Magazine article Public Finance

A Long-Term Euro Vision

Magazine article Public Finance

A Long-Term Euro Vision

Article excerpt

The extraordinary financial crisis gripping Europe and the world continues to dominate headlines as dramatic events unfold and cracks appear in the real economy. While Europe considers the implications, one thing is plain; survival and success require redoubled efforts to tackle long-term strategic issues in all areas. This includes the way the European Union spends its own resources.

Clearly, the European budget of around euro130bn won't provide a fast answer to today's problems on its own - the sum seems paltry compared to the trillions mobilised to relieve the current upheaval. But it can help to ensure European money is invested in the right place, on the right things, in the right way.

The European budget has an important role to play in responding to immediate needs and stimulating solutions to medium-term challenges - for example, through the European Globalisation Adjustment Fund for workers who have been made redundant, or the proposal for food aid for the most deprived people. But the EU could and should do this better. In today's economy, an effective, flexible, modern budget is more important than ever before.

One of the first steps in reform will be to overcome the obsession with 'juste retour', or each country's desire simply to 'get its money back' from the EU budget. A budget designed simply to give countries their cash back on contributions cannot deliver its policy objectives effectively. This means rebates and corrections have to change as well.

When the UK obtained its rebate in 1984, the budget was different and Europe was too. A union of nine countries in the 1980s has expanded to today's 27. Britain has gone from a country in economic decline in 1984 to one of the EU's richest members. All of these massive changes, coupled with today's crises, are reasons why a fundamental reform of all aspects of European spending is so important, including thorny issues such as the rebate and the Common Agricultural Policy.

The good news is that reform is already under way. Over the past year the European Commission has run a public consultation calling for a no-taboos debate on where EU cash should go and how Europe's budget should be modernised. Participation was wide and the single biggest message was the definite desire for change.

Almost 80% of EU money goes to two main areas: agriculture and cohesion. This leaves only leftovers for longer-term policies such as innovation, research and development, technology and the fight against climate change - the precise areas that will help Europe be more competitive in a rapidly changing economy. …

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