After the compromise that was reached at the European Council of December 2005, the European Parliament finally approved, on 17 May 2006, the European budget for the next seven years (the Financial Perspective 2007-2013).
At the initiative of the Federal Planning Bureau, a single publication brings together the analyses made during the negotiating period by experts from the Walloon Region, the Flemish Region and the Federal Planning Bureau, who provided their technical support to the Belgian negotiators.
This publication summarises the community negotiations on the Financial Perspective and details the results of the compromise, closely examining its financial implications for Belgium.
The Financial Perspectives make up the framework for the community budget for the coming years. They include a ‘revenue’ section, detailing the sources and methods of financing the budget, and an ‘expenditure’ section, which interprets the political priorities of the Union for the period covered.
The debate on the Financial Perspectives 2007-2013 occurred within the context of the enlargement of the Union to include twelve new Member States and of the relaunch of the Lisbon Strategy (which aims to increase growth potential and to improve the competitiveness of the European economy), and thus of the financing of these two challenges. The debate has been intense on various points, in particular:
The general level of expenditure. In December 2003, six major net contributor Member States (United Kingdom, France, the Netherlands, Germany, Austria and Sweden) have taken the position of a strict budget limitation of 1% of Gross National Income (GNI), a level far below appropriations for the previous period (2000-2006). Other Member States have defended a more ambitious budget.
The policies to put into practice at the Community level, notably with a view to implementing the Lisbon objectives. In this context, the Cohesion policy (at least, some of its provisions) and the Common Agriculture Policy (CAP) were brought into question by various Member States.
Methods of financing the budget. On one hand, the United Kingdom wished to preserve its ‘rebate’, obtained in 1984, which raised an obvious problem of fair distribution of enlargement costs (these costs automatically lead to an increase in the British rebate, if there is no correction). At the same time, other net contributors demanded a reduction in their financial contributions, in the name of fairness.
At the conclusion of these negotiations, the budgetary framework approved by Parliament amounts to 864.3 billion euro (2004 prices) for the period 2007-2013, i.e. 1.048% of the GNI of the Union. This represents a reduction of almost 16% compared to the initial proposal drawn up by the European Commission in July 2004.Regarding financing, the agreement corrects the British rebate progressively but structurally (without a time limit), but allows for temporary reductions in costs (limited to 2013) in favour of the Netherlands, Sweden, Germany and Austria.
The study tackles, firstly, the ‘expenditure’ sheet, focusing on the two most important headings in budgetary terms, which were also the centre of debate: the headings ‘Cohesion for growth and employment’ and ‘Preservation and management of natural resources’. These two headings have the peculiarity of being the object, entirely or in part, of a priori allocations among Member States (the other headings being allocated essentially on a competitive basis). The study describes the eligibility criteria and the system of budget allocation between Member States, and then evaluates the resulting national allocations.
Concerning Cohesion policy, the study shows that the repositioning of a significant part of funds towards the new Member States leads, for the period 2007-2013, to a reduction of 27% of the budget allocated to the 15 old Member States compared to the period 2000-2006. However, among the 15, Belgium is the least affected Member State, with a reduction of only 7%. Belgium will benefit, for the period 2007-2013, from a budget of 577 million euro (2004 prices) under the « statistical phasing out » (Province of Hainaut), 1 265 million euro for the Objective of Regional Competitiveness and Employment (the former Objectives 2 and 3), and from a budget of the order of 170 million euro for the Objective of Territorial cooperation (the former INTERREG Initiative).
The study also highlights the amendments introduced during the negotiations in order to, on one hand, reduce the budget for the Cohesion policy from the Commission’s initial proposal (reduction of 8.5%, i.e. 28.5 billion euro) and, on the other hand, to partly compensate for the reductions recorded by the 15 compared to their appropriations over the previous period (2000-2006).
Regarding the policy of Preservation and management of natural resources, the final compromise provides for a reduction in the overall budget of 7.2% compared to the Commission’s initial proposals, i.e. 28.9 billion euro less over the period 2007-2013. It was not possible to give a figure for the total allocation for Belgium in this budget. Nevertheless, concerning the ‘direct payments’ category of the CAP, the allocation for Belgium is estimated at 3 759 million euro for the period 2007-2013 (2004 prices, before modulation). Regarding Rural Development, Belgium’s allocation is estimated at 370 million euro. Finally, Belgium will receive about 23 million euro from the European Fisheries Fund.
The study then looks at the ‘resources’ section, namely the adjustments to the method of financing the budget. The financial impacts of these modifications have been evaluated, in particular for Belgium, as well as their effect on the net balances of the major net contributor Member States. Moreover, these impacts were compared with those of other proposals that were not adopted, such as the mechanism for general correction of budget imbalances proposed by the European Commission in July 2004.
The study shows that the reduction in the British rebate set for the United Kingdom, combined with the reductions in contributions granted to other net contributors (the Netherlands, Sweden, Germany and Austria), significantly reduces the difference between these Member States in terms of net balances. If there is improved fairness in terms of net balances, it is nevertheless not the case in terms of gross contributions: the five Member States above contribute less to the financing of the budget, in proportion to their GNI, than many Member States that are, notwithstanding, less prosperous.
At full development (after 2010), the new financing provisions are more advantageous for all the Member States, except the United Kingdom. They reduce, for example, the financial contribution of Belgium by some 30 million euro per year (2004 prices). The major winner is the Netherlands: the reduction in their contributions amounts to almost 1 billion euro per year (0.20% of their GNI) compared to the former financing provisions.
The British rebate, as well as the new rebates granted to the Netherlands, Sweden, Germany and Austria, will have to be financed by the other Member States: over the period 2007-2013, all these rebates will, on average, cost Belgium some 350 million euro per year. Nevertheless, keeping the previous provisions (with a rebate for only the United Kingdom, but much higher) would have represented a greater cost.
It should be noted that, even though the new financing provisions are more expensive for the United Kingdom (given the reduction in its rebate), the cost of this concession is largely offset, as far as the United Kingdom is concerned, by the reduction in the size of the European budget (and therefore its funding needs) which it was able – with the other net contributors – to impose on the rest of the Union.