Tag Archives: Budget

The Schizophrenia of Intergovernmentalism

The 2011 budget of the European Union is in tatters after an unsuccessful negotiation session between the European Parliament and the Council. The budget procedure must now start anew, with the Commission proposing a new draft budget. The apple of discord has been the Parliament’s demand to participate in the negotiation of the next multiannual budget framework (2014-2020).

According to some diplomats cited by EUobserver, the Parliament wrongly assumed that member states would agree to a budget out of fear of being labeled as “anti-European” in case of a breakdown in talks.

Well, obviously they weren’t. Three countries – Netherlands, Sweden and the United Kingdom, refused even to consider the demands of the Parliament. “There will be a budget, based on 2010 figures. There is no drama, the world won’t go under,” said one diplomat to EUobserver.

But of course. Who cares if the EU malfunctions due to underfunding? And how dare the Parliament ask for a role in negotiating the multiannual budget framework?

The governments of the Member States seem to suffer from some very peculiar type of schizophrenia. It was them that approved the equal status of the Parliament in the budget procedure. It was them that actively advocated in 2009 for the entry into force of the Treaty of Lisbon. It was them that welcomed “a major step forward” for Europe. But now they are ready to block the EU budget in order to prevent the European Parliament from participating in talks for the multiannual budget.

This attitude of hostility towards supranational institutions and the European Union as a whole already peaked with the disgraceful treatment of the President of the Commission during the European Council meeting while discussing the deportation of Roma citizens from France. It has now been shown once again in the form of nonchalant attitude to the EU budget procedure, as if it doesn’t matter anyway.

It does matter, as will be shown in the first months of 2011 when budget rollover from 2010 will be used. But I am much more worried about the obvious lack of ownership of the European idea in Member States’ governments. They seem to distrust both the integration agenda and the supranational institutions it implies. This is a well-trod path to institutional paralysis and inefficiency.

 

 

The Bulgarian Problem of the European Union

The European Union has a big problem with Bulgaria, and may not know it. Here is why.

The purpose of the International Civic and Citizenship Education Study (ICCS) is to investigate the ways in which young people are prepared to undertake their roles as citizens in a range of countries. The study includes all students enrolled in the grade that represents eight years of schooling, provided the mean age at the time of testing is at least 13.5 years. The results from the study are out, and they paint a bleak picture for Bulgaria.

But here I will focus on only one particular finding. Two thirds of eighth graders in Bulgaria may prefer to live permanently in another country. Two thirds of all young Bulgarians at the age of 13-14 that is.

Now, a lot can be said about the implications of this result for the overall demographic development in Bulgaria. The trouble is that even today Bulgaria is aging at a very fast pace. In fact UN data shows that in 2050 the overall dependency ration in Bulgaria will almost double from its 2010 levels. Population will decrease from 7,5 million to 5,4 million. But that is a conservative assessment based on current demographic trends and excluding serious migration movements out of the country. Yes, the intentions of 14-year olds are probably not the best indication of future demographic development, but they certainly give us a warning signal.

Let us not forget that only in a few years all labor restrictions for Bulgarians in the European Union will be lifted. Many EU countries are aging at a fast pace, and their labor markets will welcome Bulgarian migrants.

So far, so good. But these migrants will leave behind an almost dysfunctional pension system, a rapidly ageing society and bleak economic prospects for the young people remaining in Bulgaria. At that point Bulgaria can become a real problem for the European Union due to its failing budget, expansion of poverty (especially in old age groups and the Roma population), and not least – all kind of criminogenic social disturbances.

Obviously we cannot stop young Bulgarians from emigrating if they want to. What they need is sound education and good job prospects in Bulgaria. What they don’t need is escalating government costs, and hence – escalating taxes and social security contributions. Bulgaria finds it difficult at the moment to provide quality education to its children, and is, frankly speaking, quite incapable of developing a robust, sustainable economic system. That is why external help, and probably political pressure, are needed. The prospects for the Bulgarian economy are worsening by the day, and a lot must be done to convince our few children to stay at home.

Commission Recommendations on the Bulgarian Excessive Deficit

The European Commission has recommended to the Council to declare an excessive deficit for Bulgaria in 2009 equal to 3.9% of GDP. The further Commission recommends the Bulgarian authorities to bring the general government deficit below 3% of GDP in a credible and sustainable manner by 2011 at the latest.

I am not sure whether it is possible to lower the Bulgarian budget deficit below 3% in 2011. There is ample evidence that the Bulgarian government will really struggle to maintain its budget deficit in 2010 at 4.8% of GDP as proposed in the budget amendment currently reviewed by the Bulgarian Parliament. I really cannot see how this can be achieved.

2010 EU Budget Agreed

The 2010 budget of the European Union was approved by conciliation delegations from Parliament and the Council. Three issues were solved – the funding for the EU economic recovery plan, funding for the closure of the Bulgarian nuclear plant Kozloduy and emergency aid to milk producers.

The EU economic recovery plan will cost €2.4 billion next year. €75 million will go for support for the closure of the Bulgarian nuclear plant Kozloduy. €300 million will be used as emergency measures for milk producers.

 

A Common European Income Tax?

EurActiv reports on some budget drafts for the 2014-2020 financial framework. The really interesting part is the hinted idea of replacing current budget resources (mainly from VAT) with something that might be called European income tax. One of the considerations of the Commission appears to be that the financing of the EU budget from VAT is incomprehensible for the European citizens.

A bold idea indeed.

Post-2013 EU Budget Overhaul?

The EU Observer says that the first principle draft of EU budgeting post-2013 shows significant changes in budget priorities. Agricultural and regional aid in its current form is significantly reduced. Regional aid for wealthy Member States is scrapped to a large extent. Jobs, climate change and foreign policy are the three priorities in the budget draft.

Long-Term Financial Risks for Member States

The European Commission has issued a report on the sustainability of public finances in Member States. The report groups countries based on their medium- and long-term risk profiles.

To my surprise Bulgaria is in the lowest risk group together with Denmark, Estonia, Finland and Sweden. The countries whose public finances are most at risk in the medium term are Ireland, Greece, Latvia, Spain and the United Kingdom.

The report proposes a policy framework for improving the sustainability of public finances that includes:

  • Deficit and debt reduction;
  • Increasing employment rates;
  • Reform of pension and healthcare systems.