Revised Transcript of Evidence Taken Before the Select Committee on The

Revised transcript of evidence taken before The Select Committee on the European Union Inquiry on EU FINANCIAL FRAMEWORK FROM 2014 Evidence Session No.3. Heard in Public. Questions 63 - 75 TUESDAY 25 JANUARY 2011 4.10 pm Witnesses: Richard Ashworth, Marta Andreasen and Carl Haglund 1 Memorandum by Marta Andreasen MEP (MA) (EUFF 10) Introduction (MA) In my view the post 2013 MFF debate should have started with an analysis of the output of the previous one. Whilst the mid-term review could have provided us with such an analysis, it has fallen short of giving any idea about the efficiency with which the EU budget has been spent. We have however other information that can help us to understand if and where EU funding is of any value, the most important being the annual reports of the European Court of Auditors (ECA). Unfortunately both the SURE committee and this Select Committee on the European Union have chosen to ignore this information. The areas of the EU budget where the ECA reports high level of irregularities give a clear indication that the EU funding is at the very minimum inefficient, and the questions should be raised about how or whether to continue with such programmes. The present economic and financial crisis is the other important piece of information that should be considered together with the role that the EU has played in it, by act or omission. The European Commission has come forward with a “strategy to turn the EU into a smart, sustainable and inclusive economy delivering high levels of employment, productivity and social cohesion” and one has to wonder what it has been doing for the last 50 years. Europe 2020, now presented as the policy reference for the post 2013 MFF, and which describes itself as a strategy, constitutes in reality a series of aspirations, along the lines of its predecessor, the Lisbon Strategy 2000. The latter was intended to produce "the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion, and respect for the environment by 2010". It was quietly buried after a discreet funeral at the March 2010 summit. 1. What principles should underlie the EU Budget? What are the justifications for spending money at EU level rather than national level? I can see no justification for spending money at EU level rather than at national level. National governments understand the needs of their citizens in a way in which the EU is unwilling or unable to. Claims by the President of the Commission that spending at EU level allows for economies of scale are in my view pure theory - I have seen no convincing case studies. Moreover, the EU refuses to consult national parliaments when planning the annual budget, relying solely on MEPs who have never been involved in any way in the preparation of their member state budget. A recent Court of Auditors Special Report (No. 9 of 2010) entitled "Is EU structural measures spending on the supply of water used to best effect" has the following to say on water management schemes in Spain, Greece, Portugal and Italy, which demonstrates the point well:- 2 "....better results could have been achieved at a lower cost. In particular: forecasts of future water needs did not take into account downward trends in water demand nor all resources already available; moreover focus was placed on exploiting new sources without considering alternative solutions, such as reducing water losses and using other nearby resources; limited value was added by the Commission and the Member States' managing authorities' appraisal; ....monitoring of achievements was of variable quality; where conditions were imposed in grant decisions, attention was not always paid to whether those grant conditions had been complied with; all projects have experienced cost increases and delays....several projects were found to operate with limited efficiency; significant weaknesses were observed in the process for setting grants and insufficient consideration was paid by the Commission and the Member States' managing authorities to the ability of the projects to generate revenues." 2. How important is European added value? How should European added value be (a) defined, and (b) measured? How does it relate to subsidiarity? I think that this question is the wrong way round. The phrase "added value", for me as an accountant, has a precise meaning - essentially it is the price at which production can be sold less the cost of the inputs. Other definitions exist in different contexts, but they all boil down to outputs justifying inputs. It is for the EU firstly to provide a justifiable definition of added value, and then provide the justification in terms which can be examined. I feel that an expression which has a literal meaning is being used metaphorically by people who do not understand it. I also feel that a meaningful definition of value added, with demonstrable empirical method, would illustrate my point. The SURE committee rapporteur has already advanced that “when it comes to monitoring and evaluating European added value in a quantitative way for specific programmes and projects, experts speak about mission impossible”. As a member of the Committee on Budgets I see two things which indicate that the idea of Value Added is not understood. Firstly there is the large number of requests received each year for virement between budget headings and secondly there is an average 10% budget underspend over each of the last 12 years. If there were a real, solid purpose to the spending of the money neither of these things would happen. In the past two years the crisis has further evidenced this lack of understanding in that the need for co-financing in the area of structural funding has made it very difficult for many member states to use the budget, as they do not have the funds available to set alongside the money on offer from the EU - so the EU funds go unused. Why not then reduce this area of spending accordingly? 3 3. Should demonstrating European added value be the fundamental test to which all EU spending is subjected? Which areas of EU spending demonstrate European value added? Which do not? Looking at the implementation of the budget it is difficult to identify any area where one can be satisfied that the funds spent by the EU have added any value that would not have been better achieved by the member state itself if the money were available. Of course, if a member state does not have money, then an EU intervention can cover the need - but at the expense of other member states. This is what is now being alluded to as solidarity, a word which I believe was first used in the Treaty of Rome in 1957 but which until the recent crisis had fallen out of vogue in EU circles, to be replaced by subsidiarity, a concept which made its first formal appearance in the 1992 Maastricht Treaty and which in theory delegates matters to the member states unless the desired objectives cannot be achieved at the centralised level. Solidarity seems to be back in fashion as the current crisis provides the inevitable opportunity to centralise. A particular example of where value added has become value subtracted is in the case of Twinings, who transferred production from Andover to a new facility in Poland which had received a €10 million subsidy from the European Regional Development Fund. There is also the case of the French automotive components manufacturer Valeo, where 300 jobs were lost after production was transferred from a plant in Germany to one in Poland which received €5 million in ERDF money for the project. In both cases, if there had been a viable business case for the moves, they would have happened regardless. To make the moves happen with public subsidy looks like social engineering, and in these cases taxpayers in the UK and France, as net contributors to the EU budget, are funding the loss of jobs in their own countries. An adequate process of consultation with national parliaments is missing as is, I would say, the will on the part of the EU institutions to engage in it. Without this consultation it is difficult to imagine how the MFF will consider each member state specific needs. The European Semester aimed only at achieving fiscal stability will not provide the opportunity for this consultation to take place, as many want to argue, because the objectives and opportunity differ substantially. 4 (a) Expenditure Research and infrastructure (“smart growth”) 4. The Commission proposes that EU funding in this area should be focused on the EU’s core objectives, particularly those contained in the Europe 2020 Strategy. They suggest that European added value is provided through economies of scale and coordination. The Seventh EU Framework Programme for Research and Technological Development (FP7) has a total budget of €53.2 billion and runs for the same period as the current MFF: 2007-13.2 A proposal for the successor programme – FP8 – will be published in spring 2011 and will begin in 2014. Should the budget of the FP7 be maintained under the FP8 or increased? What should its priorities be? The Commission uses the concept of "value added" to justify the research budget and indeed to call for its increase, but seems unable to report on what the valued added is in the different areas of the budget and document the economies of scale already achieved or quantify those allegedly obtainable. The objectives of the EU's research programmes, as described in the Court of Auditor's report on the 2009 budget year (the latest available), are as follows: Research policy seeks to foster investment in research and the transition towards the knowledge-based economy in order to reinforce the competitiveness of the EU.

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