reshape and eventually increase the EU’s expenditure but within the scope of the current ceiling.
 
Indeed, Maystadt noted, the Commission has for several years voluntarily kept spending below the established cap of 1.24% of GDP, claiming to be prudently ensuring a safety margin in case of unforeseen expenses. Since the width of this buffer was still in 2003 as large as 0.14% of GDP, Mr Maystadt confirmed that it might well suffice to offset the budgetary expansion as has been outlined by the Commission.
 
Maystadt’s talk was organised around four key points: the current EU budgetary rules, the effects due to the EU enlargement, the 2007-13 financial perspectives and the link between the EU budget and EIB financing.
In first place, Mr Maystadt said that the current small capacity of the budget, which is capped at 1.24% of the member states’ combined GNP, prevents EU spending from participating in business cycle stabilisation, and relegates it to a limited role of redistribution. In this respect, Mr Maystadt also added that, besides the ceiling, the EU budget is also constrained by a rigidity caused by the long-range determination of most of its funding. In fact, once the financial perspectives are approved by the member states, the room for further negotiations at the annual budgetary rounds is very narrow.
 
Related to this is the issue of the budgetary funding scheme. The EU’s direct tax revenues, he explained, belong to only three categories: levies on agricultural imports, customs duties on other imports and a share of national VAT receipts. Originally thought to be the pillars of EU funding, these own resources have shrunk over time and currently account for barely 40% of the EU’s income, while the residual 60% comes from transfers out of national budgets depending on member states’ GNP.
 
According to Maystadt, such a disproportion is particularly detrimental since it adds to the tensions between net contributors and net recipients, encouraging national leaders to pursue a return from EU membership rather than advancing the common good.
Clearly, this argument about who receives what from the EU budget is likely to play a pivotal role in the incoming round of negotiations, as it rankles the richer member states. In fact, in December 2003, Austria, France, Germany, the Netherlands, Sweden and the UK submitted to the Commission a request to cap the EU budget at 1% of GNP, notwithstanding the enlargement.
 
In effect, as shown by Mr Maystadt, these countries hold the largest net negative positions with respect to the EU budget, excluding only Italy and Belgium. On the opposite side stand the net recipients, Spain, Greece, Portugal and Ireland, which benefit the most, on a per capita basis, from agricultural subsides and in particular from support for disadvantaged regions. Two items, as described in Maystadt’s tables, make up the bulk of the EU’s budget in 2003: the CAP account for 46.38% and the Structural Funds, 33.25%
 
Since the new member states may heavily rely on agricultural and especially structural support, concerns have been recently expressed about the impact of their accession on the 2004-06 EU’s budget forecasts and, of course, on the 2007-13 financial perspectives.
 
Addressing the issue of the EU’s budget during the 2004-06 period, Mr Maystadt reassured the audience that there would be limited pressure resulting from the enlargement, as a consequence of the small economic weight of the new members, which represent only 5% of total GDP, and from their gradual integration into the EU’s budget. According to his figures, a small share, from 9% to 12%, of the EU-25 budget will go to the new member states in the next years and, although the expenditure will increase, strain should be avoided as some budgetary means set in the previous plan (Agenda 2000) will provide additional room.
 
Turning more specifically to the financial perspectives for 2007-13, Mr Maystadt exposed the results of a simulation performed at the European Investment Bank. This study took into account the budgetary decisions already agreed upon, such as the 1% ceiling on nominal growth of EU-25 agricultural spending and a structural support for the new member states equal to 4% of their GDP. In addition, the simulation assumed the same expenditure structure as the 2003 budget for the EU-15 countries and, lastly, that the agriculture support in the following years will be split between the EU-15 and the new member states according to what has been decided for 2006.
 
The simulation results presented by Maystadt were straightforward: the 1.24% cap appears to provide sufficient capacity to safely absorb the enlargement. Actually, the EU-25 budget grows up to a maximum of 1.22% of GDP in 2007, but then declines constantly until a 1.15% figure is reached for 2013, mainly as a consequence of the restrictions on agriculture expenditure.
 
Presenting his view of the link between the EU budget and EIB financing, Mr Maystadt highlighted how these two policy tools would be better understood as being strongly complementary rather than interchangeable. Indeed, he remarked that if it’s true that the European Investment Bank has the primary goal to foster specific development-oriented initiatives, it is also true that these loans are far better exploited when the various projects are parts of a unique and coherent programme backed by structural funding. Therefore, he concluded, it wouldn’t make much sense to boycott the strengthening of the EU’s budget policy areas on grounds of further support to EIB action.     
 
In concluding his speech, Mr Maystadt commented on the Commission’s proposal for the 2007-13 financial perspectives. As mentioned above, in a draft presented in February, the Commission proposed an increase and a reorientation of the EU’s budget in the direction of a closer compliance with the Lisbon agenda. According to the Commission, the new articulation, in five headings, aims to promote policies that boost growth and competitiveness, in addition to adding simplification and flexibility.
 
Mr Maystadt fully endorsed this shift to the new priorities defined in Lisbon. He stressed that the wish to become the world’s most competitive knowledge-based economy by 2010 has been jointly affirmed by all the member states at the Council, and that this should result in a concrete commitment to bolster R&D expenditure, human capital formation and consolidation of cross-border trans-European networks. These investments, he remarked, are more urgently needed than those envisaged in the Commission’s proposal, where, in his opinion, there is still too much room for agriculture spending and other compromises inherited from the past.
However, Mr Maystadt also warned about the risks of implementing these policies. If new activities were engaged without tight control, he said, a downward revision of the resources due to the 1.24% limit could render the Commission’s plan unsustainable, leading to a re-examination of the expenditure priorities and, probably, trigger cuts in the EU-15 expenditures.
 
Eventually, concerning the Commission’s suggestion to decrease pressure on the “net contribution” argument through a generalised correction mechanism for all countries reporting large net negative positions in the budget, Mr Maystadt commented that much could be done by replenishing the EU’s own resources, perhaps via the introduction of an EU tax.