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Agenda item 3 is oral evidence for our EU budget review inquiry. I am pleased to welcome Dr Fabian Zuleeg, who is a senior policy analyst, and Dr Sara Hagemann, who is a policy analyst, both of whom are from the European Policy Centre in Brussels, who have joined us by videoconference.
Good morning. Let me first give a bit of background on the European Policy Centre. The EPC is a Brussels-based think-tank with more than 400 member organisations. We are committed to making EU integration work—that is our mission—but we are not directly connected to the EU institutions. We are completely independent and impartial.
Thank you very much. You have already answered a number of our questions. Perhaps we can explore some of the issues in more detail. I know that you have written a number of papers on this subject, and you will be aware of previous reforms. The problem has always been—you refer to this in your paper—that we start off with good ideas and we agree that change has to happen, such as that we have to consider how to reform the common agricultural policy, but things begin to go wrong when the politicians get involved. There is significant agreement that there needs to be real reform. I do not think that the European Union can continue to tinker about at the edges. Looking to 2025, is there an opportunity to define policy objectives more clearly and to attach the resources to them? Would that be easier if the EU budget was raised in a different way?
There is definitely a willingness to reform the set-up. The Commission has been given a mandate to carry out a thorough reform this time, and that process is on-going. The Governments have all said that there is a need to review the process and the content. Whether that will happen in time for the next multi-annual budgetary framework is a big question. One could say that the current economic context will have some impact, but it seems that it is widely recognised that having a policy-driven budget is the way forward. That said, that is just the rhetoric at the moment. We need to see what happens.
Thank you. Do you have anything to add, Dr Zuleeg?
Yes. You asked specifically about resources for the budget and whether we should move towards the EU having its own resource or tax. At the moment, it is extremely unlikely that we will see a move in that direction. There might be some kind of rationalisation of what is currently happening in relation to the EU raising its own resources, but a move whereby the EU genuinely raises its own resources and has the powers to borrow is not very likely, given the current member states' positions.
Might there be such a move by 2025?
There could be, but the problem is that such things take a long time in the European framework. If we do not set out in the right direction, at least, in the current budget review, it is difficult to see how things will change. We are talking about seven-year, multi-annual frameworks, and we will be in the 2020s by the time we are through the current framework and into the next one. If we do not set up the right framework for the next multi-annual framework, it is hard to see how there will be significant reform.
It seems to me that a fundamental requirement of radical change in the budget is a diminution in the proportion of funds that are allocated to the common agricultural policy. Unless there is a significant reduction in the proportion of funds that is allocated to the CAP—or a significant increase in the overall budget—it will be difficult to make radical changes with the balance of the budget that goes to non-CAP expenditure.
It is true that at European level there is a continuing effort by certain countries, including France, to maintain the CAP. There has also been an attempt to fix a certain amount of the budget. However, the amount is not as big as it has been in the past, and it will reduce significantly before the end of the current financial framework. It will also shift significantly. Even within the current framework, we are witnessing a significant shift of funding from the old member states to the new member states.
You said that the shift is significant, but I understand that there will be only a 5 per cent reduction in the funds allocated to the CAP.
It might come down to a 5 per cent reduction in the funds allocated to the CAP, but there are significant changes within the CAP. Much more money has been devoted to environmental and rural development issues. In that sense, the CAP has been changing from within.
My point is that although reform of the CAP is welcome, the fact that its share of the total budget will be about 5 per cent less than it was previously will have an impact on the funds that are available to meet the challenges for 2025, such as an ageing population, competitive pressures in a global economy and the need to make a significant contribution at EU level to climate change policy. Such issues will not attract significant additional funds at EU level if a huge share of the budget is retained for the CAP, albeit a reformed CAP. Is that a fair comment?
It is a fair comment, but many of the challenges that we are talking about do not necessarily have to be financed at EU level. It might be that a common approach is agreed at EU level but implemented at national level. However, in general, if we fix the size of the budget overall and a large percentage is fixed for the CAP, what is left for other policy areas will be quite limited.
You identify various red-line issues on which you say that Governments will have to make some concessions in the spirit of good will that you talked about earlier. In relation to the CAP and the United Kingdom's rebate, is it realistic to expect that the UK will abandon the rebate unless there is some progress in the wider context of, for example, the CAP and other spending? Is it realistic to expect some countries to give up those red-line issues when other countries still seem resolutely determined to hold on to them?
We were not necessarily trying to assess the politics within each country. It is difficult for us to say how realistic it is to expect the UK to give up the rebate. We are saying that if we are truly considering a radical budget review—which should start from the policy priorities and work upwards, rather than start from the current financial framework that includes the rebate, the overall size and the CAP—it is necessary for countries to start talking about those issues. Without some give on the issues, there will not be significant reform of the EU budget.
I will press you a little further on that. You say that you are optimistic, and that Governments are talking in terms of good will. However, there are 27 member states, all of which have their own issues to bring into consideration, and all of which have a veto. I do not want to be pessimistic, but is it realistic to expect any great improvement, given that structure?
I should point out that last time round, a strong feeling of pessimism hung over the negotiations, and it was thought that an agreement could not be reached at all. This time round, in carrying out the budget review in the run-up to the negotiation agreements, the Commission has a strong card to play. It will be able to show, following the suggestions that it will probably make at the end of 2010, that those policy-driven priorities should take over from the negotiations that have taken place and the dynamics that have existed so far. At the moment, it is difficult to say whether the Commission will be able to play a strong hand in the game, but there is an opportunity, which will perhaps be even greater, given all the challenges and the changes that will happen in Europe in the coming years.
On page 8 of your submission, you set out a number of key priorities in relation to what the future focus of the EU budget should be, in line with other EU policy instruments. There are 13 priorities, which I will not read out, as we would be here for some time. However, I presume that you are well enough acquainted with them to explain some of your background thinking in choosing them as the key priority issues.
We identified those key priority issues for a range of reasons. One is that they had already been identified as priority issues at the European level. Climate change, the current crisis and globalisation had already been identified as challenges and new policy actions followed. Some of the other priority issues are long-term trends that will change the societies and economies in which we live, and they have distinctive cross-border elements that make it important for the European Union to be involved in them.
As a committee and a Parliament, we must assess which of the priorities will be most important to Scotland. If you have any observations on that, you would be welcome to give them. Which of the issues do you think are the most important?
My personal view is that the demographic issues are the most important, partly because we are paying the least attention to them. They will have an extreme economic and social impact—we will live in very different societies in 10, 20 or 30 years' time—which means that we will have to change the way that our economies and societies work. That is probably the most profound change.
Do you have a view, Dr Hagemann?
I agree with Fabian Zuleeg. Every member state will place a different emphasis on the issues. For example, the demographic changes in eastern Europe differ from those in western Europe, and the changes in southern Europe differ from those in northern Europe. However, I think that politicians will strongly emphasise the social, economic and political changes that will come about as a consequence of the demographic changes. Prioritising the issues is a political decision, but analysis shows that the demographic changes are likely to have loud, visible consequences in Europe within very few years.
Good morning. I declare a farming interest in relation to the CAP.
I will make one comment. It was really interesting that responses from Governments and non-governmental organisations to the Commission's consultation on the CAP last year showed that almost all countries are willing to reform it. Even countries that have a strong interest in the CAP have stated that its structures must be reconsidered. However, countries place a different emphasis on what needs to be changed in the CAP. For example, some of the new member states see direct financial support to their constituencies as an important takeaway from EU membership.
It is, of course, true that other challenges can be addressed through the CAP. As I said, the emphasis on the environment and rural development is strong in the CAP, and has become stronger in recent years—we have seen a shift away from pillar 1 support to the other pillars. If, as we have discussed, we commit funds that are tight at the European level to policy priorities such as the environment or rural development, I do not want them to be earmarked for a particular sector. I agree that we should use funding to support the environment in several sectors, of which agriculture is one, but I would not earmark funding for that sector.
Food security is what the Common Market started off being all about many moons ago, and it is becoming more and more of an issue in the Scottish Parliament. However, food security is not a priority in the budget review. Might it become a priority in the near future or in the medium term?
Our paper mentions competition for resources, which has an impact on food security. Food security will come up again, especially because food prices depend a lot on energy prices, which are likely to increase again after the current slump. I am not sure whether the common agricultural policy is designed to address food security in the world in which we live nowadays. The world is much more interdependent. We do not import our food just from other European countries; we are in a global market. It is difficult to see how the CAP can deal with that.
I understand that, ideally, we want the way in which member states contribute to the EU to change but that producing one mechanism to which everyone could sign up would be difficult in practice. Have you thought about what that mechanism might be, even if it is a fantasy at the moment? Would flexibility have to be built into such a mechanism to recognise that situations in member states change during a budgetary cycle? I am interested to know whether those issues are being considered.
We have already moved towards a single source: most of the EU's funding—70 per cent and rising—comes through the gross domestic product contribution element. That has the advantage of adjusting automatically to economic developments in countries so that, for example, if there is a slump in certain countries, their contribution goes down. For me at least, that method has advantages over using VAT, for example, because it is simple and member states' contributions are based on the same factor whereas there are significant differences in VAT receipts in EU member states. I therefore believe that GDP-based contribution is the best way forward.
We have suggested, several times, decoupling consideration of the expenditure and revenue sides from the negotiations and having a policy-driven budget in which EU priorities are on the table. Expenditure on the priorities could be included in the negotiations, which would then have implications for how the revenue was raised. That could help to tackle the block on how to meet the priorities, which we sometimes see in negotiations.
Will we come to such a position eventually? It strikes me that getting all the member states to agree to one methodology will be almost impossible, given their competing interests. How realistic is it to hope that we can reach that position in the foreseeable future?
You asked us to be a bit idealistic, so that was the idealistic version, and it is difficult to foresee it happening soon. In this context, we should note that a particular problem that Governments face is the big focus on how they perform in the budget negotiations and what they bring home. How much room for maneouvre Governments have at EU negotiations is a big issue. In trying to find a solution to the problems that we face, we must acknowledge the processes that Governments go through at the national level, through either a committee system or the Parliament as a whole, to agree their negotiating position for Brussels.
Before I bring in my colleague Keith Brown, I want to follow up Patricia Ferguson's point about flexibility in budgetary cycles. Having listened to your comments, I wonder whether one solution might be to increase the resources that are allocated to funds such as the globalisation adjustment fund and the EU solidarity fund. Member states could sign up in the knowledge that, if they met certain criteria, they would benefit from those wider European pots. Do you have any thoughts on how effective those funds are? Looking ahead to future budget reviews, is there merit in the idea of setting aside moneys to tackle particular problems and react more flexibly to budgetary cycles?
It is extremely important to give the Commission a bit more room for manoeuvre. The fact that we prevent it from borrowing makes it difficult for it to deal with new situations. However, I point out that the biggest fund is the unspent money from previous years. In comparison with that, the globalisation adjustment fund and the solidarity fund are relatively small. If the Commission had more flexibility to bring that unused money into play when new challenges arose and new priorities needed to be addressed, that would be a huge improvement. The Commission is being asked to pull forward funding to deal with the current crisis, but member states are dragging their feet on allowing it to use €5 billion from the unspent funds. We should try to eliminate that contradiction in policy.
Can you put a rough figure on the percentage of moneys that are unspent across the European Union?
It varies. It is a significant amount rather than a small amount—I am talking about billions—but I cannot give you an exact figure because it varies during the cycle and according to where we are in the seven-year framework.
I assume that some member states are better at spending the money than others.
Since enlargement, there have been some issues about how regional funds and so on are allocated. Some of the criticism of the allocation of funds that remain unspent is to do with the requirements that both regions and Governments have to meet in order to receive the funding. It is argued that some of those requirements do not make sense given the problems that the funds exist to address.
As a member of a Parliament that has no borrowing powers, I can well understand your anxiety about the Commission's inability to borrow, but I want to suggest a different point of view from the one that runs through your paper.
That is a valid point, although I would argue that accountability should not be based only on the figures on what the Governments bring back home. One problem with the negotiations is the fact that we talk only about the figures and not about what the budget exists to address. The debate in national Parliaments would also be different if the perspectives set out for the budget were integrated in the debates. If that happened, some people might question whether the presentation of figures was sufficient.
It is perfectly right that member states can choose how much of their powers they transfer to the European level but, in recent years, we have increasingly seen a contradiction in that. We are asking the EU to do more in a number of different areas in which it requires much more effective tools, including budgetary tools. If we are asking the Union to deal with the big economic questions, climate change and other wide-ranging issues, we must give it the tools to carry out the work. At the moment, there is a contradiction in policy.
Thank you. You have given us a comprehensive overview, both orally this morning and in your written submission. Are there any final points that you would like to raise?
Aside from the budget review inquiry, which you are carrying out, there is a role for the Scottish Parliament in clarifying the policy objectives that it expects that the European Union will have to address as a matter of priority. It is also for the Scottish Parliament to set out its view of the budget that might need to be attached to those priorities at the European Union level. The reform process cannot come from the top down; it must come from the bottom up. It must be built up from the regions, civil society and all the actors in Europe to make it a policy-driven budget, which is what we are trying to achieve.
On behalf of the committee, I thank you both for taking the time to give evidence this morning and for your written submission, which we have found very useful.
Meeting suspended.
On resuming—
It was remiss of me not to mention earlier that we have received apologies from Charlie Gordon, but they are on the record now.
Did we receive only two written submissions?
Yes.
Two is an unusually low number. I have read both and although they are useful, it is unfortunate that we received only two. I do not want to denigrate the importance of the sector that the two organisations work in, but it is also unfortunate that the two submissions are from roughly the same subject area. That seems rather narrow for our purposes.
The low number is unusual. I think that the closing date for written evidence was December, so the timing may not have been the best. However, we have an opportunity for another crack at the issue. We can consider the key themes to emerge from the budget review and then decide whether we want to move on to a further phase. If so, we could again invite submissions and hope that we receive a wider range of evidence.
I am not sure whether I agree or disagree with Scottish Natural Heritage. I understand the points that it makes, but I feel that they do not tell the whole story. Point 2 of the submission answers the question:
That is an interesting point. If we move into phase 2 of the review—I do not want to pre-empt a committee decision, but we probably will do that—we can explore it. Perhaps we can invite Scottish Natural Heritage to come to the committee.
Further to Jamie Hepburn's point, and as Patricia Ferguson suggested, we are all linked. I was chairman of the Lothian and Borders branch of the National Farmers Union of Scotland at the time of the foot-and-mouth outbreak, which also struck hard at small and large towns in the South of Scotland—of course, we have no cities.
I support the proposal to go to a further phase of the review. The most substantial contribution that we heard today was the view from Brussels. As Jamie Hepburn pointed out, the local response has been more meagre.
In its evidence, Scottish Environment LINK talks about
As I said, we will return to the issue. In fact, we have a short agenda item on the subject at the end of the private part of today's meeting. With those comments, do members agree to note the report?