EFFECTIVENESS OF THE EUROPEAN UNION BUDGET

Effectiveness of the European Union budget in carrying out the traditional budget functions of 'allocation, equity and stabilisation'

Effectiveness of the European Union budget in carrying out the traditional budget functions of 'allocation, equity and stabilisation'

Since 1988, the EU budget has been set within a stable legal framework that has a number of distinctive characteristics. In the preceding twenty years, the budget had been one of the most hotly contested political battlegrounds. There were protracted disputes, on the one hand, between the Member States, with the UK especially anxious to lower its net contribution; and, on the other hand, between the European Parliament and the Council over decision- making, as the directly elected Parliament sought to flex its muscles. Regular crises in raising sufficient money were also a persistent problem.

An agreement reached at the 1984 Fontainebleau European Council resolved the UK question by introducing the now infamous abatement. Subsequently, however, other Member States have also become substantial net contributors and have become increasingly insistent on finding ways of reducing their commitments. Various ad hoc compromises have been used to curb these perceived excesses, with the results that the legal position has become ever more messy, while also rendering the principles behind the budget increasingly opaque.2 The conflict between the institutions about the budget reached a peak in the mid-1980s, despite an attempt in 19823 to resolve the differences. Then, at the Brussels European Council in 1988, a new system of financing and structure of spending was agreed, along with a medium term expenditure framework - the own resources ceiling. Shortly afterwards, the guerrilla warfare initiated by the Parliament was ended by an “inter-institutional agreement” (IIA)4 which provided a means of mediating between the Council and the Parliament. (Obstfeld, M. and Peri, G. 1998, pp. 205-210)

Its purpose is to regulate the annual budgetary round, so as to allow the two arms of the budgetary authority to avoid the sort of impasse that had developed in the 1980s when the Parliament repeatedly rejected the draft budget. The IIA is now agreed shortly after the FP: the latest was agreed in May 1999 between Parliament, the Council and the Commission,5 and replaced the one agreed in October 1993 for the preceding FP.6 Today, the EU budget amounts to just over 1% of Community Gross National Income (GNI), with nearly half the spending going on the Common Agricultural Policy (CAP) and around a third on “structural operations” - policies designed to boost the competitiveness of weaker regions and vulnerable social groups. Year on year and across programmes, there is very little flexibility and the budget has no meaningful role in the macroeconomic management of the EU economy.7 With full monetary union having been achieved and the Union enlarged from 12 to 25 members, much has changed since the 1988 framework was established. As a result, the adequacy of current budgetary arrangements is open to doubt and a fresh look at the aims and functioning of the EU budget is ...