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EU Structure Influences Budget Debate

October 8, 2010

The New York Times ran an interesting article today about how the EU is trying to increase its budget while member state governments are implementing austerity packages.  (See “The Move Towards Austerity in Europe” for background on austerity measures).  The European Commission is seeking a 5.9% increase for the 2011 budget, while many national governments (who foot most of the bill) are pushing back and want limit spending to a 2.9% increase.

These numbers could certainly cause outrage, since it is hard for national governments to reduce their budgets while at the same time increasing their contributions to the EU’s budget.  However, in absolute terms, the EU’s budget is very small.  It is limited by agreement to 1.23% of the EU27’s total GDP.  This would mean that the maximum EU budget could be around $200 billion a year, while the two EU budget proposals are between $180 billion and $175 billion.  To put this in perspective, the EU website states that the current EU budget costs every EU citizen €235 ($320) a year.  In contrast, while the EU’s budget is limited to 1.23%, about 45% of the EU’s GDP is spent by local, regional, and national governments.

Of course, while these numbers are relatively small, that does not mean that they are not worthy of political discourse.  Part of the problem is the EU budget process.  The European Commission drafts the budget, and of course the Commission is composed of unelected officials, so it is in their best interest to ask for a large budget.  The European Parliament must also approve the budget, and it has the twin forces that would cause it to also push for a larger budget.  The first are the forces of democracy, since it is in the MEPs interest to push for pet projects just like American politicians or make the EU a bigger player by having a larger budget.  However, since the EU receives most of its funded either directly from member state governments or through the value added tax, there is less pressure on the European Parliament to keep spending and hence revenue low.

As a result, the Council of Ministers acts as the break on spending, since their governments must make up any short falls in revenue and they are accountable to their voters.  Spending increases can be particularly unpopular in the richer northern European countries, since they tend to be net contributors to the EU budget.  As a result, the institutional structure of the EU helps increase budgetary tensions between groups.

One Comment leave one →
  1. eubeyer permalink
    October 15, 2010 3:31 pm

    While perhaps a little harsh by comparing the EU to a child requesting an allowance from its parents, the Economist weighed in yesterday on the notion of the European Commission requesting to increase its budget while national governments cut their budgets:

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