03 Apr 2008

How to Achieve a Better Budget for the European Union?

Daniel Gros

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In recent decades the EU has widened and deepened to such an extent that it now deals in almost all areas of policy-making. Its budget, however, has barely changed over this period. It thus needs to be radically reformed if it is to reflect the priorities of an expanding and deepening Union. Over 40% of spending still supports agriculture, a declining sector; spending for research and innovation, recognised as the main driving force of productivity growth, is too low, and there is no room in the budget for the new public goods of domestic and external security that the public demands. However, the budget is determined through an inter-governmental negotiation in which no entity defends the over-arching European interest since all countries (rationally) care only about their ‘net balance’. Radical changes in budgetary decision-making procedures are no longer possible since the Reform Treaty, now in the ratification process, essentially cemented a procedure that combines the primacy of national interests with a very strong status quo bias. The latter arises because in the absence of a unanimous agreement on new priorities the old budget automatically continues to apply. If this status quo bias cannot be broken major reforms become virtually impossible.
The forthcoming mid-term review of the budget should be used to achieve political agreement on breaking the status quo bias by introducing ‘sunset’ clauses, which stipulate that major spending programmes will be discontinued after a certain period of time unless their usefulness can be ascertained and a new agreement reached allowing their continuation. Movement in the right direction can thus start immediately, even within the present legal framework, especially if Parliament uses its influence to push for a better allocation of expenditure.