Should the UK squeeze the EU budget or lead Europe?
Promoting a more liberal and competitive Europe would gain the UK more than only focusing on cuts to the budget.
A recent article in the Daily Telegraph, referring to unnamed insiders and corridor talks, purports that the UK was pushing at the highest diplomatic and political levels for a limitation of the EU budget to 0.85% of gross domestic product (GDP) and “that Mr Cameron has ‘done a deal' with Nicolas Sarkozy, the French president, to keep EU farm subsidies at present level in return for keeping Britain's annual £3 billion rebate”.
This news makes sense – from some points of view. There will be inevitably some horse-trading between the UK and France involving the overall size of the EU budget, the share spent on the Common Agricultural Policu (CAP), the type of agriculture subsidies and the UK rebate. Furthermore, 0.85% of GDP is in the order of magnitude the UK is envisioning for the future EU budget. A freezing at €130bn, assuming 4.5% nominal GDP growth (for instance, 2.5% real growth plus 2% inflation), would drive the EU budget even further down: to 0.7% in 2020, with an average of 0.8% over the entire financial perspectives. 0.85% of GDP could be achieved with a €130bn budget in 2013 that rises by 2% to compensate inflation.
But is it plausible that David Cameron, the UK prime minister, has launched a major diplomatic initiative on the CAP and the EU financial perspectives already and that he has even obtained a deal with the French?
If the UK government really puts EU spending cuts and the UK rebate above improvements in the quality of spending, all it needs to do is wait and see. Without UK leadership, no significant reform of agricultural and cohesion policies will take place, so that the UK will have all the justification it could hope for to pay as little as possible into the EU budget.
A second reason to doubt this is that the numbers are a bit too steep. If the EU budget really was brought down to 0.85% of GDP on average, a CAP worth €60bn would, under the assumptions made above, claim 43% of the entire budget. It is hard to imagine how all the other EU expenditures should be funded under these circumstances
Third, an Anglo-French deal would be a step too far: Cameron would have a hard time explaining at home why he let the CAP off the hook. And the UK would appear unreliable, even cynical, to an EU audience if former prime minister Tony Blair's 2005 attack on wasteful subsidies were thus betrayed.
Fourth, the timing does not look right. Such a deal would anger the German government, which would (at least outside the Ministry of Agriculture) then favour a combined cut in farm subsidies and the UK rebate. But Cameron needs to appease the German government that is demanding EU treaty changes to set up a new stability mechanism for the euro zone. This in turn could place Cameron in a difficult position, as he might be forced to hold a referendum – or be chided for failing to resist EU empowerment.
Finally, Sarkozy is troubled by poor opinion polls and is facing elections in spring 2012. Whoever is ready to sell support for farm subsidies to him is likely to strike a better deal during the second half of 2011 when the pressure on the CAP has grown and the electoral deadline has come closer.
It is understandable if Cameron focuses on spending cuts and draws a thick red line. He feels not only the pain of his domestic austerity programs but also the heat of eurosceptics in his own Conservative party. After 13 years in opposition, they push for the repatriation of competencies from Brussels, while the UK has to accept new EU powers in the wake of the financial and economic crisis. But it should not be forgotten that past UK efforts to reform the CAP were blocked and that the EU budget review, which Blair obtained in exchange for his consent to the 2006-2013 financial perspectives, were gradually turned into a mockery.
Yet, a message centred on EU budget cuts and delivered together with the defence of the UK rebate will certainly alienate many who sympathise with UK positions on smarter and greener spending, particularly in the new member states. The UK might thus waste the opportunity of harnessing the fiscal pressure for landmark changes in the quality of EU spending.
Even a hard-nosed defender of small government may consider an EU budget of 2% or 3% of GDP to be appropriate – if EU spending replaces national expenditures. And especially in areas such as development and climate change cooperation, the EU could assume exclusive financial responsibility without curbing national sovereignty in any meaningful sense. There is nothing specifically British or French or German in the implementation of projects in developing countries, just best practices that should be adopted by all donors.
The UK should also resist the temptation to subjugate the EU budget to the single theme of growth and competitiveness. EU spending can create value-added for growth, especially in the field of research, but centralisation of spending on development aid, climate change and environmental policy, and security and diplomacy is equally advantageous. Growth should be left primarily to markets. The challenge is to make markets work, for instance through a European patent regime or service liberalisation.
If the UK manages to assume a leadership role – at a time when France is weak and the spirit of austerity strengthens the appeal of Anglo-Saxon market-orientation – it can promote a more liberal and competitive Europe. This is much more than it can gain by squeezing the budget a little harder – and far preferable for Europe.
This article was originally published in European Voice.