Budget and MFF: Ivailo Kalfin

Ivailo Kalfin argues that for the sake of Europe’s citizens it is vital that the EU institutions work together to create economic sustainability.

It is negotiating time and the European institutions are playing a child’s game of who will blink first. The subject is the next long term EU budget. The European parliament and commission are arguing that more Europe means adequate financing for EU policies. Member states, at least the richest of them, are insisting that Europe should also taste the bite of austerity measures like national budgets have.

The multiannual financial framework (MFF) for 2014-2020 is being discussed under extraordinary circumstances: stagnating economies, fragile budgets, problems in the banking sector, and efforts to create a sound institutional basis for the euro. These problems are accumulating a political tension, exacerbated by increasing unemployment and poverty in many EU member states.

The EU budget is one element of the effort to put Europe’s economy back onto the tracks of growth and sustainability. It amounts to merely two per cent of the public expenditures in the EU. Hence, it is nearly 50 times smaller than the combined member states national budgets. Despite the enhancement of EU integration over the last 20 years, compared to the size of the economy, the budget of the union has decreased by around 20 per cent. In contrast, national budgets have increased by a similar magnitude. Even during turbulent times, national expenditures have grown by about two per cent annually in nominal terms since 2008.

Unlike national accounts, the EU budget doesn’t generate deficits by default. Furthermore, the committed funds always exceed the payments actually made. For example, in the current MFF, the €13bn in unspent funds will be injected back into national budgets. Hence, the rationale of consolidating after periods of excessive deficits doesn’t really hold.

The EU budget does not represent an excessive load to taxpayers either. Compared to the fiscal effort, related to macroeconomic stability, its funding is smaller in size and more evenly distributed across member states and fiscal years. It is founded upon a sound democratic basis and functions under a stern control system. The EU budget is a unique tool for strengthening the union’s economy and shaping its profile and competitive power. Particularly in times of economic crisis, the EU budget is the only instrument that is able to generate investments in public infrastructure or to increase the economy’s competitiveness on a sustainable basis in most member states and regions. Therefore, any decrease would inevitably hamper the growth and the competitive strength of the European economy, with citizens paying the bill.

The EU budget is a growth instrument because 94 per cent of its size returns and it is managed by member states for common priorities or is used for EU external relations. It is just not possible to achieve the EU’s wider goals and ambitions merely on the basis of coordination of the national efforts. The EU budget creates synergies and added value that cannot be compensated by national expenditures. The EU’s ambition to build a sustainable, innovative and growing economy with higher employment and improved living standards, can be accomplished only by utilising the necessary resources. The credibility both nationally and of the EU institutions depends on their ability to deliver on the political decisions made.

Parliament has bound itself to a five per cent increase in the next MFF. Council is still divided, but some member states are insisting on more than 10 per cent cuts of the commission’s proposal, which would result in the abandonment of some current policies. Could it be just a question of who will blink first? Could the future of 500 billion people be played as a child’s game?

Ivailo Kalfin is a vice-chair of parliament's budget committee and co-rapporteur on the multiannual financial framework 2014-2020