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My evidence to the House of Lords on the future EU Budget
Date 01/02/2011 13:38  Author webmaster  Hits 2365  Language Global
By Marta Andreasen MEP
This past week I gave evidence to the House of Lords EU Select Committee on the EU Financial Perspective - that is, the Budget - for the period after 2014. I basically called for its drastic reduction.

Below you will find the written version of my evidence. At the end of this coming week I have been invited to speak at a conference about the same subject, which will take place at Wiston House, Steyning, West Sussex. Ministers from other European countries will be among those in the audience. Promise to cause a stir!

INTRODUCTION

In my view the post 2013 MFF debate should have started with an analysis of the output of the previous one. Whilst the mid-term review could have provided us with such an analysis, it has fallen short of giving any idea about the efficiency with which the EU budget has been spent.


We have however other information that can help us to understand if and where EU funding is of any value, the most important being the annual reports of the European Court of Auditors (ECA). Unfortunately both the SURE committee and this Select Committee on the European Union have chosen to ignore this information. The areas of the EU budget where the ECA reports high level of irregularities give a clear indication that the EU funding is at the very minimum inefficient, and the questions should be raised about how or whether to continue with such programmes. The present economic and financial crisis is the other important piece of information that should be considered together with the role that the EU has played in it, by act or omission. The European Commission has come forward with a “strategy to turn the EU into a smart, sustainable and inclusive economy delivering high levels of employment, productivity and social cohesion” and one has to wonder what it has been doing for the last 50 years.

Europe 2020, now presented as the policy reference for the post 2013 MFF, and which describes itself as a strategy, constitutes in reality a series of aspirations, along the lines of its predecessor, the Lisbon Strategy 2000. The latter was intended to produce “the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion, and respect for the environment by 2010″. It was quietly buried after a discreet funeral at the March 2010 summit.

1. What principles should underlie the EU Budget? What are the justifications for spending money at EU level rather than national level?

I can see no justification for spending money at EU level rather than at national level. National governments understand the needs of their citizens in a way in which the EU is unwilling or unable to.

Claims by the President of the Commission that spending at EU level allows for economies of scale are in my view pure theory – I have seen no convincing case studies. Moreover, the EU refuses to consult national parliaments when planning the annual budget, relying solely on MEPs who have never been involved in any way in the preparation of their member state budget.

A recent Court of Auditors Special Report (No. 9 of 2010) entitled “Is EU structural measures spending on the supply of water used to best effect” has the following to say on water management schemes in Spain, Greece, Portugal and Italy, which demonstrates the point well:-

“….better results could have been achieved at a lower cost. In particular… all projects have experienced cost increases and delays….several projects were found to operate with limited efficiency; significant weaknesses were observed in the process for setting grants and insufficient consideration was paid by the Commission and the Member States’ managing authorities to the ability of the projects to generate revenues.”….monitoring of achievements was of variable quality; where conditions were imposed in grant decisions, attention was not always paid to whether those grant conditions had been complied with;forecasts of future water needs did not take into account downward trends in water demand nor all resources already available; moreover focus was placed on exploiting new sources without considering alternative solutions, such as reducing water losses and using other nearby resources; limited value was added by the Commission and the Member States’ managing authorities’ appraisal”

2. How important is European added value? How should European added value be (a) defined, and (b) measured? How does it relate to subsidiarity?

I think that this question is the wrong way round. The phrase “added value”, for me as an accountant, has a precise meaning – essentially it is the price at which production can be sold less the cost of the inputs. Other definitions exist in different contexts, but they all boil down to outputs justifying inputs. It is for the EU firstly to provide a justifiable definition of added value, and then provide the justification in terms which can be examined. I feel that an expression which has a literal meaning is being used metaphorically by people who do not understand it. I also feel that a meaningful definition of value added, with demonstrable empirical method, would illustrate my point.

The SURE committee rapporteur has already advanced that “when it comes to monitoring and evaluating European added value in a quantitative way for specific programmes and projects, experts speak about mission impossible“.

As a member of the Committee on Budgets I see two things which indicate that the idea of Value Added is not understood. Firstly there is the large number of requests received each year for virement between budget headings and secondly there is an average 10% budget underspend over each of the last 12 years. If there were a real, solid purpose to the spending of the money neither of these things would happen.

In the past two years the crisis has further evidenced this lack of understanding in that the need for co-financing in the area of structural funding has made it very difficult for many member states to use the budget, as they do not have the funds available to set alongside the money on offer from the EU – so the EU funds go unused. Why not then reduce this area of spending accordingly?

3. Should demonstrating European added value be the fundamental test to which all EU spending is subjected? Which areas of EU spending demonstrate European value added? Which do not?

Looking at the implementation of the budget it is difficult to identify any area where one can be satisfied that the funds spent by the EU have added any value that would not have been better achieved by the member state itself if the money were available.

Of course, if a member state does not have money, then an EU intervention can cover the need – but at the expense of other member states. This is what is now being alluded to as solidarity, a word which I believe was first used in the Treaty of Rome in 1957 but which until the recent crisis had fallen out of vogue in EU circles, to be replaced by subsidiarity, a concept which made its first formal appearance in the 1992 Maastricht Treaty and which in theory delegates matters to the member states unless the desired objectives cannot be achieved at the centralised level.

Solidarity seems to be back in fashion as the current crisis provides the inevitable opportunity to centralise.

A particular example of where value added has become value subtracted is in the case of Twinings, who transferred production from Andover to a new facility in Poland which had received a €10 million subsidy from the European Regional Development Fund.

There is also the case of the French automotive components manufacturer Valeo, where 300 jobs were lost after production was transferred from a plant in Germany to one in Poland which received €5 million in ERDF money for the project.

In both cases, if there had been a viable business case for the moves, they would have happened regardless. To make the moves happen with public subsidy looks like social engineering, and in these cases taxpayers in the UK and France, as net contributors to the EU budget, are funding the loss of jobs in their own countries.

An adequate process of consultation with national parliaments is missing as is, I would say, the will on the part of the EU institutions to engage in it. Without this consultation it is difficult to imagine how the MFF will consider each member state specific needs. The European Semester aimed only at achieving fiscal stability will not provide the opportunity for this consultation to take place, as many want to argue, because the objectives and opportunity differ substantially.

EXPENDITURE

Research and infrastructure (‘smart growth’)

4. The Commission proposes that EU funding in this area should be focused on the EU’s core objectives, particularly those contained in the Europe 2020 Strategy. They suggest that European added value is provided through economies of scale andcoordination. The Seventh EU Framework Programme for Research and Technological Development (FP7) has a total budget of €53.2 billion and runs for the same period as the current MFF: 2007-13.2 A proposal for the successor programme – FP8 – will be published in spring 2011 and will begin in 2014. Should the budget of the FP7 be maintained under the FP8 or increased? What should its priorities be?

The Commission uses the concept of “value added” to justify the research budget and indeed to call for its increase, but seems unable to report on what the valued added is in the different areas of the budget and document the economies of scale already achieved or quantify those allegedly obtainable.

The objectives of the EU’s research programmes, as described in the Court of Auditor’s report on the 2009 budget year (the latest available), are as follows:

Research policy seeks to foster investment in research and the transition towards the knowledge-based economy in order to reinforce the competitiveness of the EU. It also aims to reinforce the scientific and technical base of the European Research Area (ERA), improve the excellence of research in Europe, and increase the openness and attractiveness of the ERA and to maximise benefits from international cooperation.

This is money which for the most part (and entirely, in the case of the Framework Programmes) bypasses the governments of the member states and travels directly from the EU to the educational or research institutions.

Moreover, Research is one of the areas where the Court of Auditors has found a high level of irregularities. This suggests that much of the funding is not as effective as it is being held out to be and is often subject to abuse. In one case the Court found that the audited beneficiary reported 17 person-months as input to the Commission, but that the amount it claimed actually equated to 42 person-months of work for the beneficiary.

It could be argued that EU funding of research activity is as much concerned with fostering Europe-wide links between research institutions which are directly dependent on the EU as it is with research per se. When one sees that structural funds are being used to finance higher degree studentships, then a picture begins to emerge of the EU buying influence in the Higher Education sector, and fostering financial dependence there.

5 The Commission suggests that the funding of cross-border infrastructure is one of the best examples of where EU funding could plug the gaps and deliver European added value. While the majority of funding in these areas will be met from the market, significant gaps will still remain in relation to riskier, less commercial projects, which have trouble attracting private investment. The EU and Member States must determine the priority investments. What should the EU budget’s priorities be in terms of expenditure among and between energy, transport and telecommunications infrastructure projects? Should EU spend in this area beyond 2013 rise, fall or stay level?

The idea of funding “riskier, less commercial projects” in these fields worries me, as there are already two prime examples.

One is ITER, which is making remarkably slow progress in the field of fusion, and which is based on Russian Tokomak technology, and which some experts feel will never be able to produce usable energy and is a technological dead end.

The other is Galileo, which is late, out of control and which has been abandoned by the commercial sector.

There may be an argument for assistance with cross-border projects on road, rail and energy networks, but spending should in my view at the most stay level.

Agriculture, environment and climate change (‘sustainable growth’)

6. Should EU spend in this area beyond 2013 rise, fall or stay level?

There are three different areas here, which should be looked at separately before drawing conclusions.

AGRICULTURE

Essentially means the Common Agricultural Policy, which I in my opinion only consists in the payment of subsidies to people who don’t need them to provide expensive food which goes to waste or which is dumped on poor countries outside the EU, killing their own indigenous production. The Common Fisheries Policy also deserves a mention here.

Spend in this area should definitely fall. Ideally to zero. I will elaborate more on this below.

ENVIRONMENT

I can see a case for co-ordination of environmental policy between member states, particularly in areas such as the Danube where the acts or omissions of one state can and have had a dramatic impact on it’s neighbours. In my view, this would best be done through co-ordinated actions between member states, although there are sound arguments for financial assistance from wealthier countries.

CLIMATE CHANGE

The nature of the current emphasis on climate change policy is a worry for me, as it seems to be used as an excuse to appropriate policies such as energy policy from member states. It is also an area of a malign symbiosis between NGOs, some with a political agenda, which lobby the European Institutions, and the European Institutions, which finances them to a larger extent than is generally appreciated. This is the concept of the “fake charity”.

And although the debate in the real world on the subject of whether and how much climate change is happening, what is causing it and what can and should be done to alleviate it is far from over, there is no such doubt or debate in the EU’s official web pages for Europe 2020. The matter is settled. Climate change is happening and human action is causing it.

7. The Commission notes that tackling the challenge of resource efficiency, climate change and of delivering energy security and efficiency is one of the core objectives of the Europe 2020 Strategy. It suggests that these themes ought therefore to be mainstreamed across all EU funding programmes.

a. Should EU expenditure be contingent on meeting energy and climate goals? If so, why?

No. If EU expenditure has to exist, it should be on the basis of the informed wishes of the populations, not the aspirations of lobby groups.

b. Should specific funding streams be identified in funding programmes in order to deliver energy and climate priorities?

No. However if funding programmes must go ahead, it might be helpful as a form of harm mitigation all round if they could demonstrate that they did not make a perceived problem worse. By harm mitigation I mean that they avoid both environmental damage and environmentalist overkill.

c. Which EU funding programmes would particularly benefit from greater integration of energy and climate goals?

Which would benefit? If by benefit is meant “receive more taxpayers’ resources” then presumably the research funding programmes, the environmental parts of cohesion funding and parts of the structural funds would all benefit.

Which should benefit? None of the above.

8. Over the period of the current financial perspective, agriculture accounts for around 42% of EU spending. The European Commission repeats the European Council’s view that a sustainable, productive and competitive agriculture sector could make an important contribution to the Europe 2020 Strategy, and to other EU objectives such as global food security.

d. How significant a part of the EU budget should the Common Agricultural Policy be, and why?

I refer firstly to my answer at (6) above.

The most recent Eurostat figures on agricultural population of the European Union are as follows:

Measured as a percentage of the total active population in the EU, agricultural labour input in AWU accounted for 4.7% in 2009 (based on active population 2008) compared to 6.7% in 2000. In EU-15 the respective percentages in 2009 were 2.8 as against 3.8 in 2000, although the shares – and the changes – in the 12 new Member States were much higher.

Source: An AWU is an Agricultural Work Unit – equivalent to a full time equivalent agricultural worker. The figures are expressed this way because of widespread part time working on the land – ownership of a smallholding is often combined with other employment.

Why should 42% of EU spend be concentrated on 5% of the population?

Who is the spend intended to benefit? Firstly small producers, to enable them to remain on the land and secondly consumers, to ensure that there is no shortage of food.

Who does it benefit? Well in the UK, recipients of over €1,000,000 in 2009 given on farmsubsidy.org include such paupers as Tate and Lyle, the National Trust, RSPB, Nestle UK Ltd and Serco Ltd.

e.How can agricultural spending deliver the sustainable, productive and competitive agriculture sector which, according to the European Council, could make an important contribution to the Europe 2020 Strategy?

Please elaborate on the question. There is an implicit assumption that EU spend per se provides a sustainable agricultural sector. Surely a sustainable agricultural sector is one which provides food which people want and at an affordable price. A sustainable agricultural sector is almost by definition one which does not require state (for example, EU) support.

f. Should global food security be addressed through the CAP, and if so what budgetary implications would that have?

“Global food security” is, I understand, outside the European Union’s remit, although this does not prevent it from being claimed as a benefit.

COHESION FUNDS (‘inclusive growth’)

9. Should EU spend in this area beyond 2013 rise, fall or stay level?

Fall. To zero.

10. Should EU spending reflect more the concept of cohesion as a redistribution policy or as a policy for EU economic development? What changes to EU spending are needed in support of either of these views?

If it has to take place, it should be in the cause of economic development.

11. Should the MFF treat structural funds differently? Should these funds have a role in counterbalancing the effects of the austerity measures adopted by the majority of Member States? Do the current economic circumstances justify a revision of the principle of co-financing?

No. If the funds “counterbalance the effects of austerity measures”, they could well be preventing painful but necessary adjustments to the member states, by artificially placing some areas beyond the scope of a review.

12. How can EU expenditure improve the linkages between Europe 2020 and cohesion policy? Should conditionality be considered as a possible tool to align Europe 2020 and cohesion policy? A definition of “conditionality” and an explanation of how it might work would be useful with this question.

Is this a suggestion that Cohesion payments should only be made if they fit in with the avowed aims of Europe 2020? Doesn’t this compromise their primary purpose of bringing poorer member states up to the level of the others?

13. How could EU expenditure be used to maximise the impact of cohesion policy? What measures should be put in place to support cohesion as a results-driven policy? Is the idea of a performance reserve of any value?

The Court of Auditors report on 2009 says this about cohesion policy

Cohesion policy aims at strengthening economic and social cohesion within the European Union by reducing the gap in the level of development between different regions. The Cohesion Fund (CF) finances investments in infrastructure in the field of environment and transport in those Member States whose gross national income per capita is below 90 % of the EU average.

The performance reserve is a portion of the structural funds budget which is set aside, and allocated later to programmes which have been deemed successful. The allocation is carried out in consultation between the Commission and the member state.

In my opinion it is there purely for publicity purposes – “look, this scheme has been so successful that we are giving it even more money. Isn’t the EU an outstanding success!”.

EU BUDGET AS A TOOL FOR ECONOMIC GOVERNANCE

14. Should the budget review give more emphasis to the contribution that the EU budget could make to efforts by Member States to improve economic governance?

No. It should steer the EU budget away from this role. I cannot see how this could work in practice, other than using the budget to penalise infractions and exacerbate worse situations.

15. Should the EU budget be used to continue the existence of the European Financial Stabilisation Mechanism?

Insofar as it is contributed to by the United Kingdom, then no.

OTHER EXPENDITURE LINES

16 At what level should the budget ceiling be set for the EU’s external spending in the forthcoming MFF? Do you agree with the Commission’s view that “a substantial increase of the overall volume of development assistance” should be made, and if so why? Does the separate financial regime applying to the European Development Fund require further examination, as the Commission suggests (CC p18)? Should a specific budget line, separate from development aid, be included in the MFF for climate finance to developing countries, and at what level should it be set?

Along with other budget headings, it should be set no higher than it already is.

I do not think a separate line should be set for climate issues, as I feel this would restrict rather than enhance development assistance.

17 Currently administrative expenditure accounts for 5.7% of the EU’s budget. Given the nature of the budget, is this an acceptable level? The Commission promise a “rigorous search for increased efficiency and performance in administrative resources”. How should this search be conducted and report, and should its results be available in advance of discussions on the next MFF?

5-10% is not an unreasonable level for administrative expenditure. However there are little bits of administration/management included in the other budget headings that need to be taken into account.

Commission´s declaration sounds great but as in the rest of the budget analysis of actual efficiency and performance is lacking making it therefore pretty difficult to identify areas where they can be improved. There are however many examples of waste or unnecessary spending at administrative level that should be eliminated.

18 You are welcome to comment on any other budget lines not already mentioned.

In my opinion, an empire – which we do not need and represents yet another power grab from the EU- is being built at the European External Action Service (EEAS). There was an initial declaration that the EEAS would be budget neutral but according to published data this is not true :
The global headquarters for her network of 137 missions will be the 645,000 sq ft Capital, or Triangle, building in the European quarter in Brussels, costing £10.5m a year in rent.

At least 50 of Ashton’s 114 senior officials earn between £157,000 and £171,000 a year, more than David Cameron’s £142,500 salary. The average wage of a British ambassador or high commissioner is £80,852; their EU equivalents earn between £112,000 and £163,000.

[...] Internal EU documents show that the EEAS will spend £19.7m-£32.8m on buying and maintaining the 150 vehicles for four years, equivalent to £130,000-£219,000 a car.

Flexibility in terms of budget may have other implications so please be more specific with its definition.

19 Should the structure of the next MFF be more flexible in determining the areas of EU expenditure and how should such flexibility be achieved? How can flexibility be balanced against budgetary discipline?

Funding instruments (loans, grants, guarantees, “innovative financial instruments”) and structure of the budget (flexibility, duration, large scale projects)

20 Would more flexibility meet the needs of large-scale projects such as Galileo and ITER, or would an alternative approach be more suitable, such as the establishment of a separate support structure to which the EU budget would make a stable contribution, as suggested by the Commission?

Neither of the projects mentioned needs more flexibility. Galileo is allready completely out of control both financially and politically, and I suspect ITER is no better. I suspect that the problem of the suggested support structure is that new crises would render the contributions anything but stable.

21 Should the use of EU project bonds, PPPs or innovative financial instruments more generally be encouraged? How might such tools improve the impact of the EU budget?

Definitely not.

22 Should the current system of budget headings be revised? Should the number of headings be reduced and their terms made less specific?

Currently the number of “posting level” lines (i.e. lines at the bottom of the hierarchy, to which individual transactions can be charged) is over 1,200 just for the Commission and the total number of lines (posting plus summary) is over 1,500. Any reduction of budget lines would have to be counterbalanced by an increase in transparency in terms read-only access to the ledgers, perhaps, or at least electronic access to scanned documents.
23 How long should the period covered by the MFF be? Should it incorporate a substantial mid-term review?

The argument for some kind of correspondence between the MFF, the Parliamentary term and the Commission lifetime is in my opinion a good one. There are various means by which that might be achieved, but I have no strong opinion on which should be used.

EUROPE 2020

24 Do you agree with the Commission’s proposal that the new MFF should reflect the Europe 2020 Strategy for smart, inclusive and sustainable growth? How can this best be achieved?

By a substantial reduction, leaving the money in the hands of the member states.

INCOME: THE EU'S OWN RESOURCES

25 The Commission does not at this stage say how big the MFF should be, but the Government want the next MFF to be “smaller in real terms” (EM 43). Do you agree?

I entirely agree.

26 The Commission suggests possible new “Own Resources” to fund the EU Budget (CC p26), but the Government say they will not support “a new EU tax” (EM 56). Do you agree

I agree entirely. Furthermore, I would oppose the annexation of any existing UK taxes by the European Union.

CORRECTION MECHANISMS

27 The Government will defend the UK abatement (EM 44). What is your view of this and the other correction mechanisms? Should the income side of the budget have regard to net contributions or not? In what circumstances should the UK abatement be given up?

Too much of the UK abatement has already been given up, to no purpose. In my opinion, no more should be given up. I would note that when the budget is presented, great care is taken to show the abatement as a benefit to the UK and as a cost carefully apportioned among the other member states.
The inquiry will not address the budget implications of EU enlargement, nor financial management and the Court of Auditors’ Statements of Assurance.

21 December 2010

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