EC1110

Hot Topics in Economics

Reforming the EU Budget
Peter Midmore

Introduction

Why is the EU Budget a hot topic

A little theory and practice on European
integration
The evolution of EU spending
How the budget works
How it is financed
Moving from crisis management to efficiency and
effectiveness

What do we spend on the EU and

why? (1)

Comparative advantage and trade liberalisation

Consolidation of regional economic power blocs
The (unwarranted?) dominance of agriculture
Convergence and cohesion
Disputes and their resolution

What do we spend on the EU

and why? (2)
1988

CAP

Regions

2013

Other

CAP

Cohesion and Convergence

Other

How the Budget works

Spending priorities set in multiannual frameworks

-Financial Perspectives
Co-decision of the three institutions: Council,
Commission, Parliament
Annual, balanced budgets

How the Budget is funded

Revenue sources:

Traditional own resources (TORs: tariff revenues,

levies)
VAT-based own resources
GNI-linked own resources

The UK Rebate

An institutional misfit: small, efficient agriculture

in a predominantly food-importing UK
The 1984 Fontainbleau Agreement
Subsequent changes

The 2005 compromise

The current review

Current Reform Proposals

Effective but too rigid

Refocus on competitiveness
Abolition of VAT-based own resource with one or
more of:

financial transaction or activities tax

green house gas emission quota sales
allowances, an air transport charge
a separate EU VAT rate
an energy tax
an EU corporate income tax

Conclusion

Dismantling or extension of the EU?

The case for fiscal federalism and beyond
A hint of the Arrow impossibility theorem

There can be no compromise which favours all

A suboptimal Nash equilibrium

Is it time for the EU to grow up?

Key References
Senior Nello, S. (2009). The European Union: economics, policies and history, 2nd
edn., McGraw Hill, Maidenhead, Ch. 11, pp. 259-276.
The EU Budget at a glance:
http://ec.europa.eu/budget/library/publications/financial_pub/budget_glance_e
n.pdf
House of Commons Standard Note on the EU Budget:
http://www.parliament.uk/briefingpapers/commons/lib/research/briefings/
snep-00864.pdf
House of Lords EU Select Committee Report on Funding the European Union:
http://www.publications.parliament.uk/pa/ld200607/ldselect/ldeucom/64/64.pd
f
Commission paper on Budget reform:
http://ec.europa.eu/budget/reform/library/communication/com_2010_700_en.
pdf

EC1110
Hot Topics in Economics
Reforming the EU Budget
Peter Midmore

EC1110
Hot Topics in Economics
Reforming the EU Budget
Peter Midmore