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
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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?
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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.
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(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. It also aims to reinforce the scientific and technical base of the European Research Area (ERA), improve the excellence of research in Europe, and increase the openness and attractiveness of the ERA and to maximise benefits from international cooperation.
This is money which for the most part (and entirely, in the case of the Framework Programmes) bypasses the governments of the member states and travels directly from the EU to the educational or research institutions.
Moreover, Research is one of the areas where the Court of Auditors has found a high level of irregularities. This suggests that much of the funding is not as effective as it is being held out to be and is often subject to abuse. In one case the Court found that the audited beneficiary reported 17 person-months as input to the Commission, but that the amount it claimed actually equated to 42 person-months of work for the beneficiary.
It could be argued that EU funding of research activity is as much concerned with fostering Europe-wide links between research institutions which are directly dependent on the EU as it is with research per se. When one sees that structural funds are being used to finance higher degree studentships, then a picture begins to emerge of the EU buying influence in the Higher Education sector, and fostering financial dependence there.
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5 The Commission suggests that the funding of cross-border infrastructure is one of the best examples of where EU funding could plug the gaps and deliver European added value. While the majority of funding in these areas will be met from the market, significant gaps will still remain in relation to riskier, less commercial projects, which have trouble attracting private investment. The EU and Member States must determine the priority investments. What should the EU budget’s priorities be in terms of expenditure among and between energy, transport and telecommunications infrastructure projects? Should EU spend in this area beyond 2013 rise, fall or stay level?
The idea of funding "riskier, less commercial projects" in these fields worries me, as there are already two prime examples.
One is ITER, which is making remarkably slow progress in the field of fusion, and which is based on Russian Tokomak technology, and which some experts feel will never be able to produce usable energy and is a technological dead end.
The other is Galileo, which is late, out of control and which has been abandoned by the commercial sector.
There may be an argument for assistance with cross-border projects on road, rail and energy networks, but spending should in my view at the most stay level.
(b) Agriculture, environment and climate change (“sustainable growth”)
6. Should EU spend in this area beyond 2013 rise, fall or stay level?
There are three different areas here, which should be looked at separately before drawing conclusions.
"Agriculture"
Essentially means the Common Agricultural Policy, which I in my opinion only consists in the payment of subsidies to people who don't need them to provide expensive food which goes to waste or which is dumped on poor countries outside the EU, killing their own indigenous production. The Common Fisheries Policy also deserves a mention here.
Spend in this area should definitely fall. Ideally to zero. I will elaborate more on this below.
"Environment"
I can see a case for co-ordination of environmental policy between member states, particularly in areas such as the Danube where the acts or omissions of one state can and have had a dramatic impact on it's neighbours. In my view, this would best be done through co-ordinated actions between member states, although there are sound arguments for financial assistance from wealthier countries. 6
"Climate change".
The nature of the current emphasis on climate change policy is a worry for me, as it seems to be used as an excuse to appropriate policies such as energy policy from member states. It is also an area of a malign symbiosis between NGOs, some with a political agenda, which lobby the European Institutions, and the European Institutions, which finances them to a larger extent than is generally appreciated. This is the concept of the "fake charity".
And although the debate in the real world on the subject of whether and how much climate change is happening, what is causing it and what can and should be done to alleviate it is far from over, there is no such doubt or debate in the EU's official web pages for Europe 2020. The matter is settled. Climate change is happening and human action is causing it.
7. The Commission notes that tackling the challenge of resource efficiency, climate change and of delivering energy security and efficiency is one of the core objectives of the Europe 2020 Strategy. It suggests that these themes ought therefore to be mainstreamed across all EU funding programmes. a. Should EU expenditure be contingent on meeting energy and climate goals? If so, why?
No. If EU expenditure has to exist, it should be on the basis of the informed wishes of the populations, not the aspirations of lobby groups. b. Should specific funding streams be identified in funding programmes in order to deliver energy and climate priorities?
No. However if funding programmes must go ahead, it might be helpful as a form of harm mitigation all round if they could demonstrate that they did not make a perceived problem worse. By harm mitigation I mean that they avoid both environmental damage and environmentalist overkill. c. Which EU funding programmes would particularly benefit from greater integration of energy and climate goals?
Which would benefit? If by benefit is meant "receive more taxpayers' resources" then presumably the research funding programmes, the environmental parts of cohesion funding and parts of the structural funds would all benefit.
Which should benefit? None of the above.
8. Over the period of the current financial perspective, agriculture accounts for around 42% of EU spending. The European Commission repeats the European Council’s view that a sustainable, 7 productive and competitive agriculture sector could make an important contribution to the Europe 2020 Strategy, and to other EU objectives such as global food security. d. How significant a part of the EU budget should the Common Agricultural Policy be, and why?
I refer firstly to my answer at (6) above.
The most recent Eurostat figures on agricultural population of the European Union are as follows: Measured as a percentage of the total active population in the EU, agricultural labour input in AWU accounted for 4.7% in 2009 (based on active population 2008) compared to 6.7% in 2000. In EU-15 the respective percentages in 2009 were 2.8 as against 3.8 in 2000, although the shares – and the changes – in the 12 new Member States were much higher. Source: http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Agricultural_labo ur_input#EU_agricultural_labour_down_by_nearly_25.25_since_2000 An AWU is an Agricultural Work Unit - equivalent to a full time equivalent agricultural worker. The figures are expressed this way because of widespread part time working on the land - ownership of a smallholding is often combined with other employment. Why should 42% of EU spend be concentrated on 5% of the population? Who is the spend intended to benefit? Firstly small producers, to enable them to remain on the land and secondly consumers, to ensure that there is no shortage of food. Who does it benefit? Well in the UK, recipients of over €1,000,000 in 2009 given on farmsubsidy.org include such paupers as Tate and Lyle, the National Trust, RSPB, Nestle UK Ltd and Serco Ltd. e. How can agricultural spending deliver the sustainable, productive and competitive agriculture sector which, according to the European Council, could make an important contribution to the Europe 2020 Strategy?
Please elaborate on the question. There is an implicit assumption that EU spend per se provides a sustainable agricultural sector. Surely a sustainable agricultural sector is one which provides food which people want and at an affordable price. A sustainable agricultural sector is almost by definition one which does not require state (for example, EU) support. f. Should global food security be addressed through the CAP, and if so what budgetary implications would that have?
"Global food security" is, I understand, outside the European Union's remit, although this does not prevent it from being claimed as a benefit.
(c) Cohesion funds (“inclusive growth”)
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9. Should EU spend in this area beyond 2013 rise, fall or stay level?
Fall. To zero.
10. Should EU spending reflect more the concept of cohesion as a redistribution policy or as a policy for EU economic development? What changes to EU spending are needed in support of either of these views?
If it has to take place, it should be in the cause of economic development.
11. Should the MFF treat structural funds differently? Should these funds have a role in counterbalancing the effects of the austerity measures adopted by the majority of Member States? Do the current economic circumstances justify a revision of the principle of co-financing?
No. If the funds "counterbalance the effects of austerity measures", they could well be preventing painful but necessary adjustments to the member states, by artificially placing some areas beyond the scope of a review.
12. How can EU expenditure improve the linkages between Europe 2020 and cohesion policy? Should conditionality be considered as a possible tool to align Europe 2020 and cohesion policy?
A definition of "conditionality" and an explanation of how it might work would be useful with this question.
Is this a suggestion that Cohesion payments should only be made if they fit in with the avowed aims of Europe 2020? Doesn't this compromise their primary purpose of bringing poorer member states up to the level of the others?
13. How could EU expenditure be used to maximise the impact of cohesion policy? What measures should be put in place to support cohesion as a results-driven policy? Is the idea of a performance reserve of any value?
The Court of Auditors report on 2009 says this about cohesion policy
Cohesion policy aims at strengthening economic and social cohesion within the European Union by reducing the gap in the level of development between different regions.
the Cohesion Fund (CF) finances investments in infrastructure in the field of environment and transport in those Member States whose gross national income per capita is below 90 % of the EU average.
The performance reserve is a portion of the structural funds budget which is set aside, and allocated later to programmes which have been deemed successful. The allocation is carried out in consultation between the Commission and the member state.
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In my opinion it is there purely for publicity purposes - "look, this scheme has been so successful that we are giving it even more money. Isn't the EU an outstanding success!".
(d) EU budget as a tool for economic governance
14. Should the budget review give more emphasis to the contribution that the EU budget could make to efforts by Member States to improve economic governance?
No. It should steer the EU budget away from this role. I cannot see how this could work in practice, other than using the budget to penalise infractions and exacerbate worse situations.
15. Should the EU budget be used to continue the existence of the European Financial Stabilisation Mechanism?
Insofar as it is contributed to by the United Kingdom, then no.
(e) Other expenditure lines
16 At what level should the budget ceiling be set for the EU’s external spending in the forthcoming MFF? Do you agree with the Commission’s view that “a substantial increase of the overall volume of development assistance” should be made, and if so why? Does the separate financial regime applying to the European Development Fund require further examination, as the Commission suggests (CC p18)? Should a specific budget line, separate from development aid, be included in the MFF for climate finance to developing countries, and at what level should it be set? Along with other budget headings, it should be set no higher than it already is. I do not think a separate line should be set for climate issues, as I feel this would restrict rather than enhance development assistance.
17 Currently administrative expenditure accounts for 5.7% of the EU's budget. Given the nature of the budget, is this an acceptable level? The Commission promise a "rigorous search for increased efficiency and performance in administrative resources". How should this search be conducted and report, and should its results be available in advance of discussions on the next MFF? 5-10% is not an unreasonable level for administrative expenditure. However there are little bits of administration/management included in the other budget headings that need to be taken into account. Commission´s declaration sounds great but as in the rest of the budget analysis of actual efficiency and performance is lacking making it therefore pretty difficult to identify areas where they can be improved. There are however many examples of waste or unnecessary spending at administrative level that should be eliminated. 10
18 You are welcome to comment on any other budget lines not already mentioned. In my opinion, an empire - which we do not need and represents yet another power grab from the EU- is being built at the European External Action Service (EEAS). There was an initial declaration that the EEAS would be budget neutral but according to published data this is not true : The global headquarters for her network of 137 missions will be the 645,000 sq ft Capital, or Triangle, building in the European quarter in Brussels, costing £10.5m a year in rent. At least 50 of Ashton's 114 senior officials earn between £157,000 and £171,000 a year, more than David Cameron's £142,500 salary. The average wage of a British ambassador or high commissioner is £80,852; their EU equivalents earn between £112,000 and £163,000. [...] Internal EU documents show that the EEAS will spend £19.7m-£32.8m on buying and maintaining the 150 vehicles for four years, equivalent to £130,000-£219,000 a car.
Funding instruments (loans, grants, guarantees, “innovative financial instruments”) and structure of the budget (flexibility, duration, large scale projects) 19 Should the structure of the next MFF be more flexible in determining the areas of EU expenditure and how should such flexibility be achieved? How can flexibility be balanced against budgetary discipline? Flexibility in terms of budget may have other implications so please be more specific with its definition. 20 Would more flexibility meet the needs of large-scale projects such as Galileo and ITER, or would an alternative approach be more suitable, such as the establishment of a separate support structure to which the EU budget would make a stable contribution, as suggested by the Commission? Neither of the projects mentioned needs more flexibility. Galileo is allready completely out of control both financially and politically, and I suspect ITER is no better. I suspect that the problem of the suggested support structure is that new crises would render the contributions anything but stable. 21 Should the use of EU project bonds, PPPs or innovative financial instruments more generally be encouraged? How might such tools improve the impact of the EU budget? Definitely not. 22 Should the current system of budget headings be revised? Should the number of headings be reduced and their terms made less specific? Currently the number of "posting level" lines (i.e. lines at the bottom of the hierarchy, to which individual transactions can be charged) is over 1,200 just for the Commission and the total number of lines (posting plus summary) is over 1,500. Any reduction of budget lines would have to be counterbalanced by an 11 increase in transparency in terms read-only access to the ledgers, perhaps, or at least electronic access to scanned documents.
23 How long should the period covered by the MFF be? Should it incorporate a substantial mid-term review? The argument for some kind of correspondence between the MFF, the Parliamentary term and the Commission lifetime is in my opinion a good one. There are various means by which that might be achieved, but I have no strong opinion on which should be used.
(f) Europe 2020
24 Do you agree with the Commission’s proposal that the new MFF should reflect the Europe 2020 Strategy for smart, inclusive and sustainable growth? How can this best be achieved? By a substantial reduction, leaving the money in the hands of the member states.
(g)
(h) Income: the EU’s Own Resources
25 The Commission does not at this stage say how big the MFF should be, but the Government want the next MFF to be “smaller in real terms” (EM 43). Do you agree? I entirely agree. 26 The Commission suggests possible new “Own Resources” to fund the EU Budget (CC p26), but the Government say they will not support “a new EU tax” (EM 56). Do you agree? I agree entirely. Furthermore, I would oppose the annexation of any existing UK taxes by the European Union. Correction mechanisms
27 The Government will defend the UK abatement (EM 44). What is your view of this and the other correction mechanisms? Should the income side of the budget have regard to net contributions or not? In what circumstances should the UK abatement be given up? Too much of the UK abatement has already been given up, to no purpose. In my opinion, no more should be given up. I would note that when the budget is presented, great care is taken to show the abatement as a benefit to the UK and as a cost carefully apportioned among the other member states. The inquiry will not address the budget implications of EU enlargement, nor financial management and the Court of Auditors’ Statements of Assurance.
21 December 2010
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Memorandum by Richard Ashworth MEP and James Elles MEP (EUFF 19)
We are writing to give our initial response to the inquiry launched by the House of Lords EU Select Committee into the EU's financial framework from 2014.
You will find attached answers to most of the questions you have submitted. However, given the short notice we have not answered all of your inquiries. We may be in the position to return a little later with more specific answers as the debate unfolds.
From the outset, we would like to set out our position from our point of view as Conservative MEPs, starting first with the letter of five Heads of State to President Barroso of 18 December 2010, which clearly provides the basis for our approach to your committee's report. You will find these principles underlying our approach set out in answer to question 1. In addition, we would stress four specific items and draw them to your attention from the outset:
¾ First, we attach real importance to Value for Money so that all ongoing programmes having a major impact on the EU Budget should be carefully analysed for their viability. There should be no automaticity for any programme's extension post-2013 (see question 2); ¾ In view of the need to keep expenditure under control, we are strong supporters of the shortest Financial Perspective as possible (five years under the terms of the Lisbon Treaty which will also help more efficient governance of the EU in line with the terms of both Parliament and Commission) (see questions 19 and 23); ¾ In times of financial retrenchment and cutbacks at a national level, no country should be required to contribute an excessive amount into the EU Budget. A limit to net contributions as a percentage of GDP should be seriously considered (see question 27); ¾ For there to be a satisfactory outcome when planning long-term expenditure, we must have a more efficient way of assessing strategically the EU's direction and priorities. The introduction of a European Strategy and Policy Analysis System (ESPAS), with a first report to be expected by the autumn of 2011 looking at global trends 2030 from an EU perspective, will help to decide the future structure and priorities (see question 24).
1. A letter from Prime Minister David Cameron and other European leaders to the President of the European Commission on 18 December 2010: "The next multiannual financial framework will come as Member States make extraordinary efforts to clean up public finances. These efforts are intended to bring down public deficits and public debt to a sustainable level in keeping with an enhanced fiscal and macroeconomic monitoring framework. European public spending cannot be exempt from the considerable efforts made by the Member States to bring their public spending under control. The action taken in 2011 to curb annual growth in European payment appropriations should therefore be stepped up progressively over the remaining years of this financial perspective and payment appropriations should increase, at most, by no more than inflation over the next financial perspectives. A budgetary rule should be defined for the overall level of spending incurred by the European Union over the period covered by the next multiannual financial framework, such that the level of commitment appropriations is set at a level compatible with the required 13 stabilisation of budgetary contributions of Member States. Consistent with this, the commitment appropriations over the next multiannual financial framework should not exceed the 2013 level with a growth rate below the rate of inflation. It is possible to implement ambitious European policies for our citizens if we have a stable volume of spending. This calls for a better use of available funds. The challenge for the European Union in the coming years will not be to spend more, but to spend better. This challenge can be met by improved European spending efficiency, accurate tracking of incurred commitment appropriations, seeking out where we can gain economic leverage and simplifying the financial framework." 2. European Added Value (EAV) for money for the EU Budget is critically important to assess.
The European Commission currently uses "efficiency criteria" for determining EAV which serves as a useful demonstration of how EAV might work and areas where it might be fruitfully applied. The principle of subsidiarity, as defined by Article 5 of TEU and anchored in Protocol 1 on the role of the National Parliaments in the European Union, is intrinsically linked to EAV. Under this principle, areas which do not fall within exclusive competence of the European Union should only be considered for financing should member states be unable to better provide finance themselves. Consequently, spending should always be subject to a subsidiarity check.
3. Examples of EU policies with a potentially high ex-ante European Added Value (as suggested by Gert Jan Koopman, Director for Policy Strategy and Coordination, DG ECFIN, European Commission):
¾ Research and Innovation - Projects with large economies of scale or critical mass requirements
¾ Physical infrastructure - Covering large cross-border externalities, notably trans-European networks
¾ Climate Change - Pilot projects on mitigation of climate change such as innovations in energy efficiency, renewable energy or carbon capture & storage - Cross-border adaptation to climate change such as flood protection - Defence, foreign affairs and international aid...1
While Conservatives would agree with some of these areas where spending might sufficiently be justified, it is also the case that there might be areas where EU/Member State spending duplication occurs - this must be avoided in achieving maximum spending efficiency and most importantly, value for money. It must also be noted that EAV cannot, and should not, serve as the sole determining factor in making political choices.
The Commission must publish impact assessments, including a budgetary analysis accompanying any piece of proposed legislation as a matter of best practice.
1 Source: European Commission "The Concept of European Added Value," presentation to SURE Committee by Gert Jan Koopman, Director for Policy Strategy and Coordination, DG ECFIN, European Commission, 23rd September 2010 14
(i) EXPENDITURE
Research and infrastructure ("smart growth")
4. The next MFF should see a greater concentration of budget resources in the areas of science, research and innovation. Funding should concentrate on areas where the EU could hold a substantial competitive advantage, such as nuclear energy, information and communication technologies as well as hi-tech innovation. Rather than sporadically spending EU money over a wide range of small projects, it could be better to fund a smaller number of large projects in order to get value for money. Furthermore, in terms of spending, targets of close to 3% GDP seem appropriate. The conclusions of the Sapir Report2 clearly stressed the need for Europe to transform itself into an innovation-based economy if current sluggish growth rates are to be overcome.
But before any decisions are taken concerning the 8th Framework Programme (FP8), the issues of reducing red tape and simplification have to be tackled with real urgency. We have to recognise that the pursuit of excellence will be critically important. The administrative burden in European research has constantly increased, despite efforts to reduce red tape for researchers and small businesses. Many scientists and researchers have expressed dissatisfaction with current rules and as of January 2011 over 13,000 have signed an online declaration calling for the administrative burden and financial regulation attached to European research funding to be simplified3.
5. An interesting idea would be to explore the opportunities offered by new sources of financing for major European infrastructure projects. Although difficult to give detail, it is certain that we need financing options not dependent on the EU budget alone. Options backed by the European Investment Bank could be examined.
Agriculture, environment and climate change ("sustainable growth")
6. See question 8d.
7. a. No, however it should remain a consideration. b. Funding streams should concentrate on energy projects that will allow the EU a future global advantage, such as renewable energy and photovoltaic technology c. More of our research funds should help to develop technologies such as cheaper solar panels and floating wind turbines. Rural development funds should help farmers deploy small- scale renewables. The EuropeAid budget should make promoting renewables in developing countries a top priority. And substantial funds should be devoted to supporting new long- distance grid connections to enable us to combine Europe's wind, solar, hydroelectric, geothermal and other renewable energy sources into a reliable supply for everyone.
8.
2 see http://www.euractiv.com/ndbtext/innovation/sapirreport.pdf 3 see the "Trust Researchers' Campaign, http://www.trust-researchers.eu/ 15
d. The overall size of the next MFF is likely to be frozen, therefore given finite resources it is clear that agriculture, which currently receives 42% of the budget, will face increased competition from other areas of expenditure. We want to see a strong CAP; however, when money is tight the biggest influence throughout the MFF must be quality of spend, added value and most importantly value for money. Structural problems must also be addressed if budgetary savings are to be achieved, Conservatives were disappointed with Commission proposals on the future of the CAP and want to see more long term fostering of competitiveness. e. Agriculture has a vital role to play within the 2020 strategy. Agriculture and rural development are already making huge contributions to the European economy by creating jobs and wealth in the environment. It also benefits the European economy because the average household spend is just 13% on food. A price which is affordable, stable and important to economic competitiveness. Furthermore, the linkages between other areas in the 2020 strategy and agriculture are manifold. Agriculture makes a huge contribution to the delivery of public goods, as well as an important contribution to mitigating the effects of climate change. f. The world will have to double its food production to feed future population growth, with global population current growing by 6 million a month. A recent report by the UK Government's Chief Scientific Adviser, Professor Sir John Beddington, highlighted that food security will be a significant issue by the end of this MFF and therefore agriculture and food production will be of vital strategic importance to the EU.
Cohesion Funds ("inclusive growth")
9. EU spending should be gradually moved away from traditional structures such as the Cohesion Funds and towards more value creation areas in research and innovation, given the lack of added value offered to existing regional development initiatives.
10. Current cohesion policy as redistribution has had the effect of supporting areas while frequently ignoring a pressing need for the restructuring of local economies required to meet the challenges of global competition. Where possible, cohesion spending should be focused on SMEs and research and development, helping to stimulate local economic development in the regions.
11. In principle, Cohesion Policy and structural funds should not be used as an auxiliary stimulus package, designed to offset austerity policies being undertaken by Member State governments across the EU. Current economic and financial pressures represent an excellent opportunity to eliminate wasteful and inefficient practices.
12. Internal problems in the EU will not be solved without growth - focus on job and value creation opportunities must be the overriding priority. The criterion of excellence in judging programmes is strategically vital, with a careful balancing of both long and short term gains. Europe must do more to make the most of its educated population, for this we need to use competition to select excellence.
13. A performance review should be instigated as an initial step to maximise the impact of cohesion policy by helping to prevent wasteful spending of money on projects which offer 16 little conceivable added value towards stimulating economic growth, development and job creation.
Another means of maximising the impact of cohesion policy would be to revise the system by which Eurostat breaks down regions across the EU. Currently, the division into such unnaturally large regions means that smaller yet substantial pockets of deprivation within larger richer regions can miss out. This point illustrates how a top-down centralised European cohesion policy can lead to local asymmetries within Member States, and highlights the need for at least a more flexible approach.
EU Budget as a tool for economic governance.
15. The European Financial Stabilisation Mechanism is guaranteed by the European budget up the amount of €60billion. This should not remain a permanent arrangement. While it is in the UK's interest for Europe's economy to stabilise, any agreement to increase this fund could see UK taxpayers becoming exposed to ever growing debt burdens of governments over which they have no democratic control. This fact also highlights the pressing concern that the EU budget should remain legally unable to run deficits.
Other expenditure lines
16. The Commission is undertaking a substantial review of EU external spending, including development aid. In parallel the Development Committee is drafting a report on the future of EU budget support to developing countries. The Conservatives will wait for the outcomes of these consultations before deciding upon a final position. Regardless of the outcome of these analyses, the next MFF should see increased accountability and parliamentary oversight of the large amounts given to NGOs because there is concern about the end destination of some budget lines.
17. The administrative budget of the European Union needs to be effectively analysed to bring it up to date with current technological trends, not only to reflect developments in Member State civil services but as a demonstration of solidarity with the financial situation of many across the EU. The European Parliament spends significant sums on maintaining external offices in Member States of the EU, the relevance of which is questionable given the major revolution of communications. At the very least the European Commission should undertake a study, reviewing whether the work of these offices could not be done more effectively from existing EU offices taking into account modern communication technologies.
Savings could be achieved by the abolition of the second Strasbourg seat, The Committee of the Regions and the Economic and Social Committee. The value of these committees is questionable and it is often unclear what their meetings, recommendations and studies actually achieve.
Conservatives are also concerned by the situation under staff regulations where certain pension provisions now seem to be out of date with current economic circumstances, not least pension schemes which are no longer adapted to increase the pension age in times of growing life expectancy. A review of all staff pensions before the next MFF should be carried out by the Commission.
17
18. A rationalisation of the use of translation and interpretation budget lines is one option that should be considered when looking for administrative budget savings. Suggestions for reducing the burden include the use of three working languages in the institutions and a reduction in the number of permanent translation and interpretation staff, to be replaced by increase employment of freelance workers as and when they are required.
Funding instruments (loans, guarantees, "innovative financial instruments") and structure of the budget (flexibility, duration, large scale projects)
19. The EU budget requires more flexibility. This does not necessarily mean more money, rather than funds should be able to be moved between headings more easily. Long term strategic planning and policy planning analysis must be coupled to this increased flexibility.
Future MFFs should also be shortened to increase flexibility. The EU has been setting figures in stone in far too far into the future with an inevitable impact on budgetary flexibility, perfectly exampled by the recent financial crisis to which an EU budgetary response was found badly wanting.
21. Innovative financial instruments, if used, could prove beneficial by not relying on the EU's budget. These instruments should not increase the financial burden of EU citizens and must be transparent, with sufficient oversight. Anything that decreases accountability must be avoided. For more information, see answer 5.
23. In view of the need to keep expenditure under control, we are strong supporters of the shortest Financial Perspective as possible (five years under the terms of the Lisbon Treaty which will also help more efficient governance of the EU). We believe that an extension of the current Financial Perspective (for example by three years to the end of 2016) could provide the best solution, not only by providing the time for a wide-ranging debate of what EU funding priorities should be for the next Financial Perspective but also to ensure that an incoming European Commission and European Parliament in 2014 could take their responsibility in drawing up and approving the next full length Financial Perspective (incidentally, no Commission has been able to decide its own Financial Perspective since the Delors Commission of 1988).
This extension would also allow for further analysis of the results of the Pilot Project ESPAS' future core trends study when considering long term expenditure priorities.
Europe 2020
24. The next MFF should mainly reflect the aims of the EU2020 strategy, in particular by focussing on increased spending on "smart growth." Strategic thinking has to be an essential component of EU thinking in order to orient domestic policies and give coherence and consistency to EU planning for future Financial Perspectives. With this in mind, the newly established Pilot Project "European Strategy and Policy Analysis System" (ESPAS) should have an important role to play in analysing how long-term trends, challenges and choices may interact with the existing political and legislative priorities of the various EU institutions
Income: the EU's Own Resources 18
25. See point 1.
Correction Mechanisms
27. The UK rebate should not be subject to negotiation until the UK's European partners deliver on their promise of real and substantial reform of the CAP.
The Conservatives are also proposing that the UK have in place a total fixed net contribution as a percentage of GDP, effectively capping the UK's contributions to the budget.
27 January 2011
Members present
Lord Roper (Chairman) Lord Bowness Lord Dykes Lord Hannay of Chiswick Lord Harrison Baroness Howarth of Breckland Lord Jopling Lord Liddle Baroness O’Cathain Lord Plumb Lord Richard The Earl of Sandwich Baroness Young of Hornsey
______
Examination of Witnesses
Witnesses: Richard Ashworth MEP, Marta Andreasen MEP, and Carl Haglund MEP.
Q63 The Chairman: Perhaps you could identify yourselves. As I see, going from left to right, for us, we have Mr Haglund, Ms Andreasen and Mr Ashworth. My name is John Roper and I am the Chairman of the European Union Committee. I will call my colleagues by name when they are going to put a question so that you will know who they are. We are grateful to the three of you for agreeing to have this session with us via videolink. I think you have seen the questions that we would like to put to you. This is being recorded. We are taking a 19 note of this and a transcript will be provided and sent to you. There is also a webcast. You will have the opportunity to make minor amendments to the transcript, but it will be published online in uncorrected form first. I have to remind my colleagues that if they are going to ask a question and they have a relevant interest to declare, they should declare it.
Can I begin with the first question? At this stage the Commission does not say how big the medium-term financial framework should be, but the British Government have sent us an explanatory memorandum making it clear that they want the MFF to be “smaller in real terms”. The Heads of Government of five member states declared in December that,
“payment appropriations should increase, at most, by no more than inflation”. We’d be interested to hear from each of you whether you agree with that view. Shall we start, the first time, in alphabetical order with Ms Andreasen?
Marta Andreasen: If you will allow, I would like to make a small statement at the beginning.
In my view, the post-2013 multi-annual financial framework debate should have started with an analysis of the output of the previous one. While a mid-term review could have provided us with such analysis, it has fallen short of giving any idea about the efficiency with which the
EU budget has been spent. However, we have 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. Unfortunately both the SURE Committee and I believe this Select Committee have chosen to ignore this information. The areas of the EU budget where the European Court of Auditors reports a high level of irregularities give a clear indication that EU funding is, at the very least, inefficient. The question 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 by omission. The European Commission has come forward with a strategy to turn the 20
European Union into a smart, sustainable and inclusive economy, delivering high levels of employment, productivity and social cohesion. One has to wonder what it has been doing until now.
The Europe 2020 strategy is now presented as the policy reference for the post-2013 multi- annual financial framework. It describes itself as a strategy, even if in reality it constitutes 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.
Q64 The Chairman: I wonder whether you could come to the question now please.
Marta Andreasen: I will come to the question. Based on what I have said, I agree with you that there should be no increase to the budget. In fact, the budget should be lowered to a level at which we can find some value added. It is fundamental to identify this value added.
The rapporteur of the SURE Committee has already declared that the value added cannot be quantified.
Richard Ashworth: Your question was about five Prime Ministers having written a letter saying that payment appropriations should increase, at most, by no more than inflation. I strongly agree with that statement. I think there would be three products from that. First and most importantly, it would be a grave mistake at this time, when all other nations in
Europe are producing austerity budgets, if the European Union was to approve or develop a budget that showed any increase at all. So I strongly agree on that ground. I certainly also strongly agree because I feel that there are programmes that have been set out by the
European Commission. Those programmes can almost certainly be fulfilled, but by restricting the budget first there would need to be a review of priorities—that can only ever be nothing 21 but a good thing—and thirdly, it would enforce efficiencies and ensure that such money as is spent would represent added value and value for money, to which I wholeheartedly subscribe.
Carl Haglund: Allow me first to say that the Prime Minister of Finland signed the letter, and as I happen to come from Finland it is a little interesting. In my view, the equation behind the
EU budget is very challenging, because the EU has taken on board a lot of new tasks with the
Lisbon Treaty, and then we have the ambitious 2020 strategy, which Mrs Andreasen referred to and which the European Union wants to implement effectively. This, combined with the financial crisis and reform of the CAP, makes the budget equation very difficult. Personally, I could live with the idea of not letting the EU budget grow at all. However, I think it will be necessary to start discussing where we could find savings in the EU budget. I know that in
Britain you are capable of having that discussion, but in many other EU countries there is not a serious discussion about where we could find the money. That is going to push us in a direction where there will be pressure to increase the total amount of the budget, even though the quarrel on the EU budget for 2011, which ended in a victory for Mr Cameron, with the EU budget growing by only 2.9%, shows that there is a strong will in the Council not to let the budget grow too much. That can pretty much predict where we are going to end up with the negotiations on the multi-annual financial framework.
Q65 Lord Hannay of Chiswick: Do you think it is perhaps a mistake to look at a seven- year multi-annual framework programme now, given the climate of austerity that exists throughout the EU and given that the upward pressure on the budget is greater for the longer the period you look at? Certainly, I don’t think any of our member states budget for that length of time ahead. What do you think about that?
Carl Haglund: First of all, the point that was just made is very valid. There has been a discussion to make the MFF shorter, maybe to five years. Mrs Andreasen referred to the 22 non-existent mid-term review. She made a good point there. Real mid-term reviews could make changes to the MFF during the period if circumstances changed, which they did during the current period, when we had a bad economic downturn two years ago and still nothing has been done to the budget. If mid-term reviews were conducted in the way they should be, we could work with five or seven-year periods. Shorter than that is difficult, because if you want to conduct EU programmes, such as the CAP, the fisheries policy or the research policy, in an ambitious and serious way, it is impossible with only one or two-year budgets.
There has to be a longer period. Five years could be a good start, but the most important thing is to underline that a mid-term review should be conducted during the MFF to take into consideration possible new circumstances.
Marta Andreasen: I believe the question has two aspects. One is the opportunity of deciding or working on the multi-annual financial framework at this time when we are going through a crisis. I agree that this is a very difficult moment to make such evaluations of what should be the budget of the European Union for the future. In this sense, we should look to a shorter period for at least the first multi-annual financial framework, because it is very difficult to predict when this crisis is going to end and how we are going to end it. The shorter the first multi-annual financial framework is, the more flexibility we have to adapt once the crisis has ended.
Richard Ashworth: First, the duration of the multi-annual framework hasn’t been agreed yet; it is still subject to discussion. The argument in favour of the traditional seven-year programme is that many of the programmes that are being financed—in fact, nearly all of them—are multi-annual. Other elements, such as the common agricultural policy, require long-term planning and therefore the argument is made that seven years gives greater stability. Nevertheless, my argument would be that in the times in which we live now, we 23 need greater flexibility in the budget. Times change; the budget needs to change with them as well.
My other point is that aligning the multi-annual framework programme with the duration of the term of an elected Parliament will give a greater element of accountability to the elected
MEPs, who have full co-decision rights through the Lisbon Treaty. It will enable those elected representatives to take greater responsibility for the budget, with greater transparency and accountability, which will create a better political environment and a more responsive budget.
Q66 Baroness Howarth of Breckland: We are thinking about how we can be smarter in looking at the budget. Do you believe that the budget of the eighth framework programme for research and development should be increased? What should its priorities be? Is the current structure fit for purpose, or is a fundamental review necessary?
Richard Ashworth: A strong research and development programme is vital to the future competitiveness of the European economy. This is one area where the eighth framework programme really can add value in European spending. However, I have one or two points to make. First, I agree that we need a fundamental review of priorities. Clearly, it must be based on leading-edge technologies, where we have an advantage in Europe—things like development of nuclear power and new energy systems. Secondly, funding should be allocated according to excellence. I make that point strongly. It should not be done on cyclical turn or an even distribution. I am aware that a new regulatory body is in place right now. One thing that it will have to take on board is that many in the research community complain about unduly difficult barriers to entry for research funding programmes, the high cost of access and the high level of risk on whether they will get that funding. Also, very often they complain to me that they don’t find they have a problem until two years after the programme has finished. So the new regulatory body is going to have to find a way of 24 removing some of those barriers, but at the same time bearing in mind that the Court of
Auditors is quite critical of the management of these programmes, so it is a very delicate balance, on the one hand to ensure that the red tape and the barriers to entry are kept to a minimum, but at the same time to keep the accountability and governance of the programme of the highest order.
Marta Andreasen: I have just come from a meeting of the budget committee, where the commissioner responsible for research explained to us how the programmes are working and responding to the criticisms from the Court of Auditors. It is an area where the auditors have found a number of irregularities. The question is not whether we should increase or decrease the programme. It is more whether we should continue the programme with the
FP8 or abandon research as an area where the European Union needs to intervene. My argument about value added comes in here. That is very important. Maybe we need a simple co-ordination, not investment, which requires a huge effort to check that the funding gets the results that are expected and reaches the right beneficiaries for the right purposes.
Carl Haglund: I am happy about this question, because I happen to be the standing rapporteur on the committee on the budget on the current seventh framework programme.
I tend to disagree with Mrs Andreasen here, in that research is one of the fields that gives us the largest amount of value added on a European level. That is my personal view and the
Liberal Group is very positive to more focus on research and development. Innovation and research and development usually don’t acknowledge borders. Of course we can co-operate and co-ordinate, but I see that there is value added with the activities of the European
Research Agency and the European Union in this field overall. This is where we should put more resources in the future, because we are lagging behind Asia and the growing economies. I come from the country in the European Union that puts the most of its resources compared to GDP into this field. It is a good thing when you want a prosperous 25 economy. I can tell you that the Finnish economy is prosperous—we have growth and we don’t even have an economic crisis any more—because our companies that are very dependent on research and innovation are doing very well. I really hope that we can focus more on this field in the future.
Then we should look at the bureaucracy linked to FP7, which will probably link to FP8. It is really complicated and takes a lot of economic strength from the research community to fulfil all the criteria. We have specialised companies that sell their consultancy expertise to researchers to help them to fill in the applications forms. That is insane in my world. We need to look at all of this. If we just foresee the financial regulation for a while, this is still the field that we should work with, even though we should do something about the financial regulation that causes a lot of unnecessary bureaucracy, in my view.
Q67 Baroness Howarth of Breckland: Can I ask a very quick follow-up? I have been in two inquiries where I have certainly heard about bureaucracy, but one that we are looking at at the moment is when the research is not necessarily seen through to implementation and not enough emphasis is given on this move to make the research accessible and useable.
Would you see that as a priority and how would you want to take it through?
Carl Haglund: That was a very valid point. If you compare the situation to the United States and how they are able to convert their research results into business and economic prosperity, they are twice as good as we are in Europe. The Commission has acknowledged this in the communication on the FP8. That is a good start, but we really need to work on this. There is no clear medicine for this. If we knew how to do this better, we would. We need to analyse this field closely and figure out what we can do to get closer to the
Americans, for instance.
The Chairman: Are there additional answers from Ms Andreasen or Mr Ashworth? 26
Richard Ashworth: Yes, if I may. By definition, if it’s research and development, it isn’t always going to work. Some of it won’t see its way through to a successful conclusion. That is the nature of research and development. I wouldn’t want to stifle people’s inventiveness or entrepreneurship by saying, “By the way, you’re not going to get paid if it doesn’t work”.
Q68 Baroness O'Cathain: Which energy and transport infrastructure projects do you think should receive priority funding from the EU during the next multi-annual financial framework and how should greater private capital be attracted for infrastructure projects in general?
Richard Ashworth: I have listed four items. I will start with cross-border energy connectivity, which is vital to consumer and industrial value from energy companies. It is vital from geo-political elements with the east European states and it would be a vital component in creating a single market in energy. Cross-border connectivity on electricity grids, gas pipelines and things like that is high on the list. At the same time, the European Union should be prioritising new generation energy development. It has a cross-border element. Then there are trans-European networks—high-speed rail links. These bring benefit to the whole community and take a whole new generation of connection. Just in the way that the
Victorians created a new economy with conventional rail, we’ve got it within our grasp, if only we have the vision and ambition, to have a high-speed rail connection. In the same way the Victorians connected people and made wealth through the telephone system, we have the potential to connect people with a broadband connection.
Those are my four items on the shopping list: energy connectivity, energy development, high-speed rail and broadband. How could people be persuaded to invest in a partnership deal with these things? They need stability and security. That takes us right back to the argument about how long a multi-annual financial framework should be. 27
Marta Andreasen: I imagine we are always referring to cross-border infrastructure. In my view, member states are better positioned to decide the priorities that should be covered by the European Union budget. In response to the question about the intervention of private capital, the latter is always attracted by sensible projects where it is possible to obtain reasonable return. The ability to get private capital involved depends on the analysis of the different projects.
Carl Haglund: First of all, I think Mr Ashworth has pretty much explained or described the essential elements. First, in energy, we need to be less dependent on Russia, which means that we need to be better connected. That might mean the Nabucco pipe or something like that. I don’t want to define which pipeline we are talking about, but for gas that is necessary.
European electric grids could also increase competition in this field in Europe, which could lower consumer prices and enhance business, so that is important.
When we talk about transport connections, a large part of Europe is still dependent on old- fashioned railways. We should focus on those. At the same time, it is important to underline the fact that not all of Europe is connected to each other by rail. We have Malta, Cyprus,
Ireland and Finland and others who do not benefit from railways at all. We should remember their needs and remember that sea transport can be very important for some member states. There is a little balance with that.
Q69 Baroness O'Cathain: Marta Andreasen said that member states should make the decision about the funding of infrastructure projects. If we are going for the whole EU scene—the internal market and connecting people of each of the 27 states with others— surely there has to be an enormous amount of cross-border involvement. By its nature, that will mean funding by the EU as a whole rather than member states. Do you agree?
Marta Andreasen: The funding by the EU might be agreed, but the priorities for the member states are very different. For example, the Mediterranean countries would put a lot 28 of emphasis on what they call the Mediterranean corridor. I am not sure that countries on the Atlantic side would be so keen on investing in those infrastructure projects. The countries have to decide their priorities. It cannot be decided at European level. That is my view.
Q70 Lord Plumb: Good afternoon. You must be pleased that, for the first time, the common agricultural policy is going to be considered by the co-decision procedure. We shall watch with great interest how you perform in the ultimate decision-making. Should the overall spend in the area of agriculture, environment and climate change beyond 2013 rise, fall or stay level? Should climate change be mainstreamed across the budget, as suggested by the Commission? In the overall spend, I would also like you to comment on whether you agree with the Government in seeing private funding as an important contributor to mitigation and adaptation measures.
Carl Haglund: First of all, the challenge with the common agricultural policy budget is that many of the newer member states in central and eastern Europe feel that the current CAP is unjust, because it treats farmers based on historic numbers. In my view, they are correct and the Commission has acknowledged that we should treat the farmers in newer member states more fairly. At the same time, it is really difficult to get countries such as France,
Holland, Greece, Spain or Portugal to let go of CAP money that they have been used to for decades, or at least years. This makes the CAP equation really difficult. In my view and the view of my group, there is no room for the CAP to grow in economic terms. On the contrary, there might be some pressure to lower the total amount of the CAP. There should be some targeted cuts and we should have a more market-oriented policy. This would all require substantial changes to the CAP, where countries that get money that objectively might not be easy to justify should give up some things. As you well know, this is 29 a very difficult topic for some larger member states, so it will not be easy to achieve, but our group is very willing to have a serious discussion about it.
At the same time, I should underline the importance of having a CAP that gives the possibility for agriculture to be conducted in all of Europe. For instance, take Scotland as an example that you probably know fairly well. It has short periods of growth. Areas like that need special support from the common agricultural policy to be able to conduct agriculture and produce products for consumers locally in the future. That makes the CAP important and gives it a role, but its role today could be changed and developed.
It is important to find enough money in the EU budget for climate change and the environment, but with the current budgetary equation I am personally a little cynical when it comes to pushing in too much new money for climate change. However, the 2020 strategy acknowledges climate change as an important goal for the European Union. It is likely that the cohesion policy and others will prioritise climate change-related projects. We could also see that integrated in the CAP. One can then discuss whether this will work in practice, but that remains to be seen.
Marta Andreasen: We should go back to understand the aim of the common agricultural policy. I think the aim is to support small producers to produce food at a reasonable price. I think the objective has been lost. We are paying subsidies to different beneficiaries who are not necessarily small entities and who then sell their products at high prices and even throw the extra production away, causing some problems for poorer countries that receive the excess and cannot sell their own products.
One number can give us an idea of what the change in CAP should be. Eurostat says that only 5% of the active working population is engaged in work related to agriculture. My question is whether it makes sense to invest 42% of the European Union budget for 5% of the population. 30
Richard Ashworth: If you accept that the overall European budget will be frozen at 1% of
GNI, you also need to accept that the biggest pressure on the Commission and on every
European institution must be what they are doing about 23 million people out of work, particularly the young people who are out of work. What are you doing to help them to stimulate growth in the European economies? What are you doing to create and forge a competitive economy that can meet the challenge of emerging nations such as China and
India? It is clear that the funding of agriculture, at 42% of the budget, is inevitably going to shrink in percentage terms and in real terms. If you factor into that as well the fact that new member states will seek an equal distribution of payments that they get from the common agricultural policy, it is clear that the total funding will be reduced.
For that reason, I have been deeply critical of the Commission in the last week or so, because their proposals lack the vision and ambition to confront the problems that the agriculture sector will face. Only this week, Professor Sir John Bennington spelt out the warning of food security. People in Europe query the amount we spend on agriculture when
Europeans spend 13% of their disposable income on food. In Britain, we spend 11% on food.
We actually spend more on DVDs, videos and entertainment. Yet at the same time, the average farmer in Europe earns just 50% of the average worker and 50% of the net farm income of British farms is represented in single farm payment. The Commission was wrong to avoid that and not talk about food security, not mention what money they are going to put into research and development, not talk about how they are going to restructure the industry. Yes, agriculture is part of the climate change problem at the moment, but by golly it has tremendous potential to be one of the best elements as a solution to climate change.
Agriculture has a massive amount to offer. By the way, £50 billion of support for the
Common Agricultural Policy represents 0.43% of the European Union’s total Gross National
Income. 31
Q71 Lord Hannay of Chiswick: Are you giving any consideration to an increased rate of co-financing? That is to say, a smaller input from the EU budget and a larger proportion of some agricultural spending from the member states, which could be modulated in such a way as to impact less on the newer member states by relation to their prosperity and more on the older member states. Are you giving any thought to that as a way of making the agriculture budget smaller and better spent?
The Chairman: If any of you are giving thought, perhaps you could reply. Apparently not.
Richard Ashworth: I am happy to. We are talking about the two pillars of support for agriculture. Pillar I supports the commodity. Talking as a British Conservative, we have always favoured creating a competitive agriculture sector that can stand on its own two feet.
We live in times of high commodity value volatility and it would be almost reckless to leave the industry, and thereby the consumer, exposed without some form of intervention support capability or some market management facility. So I think there will always need to be Pillar I support.
I worry slightly that some of the proposals on the table, in the greening of the common agricultural policy, aim to layer support for Pillar I. In other words, there will be benefits from complying with various different practices. I am deeply concerned about that because it is locking up too much money where you didn’t want to and because it is over-complicating the common agricultural policy.
On Pillar II, which is environmental support, I have some sympathy. If you compare the challenge of managing the environment at the north of Finland with the challenge of managing the environment in the south of Spain, they are vastly different. I suspect that there should or could be potential for those Governments, on their own initiative, subject to limitations obviously, to co-finance the second pillar to a degree. That may be an inevitable consequence of restricting the budget. 32
Carl Haglund: Briefly, Finland already has an exemption that makes it possible for us to partially top-up the EU funding. Finnish agriculture is dependent on that, because the growth period is half of that in southern England. It is very short. We have one and a half metres of snow now in southern Finland and we will have it until maybe mid-May, so that makes it quite difficult.
When it comes to co-financing, my group is a little sceptical. Personally I am more positive, probably because of my background, but the argument is that more co-financing in many different EU areas—not only agriculture; it has also been proposed for cohesion, which we will discuss in a while—leads to a situation where the economically stronger member states, like my own, would be able to do so while others wouldn’t. That would start dividing the EU into stronger and less strong, which would then divide the single market, which is really important. The argument is that if you want a single market, you can’t have certain countries with a lot of money subsidising their industry and then putting their producers and companies in different fields in a better position. That argument is fairly good and it could be discussed, but if it is used in a smart way for the CAP, for instance, this co-financing mechanism can be a tool, but it is very limited in my view.
Q72 Lord Richard: I would like to ask a simple question about the cohesion funds. Do you think the cohesion funds are overstretched? Do you think too many demands are made of them? If so, what priorities would you concentrate on and where would you cut?
Marta Andreasen: I think cohesion policy should be limited to the objective for which it was created, to allow or support economic development of less favoured regions. There is now talk about using the cohesion policy to cover a series of aspirations of the Europe 2020 strategy. For me, that would represent the hijacking of the cohesion policy. We need to stick to the original aims. We cannot call this cohesion policy successful. We face the 33 problem of co-financing relating to the present crisis. This need for co-financing requires a re-evaluation of the cohesion policy. This is where we should focus.
Richard Ashworth: I think where your question is really coming from, the danger is that in these difficult times cohesion funding becomes a substitute for national government expenditure. That is unacceptable and would most certainly not offer value for money. It is significant that the Court of Auditors has indicated that cohesion funding is one of the weakest, least well managed sectors of the whole budget. I am also of the view that it is far too complicated and there are too many priorities. The Court of Auditors in particular has indicated that the definition of objectives of the cohesion funding programme should be more clearly stated. At present, it is not well directed and does not produce value for money. In my view, it needs reforming completely.
Carl Haglund: It is good to continue where Mr Ashworth has left off. I see the cohesion policy as very unsuccessful. Let’s start with Greece, Portugal and Spain, which are now in deep trouble. Mrs Andreasen referred to the original tasks for cohesion policy, to bring economic growth and prosperity to certain areas. These countries have had enormous cohesion funds for 25 years and what is the result? It is not very good, in my view. This shows that the cohesion funds have not been successful in creating the economic prosperity that they should have done in certain member states. At the same time, the Court of
Auditors has found many problems with the policy, especially in eastern Europe, but also in other parts of Europe. There are very big differences between the member states, to be honest, without naming and shaming, but there has to be action because it is unacceptable that we have countries with such big misuse of the funds. It is apparent that having strict rules will lead to more results where people don’t live up to the rules, because they might be too detailed. So we need to look at whether the rules are too detailed. Is that one of the reasons why we have a lot of misconduct? In my view, that is not the only reason. We also 34 have real misconduct, so we need a very thorough analysis of the system with the cohesion funds. When it comes to the substantive priorities of the cohesion policy, I think it should be very much linked to the 2020 strategy, because that is the only reasonable way of financing the goals, since there won’t be a big new pile of money showing up in the EU budget as far as I can see.
Q73 Lord Dykes: Further to the question of improving the impact and so on, would you like to link EU cohesion funding more to delivery? What kind of new own resources would you expect the Parliament to support? What is your view about new own resources?
Carl Haglund: Let me start on own resources. There is a very strong will in the Parliament to discuss own resources. I am happy that we are doing it in an ambitious way, because with the system we have today, net payers to the Union, such as Great Britain or Finland, always tend to look at European issues from an economic point of view. In other words, they take the Finance Minister’s approach, wanting to know how much this will cost them. It is not very healthy when you look at it from Brussels. So a new way of financing the Union could be good. In fact, it is not a new way, because even in the Treaty of Rome the idea was to fund the European Union through own resources. Even at the beginning of the 1990s, VAT was the major source of finance for the European budget, so this is not very radical.
Our group is very positive about this discussion. It could also enable us to discuss possible reductions to different kinds of exemptions from the current GNI-based system, under which many member states, for one reason or another, pay less than they would pay if the system was clear.
In addition, we could possibly have a more common European approach to things. I want to underline that in my view or the view of my group, this would not mean that the Europeans should pay more. In other words, we don’t want to raise more taxes; we just want to raise them in a different way. Our approach, in other words, is to lower the GNI based-payments 35 from member states through possible new own resources. We don’t look to increase the budget by doing this.
To give concrete examples, the Commission has promised to come forward with an ambitious proposal on own resources during the spring. We have said that we want to wait and see what the Commission proposes, because they have tried to analyse this thoroughly and to come up with proposals that can be seen as both workable and fair. Personally, I have some doubts concerning, for instance, the financial transactions tax and other things that I do not support for ideological reasons. There are differences within the Parliament and there is a strong lobby for the financial transactions tax, which I don’t find very good.
Finally, concerning the performance indicators in a cohesion policy, I think this could be a good incentive. As I said before, we have had very bad performance from many countries.
This might be because we lack the performance indicators in the system.
Richard Ashworth: Carl was quite correct when he said that in the original Treaty of Rome, the European Union was entirely self-funding through own resources. In the European Union today, own resources account for 12.5% of the budget, with the rest coming in the form of
GNI-based payments. I remind you that those GNI-based payments came in only in the early
1980s.
There is a call in the Parliament to begin to revert to being fully own-resources supported. If you ask what sort of things they are talking about, Carl referred to a carbon trading tax.
There is also talk of a financial transfer tax and a VAT element. While I am open to suggestions, I am extremely nervous on these kinds of issues. I would need to see a lot more about a carbon trading tax before I agree to anything like that. Already we are seeing suggestions that it is full of fraud and malpractice. I fundamentally disagree with a financial transactions tax. I don’t see that as an own resource. I have the same comment about VAT. I object to that because it strikes at the nature of the relationship that the European Union 36 has with the 27 member states. My perception is that the European Union is the servant of the 27 member states. As such, it is funded by one annual cheque: “There it is. Get on with it and do the job you were told to do”. Somehow, if you create a self-funding European
Union that raises its own taxes, that is a very different relationship and you have almost severed a very important link between the member states and the European Union, which I remind you I visualise as the servant of the 27 states.
Marta Andreasen: I will say a bit of what has already been said. I disagree totally with increasing own resources, for the reasons that more or less have been mentioned.
Fundamentally, it would change the relationship. Specifically, for example, the budget wouldn’t be subject to negotiation with the Council if the European Commission had the ability to raise taxes directly from taxpayers.
Various types of tax have been mentioned. There is talk about a financial transactions tax.
There is also talk about a financial activity tax, which is a bit different and is more oriented to the profits and income received by shareholders of financial institutions, or even the bonuses of the people working for those institutions. Then there is an energy tax and the possibility of an EU-wide share of income tax. I don’t agree with any of them. I also think the annual procedure of the discharge of the Commission on financial management would be distorted if we increased the percentage of own resources. I know this was in the original treaty, but the circumstances have changed. I do not favour the European Union getting resources directly from taxpayers’ pockets.
Q74 Lord Hannay of Chiswick: Could we have a look at the issue of correction mechanisms? There are quite a few in the European Union, the UK one having been the first, but others having followed on from that. Are you giving any thought to the possibility of having an overall system of correction mechanisms that would relate the net contribution and the net benefits of member states to their level of prosperity? 37
Carl Haglund: My group is linking this question of correction mechanisms to the discussion on own resources. In the current system of so-called rebates for many countries, with the
British one being the most famous, it is probably impossible and it probably wouldn’t be fair to abolish them as long as the system is as it is today. We have advocated that a new funding system would be the only way to have a serious discussion on how to change the current system of corrective mechanisms to the funding.
An overall corrective mechanism that you propose is difficult, because it makes it a little too easy to claim that the benefits of the EU could be analysed purely through monitoring the budget. We all know that we have big differences between the economies of the member states. If we end up in a situation where Britain, Germany, Finland, Holland or the other richer countries should always get out the same amount that they put in, it would fundamentally change a lot of the policies. That does not take into consideration the fact that these are the countries with strong exports and a lot of business interests in the other
European Union member states, and in that way they benefit a lot from their membership of the European Union, even economically, even though it might not come through cohesion funds or something else that comes straight back to the member states. The character of the
European Union has never been as a zero-sum transfer union. The discussion might not enhance European co-operation as a whole and I don’t think Europe would gain economically to start thinking in that way. That is my personal view.
Marta Andreasen: Let me start by referring to a word that was used back in 1957 in the treaty, which talked about solidarity. It evolved in the Maastricht Treaty to subsidiarity, and funnily enough it has gone back to solidarity. This discussion about any abatement or correction mechanism is very much related to how we envision the contributions to the
European Union budget. Solidarity would certainly foster a rethink of these mechanisms of correction, in the sense of giving better margins to the countries that need it most. 38
In relation to bringing net contributions into line with relative GNP per head, I need to understand more about the proposal. We are talking about factors such as population and
GNP. There would be some winners and some losers. When this raises so much interest, I have the impression that the UK would lose in such an exercise. I am not very much in favour of the revision of these mechanisms in the way that has been proposed.
Richard Ashworth: I generally find that there is far too much emotion and sentiment wrapped up in this debate when actually it is just plain numbers. If we stripped out the sentimental argument and just looked at the numbers, Britain pays in far more than it gets back and therefore there is a corrective mechanism, and it is fully justified. So, too, incidentally, are the corrective mechanisms of the four other nations that now get rebates.
They, too, have full justification in what they do. Therefore, under the current arrangements, there is no argument to be made for removal of the rebate. However, I keep an open mind and it is possible that there could be a different formula. I have sometimes thought that now we have got to the point where there are, for example, five nations receiving a rebate, why don’t they become the norm? Why don’t the others, who are taking more money out of the pot, become the abnorm and pay a supplement for doing so? At the end of the day, the rebate is a mechanism that encourages us to draw down less funding, because the less you draw down, the bigger your rebate. There is nothing wrong in doing that. Maybe other nations ought to be encouraged to do the same.
The Chairman: Thank you very much indeed. We asked you to be available for 60 minutes, which is just ending. We have one final question that we would like to ask you.
Have you got time to stay for another five minutes? Thank you very much.
Q75 The Earl of Sandwich: The Committee would be very interested to hear your views on the growing role of the European Parliament. I don’t think it’s any secret that as a
Parliament you have sought an enhanced role in the negotiations on the MFF and the own 39 resources proposal. What role are you expecting the Parliament to play during these discussions?
Richard Ashworth: We didn’t seek them; we were given them. The Lisbon Treaty conferred powers on the Parliament. There are two things that the Parliament wanted to be involved in. The first, as you said, was own resources. The other one was flexibility. We have just talked about own resources and I don’t have a great deal of sympathy for that particular argument, but on flexibility I do. On flexibility, we will be operating with a very much smaller budget, and probably for a smaller duration. That will mean that there will be smaller margins in each budget heading. To respond to economic events and a changing economic situation, we will need a degree of flexibility to be able to move money from one budget heading to another. I think that is only reasonable and our Parliament had a strong argument to make in that respect. I also refer back to the point that I made earlier that, through the
Lisbon Treaty, it is right and proper that the elected membership should take a greater responsibility for the management, the direction and the integrity of the European budget.
But you can’t do that without having powers of control. We are elected here. We and the parties that we represent will campaign for greater integrity in the budget and for differing priorities, but we need to have the powers to be able to do so.
Marta Andreasen: I think we had the first experience of the new powers that the Lisbon
Treaty granted to the Parliament when we were negotiating the new budget for 2011. I was very much involved and I have to say that I was glad that, to a certain extent, the Parliament didn’t win this battle for more power. The balance of power, and even a greater power on the side of the member states, is what guarantees scrutiny. It is true that we have been elected to represent our citizens and we should act in their interests, but over the years I haven’t seen much responsibility in the Parliament, which I am part of. I am not happy to see 40 the Parliament acquire much more power in these negotiations. I am happy to have the member states maintain the power they have had until now.
Carl Haglund: I wouldn’t make this discussion too over-dramatised. The fact of the matter is that on the annual budget, we have to find a common view. As has been referred to many times today, we found that after very long discussions on the 2011 budget. In previous years, the process has been easier. I have had the opportunity to take part in these negotiations only twice, but there was a big difference between this year and the year before.
I think we should grasp the fact that annually the budget will be decided as a common project between the Council and the Parliament. Therefore, it is more than natural that there is good co-operation when it comes to preparing the MFF, including all its elements, because that will make it easier to handle the annual negotiations when there is a mutual understanding on the MFF as a whole. I wouldn’t make this more dramatic than it is. We should do everything we can in this Parliament and in the Council to get away from the bad negotiating culture that arose during the fall of last year. I am sure that we can do so and we should in order to have a stable way of conducting the EU budget for coming years, which will probably be filled with a lot of economic challenges.
The Chairman: Thank you very much. Ms Andreasen and gentlemen, can I say on behalf of my colleagues how extremely grateful we are to you for having come to share your ideas with us this afternoon. We have appreciated being able to hear a range of opinions from the
European Parliament. This has been extremely useful and in the preparation of our report we will much appreciate what we have heard. As we have said, if there is any other material you would like to send to us in writing on points that we have not covered, we would of course be very happy to receive it. Again, we very much appreciate you giving up your time to share the meeting with us today. We have found that this technology is rather effective. I hope we will have chances to use it again before too long. Thank you very much.