The EU budget: from a bargaining tool to a federal budget?

AutorMario Kölling
CargoSenior Researcher, Fundación Manuel Giménez Abad, Zaragoza.
Páginas137-157

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1

Mario Kölling2

Recebido em 31.8.2016

Aprovado em 8.9.2016

Abstract: The EU has several aspects which allow us to speak about an emerging Federal System. Generally, the EU budget is not mentioned to be among them. The budget has been characterised as poor-sized, inflexible and dependent on member state contributions. But there are several reasons for considering an evolution of the EU budget towards a genuine budget with federal characteristics. This is noticeable with regard to its spending structure, concerning the production of public goods, and the budgetary decision making process, especially regarding the role of the European Parliament. The main argument of this text is that the EU budget is evolving towards a budget in a federal sense based on the rational that all member states and the Union have common objectives rooted in common values.

Keywords: European Union, EU budget, Federal System.

Resumo: A UE possui vários aspectos que nos permitem falar sobre um sistema federal emergente. Geralmente, o orçamento não é mencionado entre eles. O orçamento tem sido caracterizado como de pequeno porte, inflexível e dependente das contribuições dos Estadosmembros. No entanto, há vários motivos para que se possa considerar haver uma evolução do orçamento da EU para um genuíno orçamento com características federais. Isso é perceptível no que diz respeito à sua estrutura de dispêndios, à produção de bens públicos e ao processo de tomada de decisões, especialmente em relação ao papel do Parlamento Europeu. O principal argumento desse texto é que o orçamento da EU tem evoluído na direção de um orçamento de tipo federal, baseado no fato de que todos os Estados membros e a União têm objetivos comuns enraizados em valores comuns. Palavras-chave: União Europeia, Orçamento, Sistema federal

Introduction

The meeting between Italian Prime Minister Matteo Renzi, German Chancellor Angela Merkel and French President François Hollande on the island of Ventotene on 22 August can be seen and judged from different points of view. But the meeting place was not a coincidence. The “Ventotene Manifesto”, written by Ernesto Rossi and Altiero Spinelli, was one of the key driver behind the movement for European unification. The Manifesto encouraged a federation of European states and is widely seen as the birth of European federalism. 70 years after the publication of the Manifesto, the EU seems to be far away from becoming a federal system, but the economic and financial crisis,

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which most of the EU member states have endured over the past several years, highlighted again the need for a sustainable multilevel system of fiscal and economic governance in the EU. Advances have been made especially in the past few years within the Economic and Monetary Union (EMU) but also regarding the institutional development.

Applying a wider concept of federalism, it seems that, the EU has already several aspects which allow us to speak about a well stabled multilevel system or about an emerging federal system (Burgess, 2000; 2012; Börzel, Hösli, 2003; Hallerberg, 2006; Menon, Schain, 2006; Hueglin, Fenna, 2015; Law, 2013). There are at least two constitutionally established tiers of government, each with its own powers and responsibilities; there are provisions for the representation of territorial views within the EU policy-making institutions, there are courts to adjudicate disputes and interpret the treaties, as well as processes and institutions to facilitate intergovernmental collaboration. However, in addition to the formal constitutional distribution of legislative and executive authority, the allocation of revenue resources between at least two orders of government is one of the key features of federal system in order to ensure some areas of genuine autonomy for each order of government (Watts, 2008, 9).

During the past decades the revenue and spending structure of the EU budget has undergone an important evolution. Nevertheless, the gap remains open between ambitions and genuine fiscal autonomy for the EU. The reform debates on the EU budget can be dated back to the beginning of the European integration process. Mainly three conflictive issues have been since then under discussion reflecting the multi-dimension of the EU budget. Firstly, the debate on the general principles underlining the EU budget, secondly, the spending side or the Union’s policies which could be reached with the budget, and thirdly the revenue side or how the EU should be financed. Although tensions between contributing member states (net contributors) and recipient member states (beneficiaries) have always characterised the history of the budget, new tensions have emerged, including the effect of the Eastern enlargement which has increased the demands on spending, added to the effect of the post-2008 economic crises. Currently there are debates ongoing about the contribution of the EU budget to the European Fund for Strategic Investments and to specific measures to address refugee crisis. These developments have had an impact on the EU budget over the past years. Recent literature analysing the evolution of the EU budget concentrated mainly on questions related to stabilisation mechanisms underlining the poor performance of the budget. (Calmfors, 2015) However the long term developments of the budget haven’t been analysed very frequently.

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Departing from the theory of fiscal federalism, in this text we will shortly present the main characteristics of a federal budget, the underlining principles, the financing mechanisms and, with special emphasis, the spending structure, and compare these features with the characteristics of the EU budget. Although the theory of fiscal federalism can only be applied to a limited level to the EU, because of its specific nature (distribution of responsibilities and decision making structure), the theory is helpful in order to detect the basic federal features underlining the EU budget. Taking into account the notion of the federalizing process, as devised by C.J. Friedrich, by which “[…] a number of separate political organisations [states] enter into arrangements for making joint decisions on joint problems” (Friedrich, 1955, 517). We will argue that the EU budget is increasingly becoming an instrument based on joint decision making among the European level and national level regarding joint problems and common objectives. The notion of federalizing includes also a process through which the federal government expands its power to take final decisions in certain areas of public policy.

Fiscal Federalism and the EU budget?

The concept of fiscal federalism constitutes the core area of federalism which measures the degree of division of powers among the constituent units and federations. Already Hamilton underlined the difficulties of establishing a multilevel system of public finance. Theoretically fiscal decentralization in multi-level system follows the scope and elements of the devolution of power and functions fostering the division of powers and functions. However in praxis, there are important differences among federations regarding the underlining principles of fiscal decentralisation and how multi-level systems organise their spending programmes and revenue structure. In this sense the traditional topics of budgetary principles, intergovernmental fiscal arrangements and assignment of responsibilities of fiscal federalism are answered in a different way by federal and multilevel systems. Nevertheless, there are some basic assumption related to the general principles as well as concerning the revenue and spending structures which could give reference to actual practices followed in the EU.

2.1. General principles

The literature on fiscal federalism has developed budgetary principles or guidelines for assigning expenditure and revenue responsibilities among governments, as well as regarding the decision making process (Feld, Necker, 2010). The fundamental aim of fiscal federalism is to find

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the most suitable way of sharing responsibilities and of using instruments through the various levels of government in order to optimize their performance and transparency. The EU budget obeys these general principles and detailed rules, which are largely based on those that apply in national budgetary law.

Some authors provide a strong rationale for decentralized fiscal constitutions on the grounds of subsidiarity (Kincaid, Shah, 2007; Boadway, Shah, 2009). According to the principle of subsidiarity, centralization should only occur for a small number of policies which have a clear supranational nature. A policy should be assigned to lower levels of government, and thus closer to the citizens it affects, unless there are demonstrable benefits of conducting the policy at a higher level (Begg, 2012). With regard to fiscal arrangements, also expenditure responsibilities, revenue raising powers, and regulatory functions should be exercised by the lowest order of government unless a convincing case can be made for assigning these to higher orders of government. Similar to federal countries, the subsidiarity and proportionality principles are paramount in the EU and laid down in the Treaty of the European Union (TEU). Based on these principles the EU only performs those tasks which cannot be performed effectively at a more immediate or local level and only acts to the extent that is needed to achieve its objectives.3 Consequently, the budget can only be used to finance EU public goods when member states and their constituent units may not be able to finance these public goods...

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