The EU’s Multi-Annual Financial Framework (MFF) post-2020 will – once more – be a major political hurdle. There is indeed significant reason to be critical of the EU budget. In the words of Kristalina Georgieva, the former budget Commissioner, “the MFF is a 7-year peace treaty” no-one is really satisfied with. Call for reforms are abound as the pressures on the EU are higher than ever. Yet, former revisions of the budget show that budget negotiations are tough and that high reform ambitions generally collide with the logic of incrementalism. As in previous MFF negotiations, the European Added Value (EAV) is presented as a core concept to guide the budget discussions and to help communicate EU expenditure decisions to citizens. EAV is already an old concept and was reintroduced by the Commission in the previous round of budget negotiations in 2011 to describe whether spending of a euro at EU level “means a better deal for citizens than spending [it] at national level”. The Commission underlined that EU spending should only be used if it is more efficient, effective or synergetic compared to national spending. At face value, EAV is a reasonable approach to defining the size and the components of the EU budget. However, as argued here, the ‘Added Value’ concept narrows the debate by presupposing budgetary expenditures and by not questioning whether expenditures are necessary in the first place. Instead, the EU should focus on ‘Better Spending’ principles.
With mounting public tensions concerning European integration, the EU budget, in whatever form or shape, will have to withstand public scrutiny with little acceptance for latitude. Poorly argued suggestions for ‘more Europe’ or additional expenditures may damage public support. There is a desire among citizens to ‘take back control’ as well as to make sense of the political processes. Evidently, the EU budget can be a divisive topic. Yet, this does not mean fears for public support should restrict options. It is important that the final result is not merely a compromise but a justifiable set of choices that are individually defensible. As formulated by Klaus-Heiner Lehne, the President of the European Court of Auditors: “People cannot even begin to trust the EU institutions if they do not believe we are looking after their money properly.”
Given the sensitive political context, fiscal transfers from more affluent member states to poorer regions are defensible only if budget expenditures are substantiated. A recent Clingendael report indicated that while (Dutch) citizens accept EU interventions, they are more reluctant to increase expenditures on the EU level compared to spending on other levels of government. Hence the quality of arguments to defend EU budgetary expenditures is of the essence.
The many arrangements of the EU budget regarding revenues, rebates, expenditures, and (shared and national) implementation make it more difficult to hold the policy actors accountable. A simplification, following clear guiding principles, may help explain how the budget (and hence the EU) generates added value. At the same time, any change or ‘simplification’ as to resources (e.g. forms of taxation) or management of the EU budget is bound to affect the institutional balance. Therefore, as regards changes in the EU budget, also the institutional consequences have to be made specific.
In the presentation of the Commission, EAV seems reasonable but in the eyes of member states it may be regarded as a technocratic approach to overrule political preferences. EAV tends to narrow the debate on the role of the EU budget as it largely revolves around the question whether the available money should be best spent on the national or the EU level. Similar to the European investment fund (EFSI), the EU budget appears to be aimed at spending (and leveraging additional finances). A wider, and more profound, question is whether spending money is the appropriate instrument in the first place.
Path dependency and vested interests play an important role in the MFF negotiations, but in order to truly explain the expenses to an increasingly skeptical population the EU budget should become part of the overall discussions on the added value of the EU. This includes a thorough assessment of the proper tools the EU should use to achieve its goals as well as so-called ‘sunset clauses’ for policies that may have served their purpose in the past but are no longer effective in meeting EU’s objectives.
The Better Regulation framework and its underlying methodology for impact assessments offer a starting point for discussions on the next MFF. Without aiming for radical and comprehensive spending reviews, agreeing on guiding principles would be a first step in these discussions. Better Regulation leads to insights into questions about: institutional consequences, instrumentation, subsidiarity, proportionality, costs, and, hence, added value.
Better Regulation principles (or ‘Better Spending’) have a specific focus on the principle of subsidiarity and of proportionality and thus relate to Treaty provisions and the concept of EAV. However, where EAV takes the budget as a given, the Better Spending framework as proposed here provides a set of principles for assessing EU spending and prevents discussions on EAV from becoming a shortcut for defending the budget as an instrument. It is important to first examine what the objectives are before choosing the instrument.
A rigorous assessment of EU budget proposals should not start with EAV discussions. The proportionality principle underlines that interventions have to match the size and nature of the identified problem. It includes a preference for lighter instruments (such as information tools or light forms of regulation) unless considerations for impacts and consistency point to the need to work with heavier instruments (regulation or economic tools). Generally, instrumentation involves packages (‘hybrid solutions’). Any discussion on budget lines should therefore be viewed in relation to the broader question of instrumentation.
There are major new policy claims and expectations related to e.g. defence, migration, investments, and social policies. ‘Better Spending’ imposes the need to carefully argue effectiveness (results), costs (administrative burdens), proportionality (instrumentation vis-à-vis effectiveness) and subsidiarity of EU actions. For example, the Italian response to the migration crisis could entail budgetary support from the EU budget, but if the Italian government fails to register (illegal) migrants the effectiveness of budgetary support is undermined. A demand for budgetary intervention requires a multi-layered assessment of the obligations of a member state and the effectiveness of additional instrumentation at the EU level.
Cold thinking regarding instrumentation and EAV also involves economic rationales. Public expenditures have redistributive, allocative and stabilising functions. Considerations as to whether certain policies concern redistributive, allocative or stabilising functions are inherently political, but the options should be carefully analysed. Redistributive parts of the budget, e.g. the Common Agricultural Policy (CAP) and Cohesion funds, resemble permanent transfers and are hard to defend. In particular the direct CAP payments and the regional competitiveness funds (part of the Cohesion funds) lack normative (fiscal-federalist) and positive (political economy) justifications for these EU expenditures. Secondly, EU-wide redistributive payments are seldom temporary; they often become ‘entitlements’ without achieving the underlying goals. For example, Poland and Hungary received EU funds worth 1,98 respectively 3,57 per cent of their GNI.
CAP and Cohesion funds should, instead, be regarded as allocations to support convergence, with their effectiveness at the heart of the discussions. The benefits and effectiveness of these funds in generating convergence are doubtful at present. Increased macro-economic conditionality linked to the Country-Specific Recommendations of the European Semester is floated as a solution to the lack of structural reforms. However, the funds in itself are too small to function as a credible stick or carrot.
Most EU funds should therefore be subject to regular reviews, including ‘sunset clauses’. These funds should be reviewed or terminated when they are not properly allocated, for instance if investments flow to richer member states and regions. Such reviews will avoid ineffective use of funds and encourage stakeholders to ensure that funds generate the best possible effects rather than being considered entitlements.
Allocations also include European public goods (EPGs), i.e. goods where the EU is more effective, efficient and able to create synergies. Public goods are non-excludable, non-rivalrous and in theory applicable to all European citizens. Nevertheless, the provision of public goods often occurs at the national or subnational levels, in relation to domestic demands. The allocation of EU funds should therefore focus on EPGs that are within the competencies and goals of the EU and fulfill the conditions of an EU public good. Examples of areas where the EPG argument is more convincing include security, defence, environmental protection and EU mobility (through infrastructure or education funds). However, the EPG argument is debatable when member states are poorly equipped to provide the public goods effectively. It has to be clear why member states fail to deliver results themselves. If member states are unable or unwilling to spend funds effectively and efficiently, covering structural problems through the EU budget will not offer lasting solutions, with the result that other, or complementary, resources and instruments have to be considered as part of the larger instrumentation package.
Stabilisation was an objective of the MFF to defend a flow of investments and (agricultural) support in case national accounts suffer from a downturn. Calls for increased flexibility of the EU budget seek to increase the budget’s effectiveness by making it easier to reallocate funds, circumventing the initial MFF design. Flexibility is also sought in the form of financial instruments and satellite funds outside the EU budget, increasing its ‘clout’. These different tracks complicate the discourse on the EU budget, and reduce accountability. To illustrate, the launch of the European Fund for Strategic Investments (EFSI) without a proper impact assessment and premature claims of successes may be a form of ‘budgetary creep’ and could harm trust in instruments and objectives. The EU’s investment fund (EFSO) may have some added value, but it may not pass the test of proportionality and other instruments may be more appropriate to address the EU’s investment deficits.
Added Value is, once again, explored as a guiding principle in the discussions on the EU’s Multi-annual Financial Framework. The advantage of the concept of EU Added Value is that it specifies the gains of EU spending for the EU public. However, EAV as a starting point for discussions on budgetary reforms limits the reform ambitions. EAV also allows actors to claim added value to protect their political interests. Similarly, arguments such as ‘efficiency’ or ‘public goods’ sound deceptively convincing but should be used with care. The EAV concept prevents discussions on causes of, and genuine solutions to, different policy challenges. Moreover, a higher EU budget should and will not cover weaknesses at national levels.
‘Better Spending’ principles offer a richer framework to assess the combination of instruments required. Like the EAV, these principles warrant reconsiderations of the current EU budget. Going further, it would broaden budgetary reform discussion by putting expenditures as one (complementary) option amongst a wide range of policy instruments. Expenditures in CAP and regional funds are difficult to defend considering their disappointing outcomes, but are also difficult to alter due to the tendency for member states to defend their juste retour. The EAV principle will not eliminate juste retour discussions: member states will simply recalculate their net contributions and returns and continue to disagree on proper calculations of EAV. ‘Better Spending’ forces a more fundamental discussion of objectives and matching instruments. Its logic may take time to fully take root in MFF “peace treaty negotiations” but keeping the overall expenditures modest would be a first step to ensure effective allocation within a ‘Better Spending’ incentive framework.
About the authors
Yuri van Loon is a former research fellow at the Clingendael Institute, where he focussed on EU economic and financial affairs. He currently lectures at the faculty of governance and global affairs of Leiden University.
Adriaan Schout is Senior Research Fellow and Coordinator Europe at the Clingendael Institute. He combines research and consultancy on European governance questions for national and European institutions. He has worked on projects addressing issues of the EU presidency, EU integration and Improving EU regulation, amongst others.