EN Official Journal of the European Union C 81/131

Opinion of the European Economic and Social Committee on the ‘Reflection paper on the future of EU finances’

(COM(2017) 358 final)

(2018/C 081/18)

Rapporteur: Stefano PALMIERI Co-rapporteur: Petr ZAHRADNÍK

Consultation European Commission, 4.8.2017 Legal basis Article 304 of the Treaty on the Functioning of the European Union Section responsible Economic and Monetary Union and Economic and Social Cohesion Adopted in section 5.10.2017 Adopted at plenary 19.10.2017 Plenary session No 529 Outcome of vote (for/against/abstentions) 138/8/14

Preamble

This opinion is part of a wider package of four EESC opinions on the future of the European economy (Deepening of the Economic and Monetary Union and Euro area economic policy, Capital Markets Union and The future of EU finances) (1) . The package comes in the context of the White Paper process on the future of Europe launched recently by the European Commission and takes into account the 2017 State of the Union speech by President Juncker. In line with the EESC resolution on the Future of Europe (2) and previous opinions on completing EMU (3) , this package of opinions underscores the need for a common sense of purpose in the Union governance, which goes far beyond technical approaches and measures, and is first and foremost a matter of political will and a common perspective.

1. Conclusions and recommendations

1.1. The EESC considers that while the structure of the Reflection paper on the future of EU finances outlines some of the challenges that the EU will be facing over the next few years, it also determinedly links potential budget solutions to the five scenarios identified by the European Commission in its White Paper on the Future of Europe.

1.2. The EESC would argue that Europeans need more (and better) Europe, not less Europe, in order to overcome the political crisis in the EU which is the result of the lack of a strategic vision for the future and of the capacity to respond adequately to the economic and financial crisis. There is a growing gap between the concerns and expectations of Europeans, who are calling for tangible benefits for their daily lives, and the limited powers and financial resources currently allocated to the EU. The European venture and the EU itself are losing credibility and their existence is being called into question, fuelling the current nationalist and populist parties.

1.3. The EESC endorses the approach taken in the reflection paper whereby the basic principle of the EU budget must be to deliver European added value, achieving better outcomes than would be possible for uncoordinated national budgets acting individually. The time has therefore come to abandon the logic of a ‘fair return’, of dividing Member States into net contributors or beneficiaries, and of ad hoc rebates for individual Member States.

1.4. The EU must first identify political priorities with high European added value and only then determine the resources needed to achieve them and reform the EU budget. Against this backdrop, the EESC considers that it is not credible for the EU budget to continue to be less than 1 % of the income and only 2 % of the public expenditure of the 28 countries, a level which is inadequate given the challenges, shocks and crises which the EU must tackle.

1.5. The reform of the EU budget must of necessity aim to improve it, overhauling its structure as regards areas of expenditure and own resources, taking account of suitable rationalisation, efficiency and effectiveness criteria and maintaining direct, transparent channels of communication with the public.

1.6. Improving and increasing the budget requires real, in-depth consultation of civil society, as represented within the EESC, in order to reflect real local and regional needs and to ensure a positive impact for all Europeans, in the public interest.

1.7. With regard to expenditure, the EESC considers the following to be programmes with a high level of European added value: medium- to long-term investments in economic, social and environmental development, employment, innovation and competitiveness; protecting the most disadvantaged regions and most vulnerable social groups; and responding flexibly and promptly to asymmetric shocks and unexpected crises, including by means of an independent budget for the Eurozone.

1.8. The EESC considers that the macroeconomic stabilisation function in the eurozone is particularly important, as one of the causes of the strategic crisis in the EU and the rise of populism is the negative impact on those social groups and economic sectors that are ‘losing out’ from globalisation and the technological revolution.

1.9. As regards revenue, the EESC agrees with the analysis in the report on Future financing of the EU by the High Level Group on Own Resources: a new budget must be achieved which consists predominantly of autonomous, transparent and fair own resources and which does not place a disproportionate burden on the most disadvantaged people or on SMEs.

1.9.1. The EESC would reiterate its support for a common consolidated corporate tax base (CCCTB), as well as taxation of financial transactions, fuels and carbon dioxide emissions which, if levied at European level, would be able both to act upon a transnational tax base and to counteract the global impact on the environment.

1.10. The EESC considers that while the impact of Brexit on the post-2020 multiannual financial framework (MFF) may be a threat for the European venture, if negotiations are conducted by the Member States on the ‘fair return’ principle, it can also be an important opportunity as by reaffirming the principle of European added value it may improve and increase the EU budget.

1.10.1. The EESC therefore urges that, as soon as possible: — the European Commission set a figure on the impact of Brexit — for both ‘hard’ and ‘soft’ Brexit scenarios — on EU revenue and expenditure and on the repercussions on the post-2020 MFF, — a transparent, public debate be launched on the post-2020 MFF involving the institutional, economic and social stakeholders, along with civil society representatives and the European public, — no reduction be made, however, in the resources earmarked for cohesion policies or social objectives. It will thus be possible to bring diverging and opposing interests together by identifying a jointly agreed solution for the post-2020 MFF.

2. General comments

2.1. The approach taken by the Reflection paper on the future of EU finances links potential budget solutions to the challenges facing the EU with regard to the five scenarios identified by the European Commission in its White Paper on the Future of Europe. The EESC criticised this approach in its recent resolution on the white paper (4), considering these five scenarios to be ‘artificial’ as they are geared exclusively to the Member States and are not directly relevant to Europeans who are calling for a jointly agreed, clear strategy.

2.1.1. An important opportunity is thus being lost, as much of the document — regarding the value added of European finances, trends and challenges, and options for the future of EU finances — comprises a wholly laudable analysis, albeit one lacking a jointly agreed, efficient and effective policy proposal.

2.2. Over the last few years, the EESC has highlighted (5) the problems affecting Europe’s economy and society, the fundamental principles which must be upheld, and avenues for revitalising and boosting the effectiveness of the action of the EU institutions. The EESC has repeatedly argued that Europeans need more (and better) Europe, not less Europe (6), precisely because the political crisis in the EU is the result of the lack of a strategic vision for the future and of the capacity to respond adequately to the economic and financial crisis.

2.3. In 2016, the EESC pointed out with regard to the mid-term review of the MFF for 2014 to 2020 (7) that the work carried out by the Commission needed to be acknowledged, particularly the flexibility mechanisms introduced to cope with unexpected crises and the results- and performance-oriented approach. However, the specific proposals and resources allocated appeared — already at the time — insufficient to meet the challenges ahead and the EU’s priorities, as the MFF is the result of an unambitious compromise between Member States with an eye more to their net balance and benefits for specific interest groups than to an instrument for delivering on the interests of the EU as a whole.

2.4. Against this backdrop, the EESC endorses the approach taken in the reflection paper whereby ‘the essence of a modernised EU budget’ is ‘the value added that results from pooling resources and delivering results that uncoordinated national spending cannot’ (8).

2.5. In order to have more and better Europe, we must first identify political priorities with high European added value and then determine the resources needed to achieve them, reforming the EU budget accordingly. In this scenario, it would no longer be credible for the EU to devote to its own budget less than 1 % of the income and only 2 % of the public expenditure of the 28 countries, a dynamic moreover in constant decline (9). This level is entirely inadequate given the new challenges which the EU must tackle and the shocks and crises to which it must respond.

2.5.1. The quantitative increase in the EU budget must go hand in hand with a substantial improvement in terms of quality involving an overhaul of its structure, as regards areas of expenditure and its own resources. To this end, it is imperative to take account of suitable budget rationalisation, efficiency and effectiveness criteria and to maintain direct, transparent channels of communication with the public.

2.5.2. Improving the quantity and quality of the EU budget also requires real, in-depth consultation of civil society, as represented within the EESC, in order to ensure that areas of expenditure accurately reflect real regional and local needs and have a positive impact on the well-being of the European people, in the public interest.

2.6. With the emergence of new challenges linked to changing geopolitical scenarios and the need to adapt to the repercussions of the economic and financial crisis, it is not surprising that the EU has demonstrated just how inadequate its own budget is and entered a crisis which was initially economic and financial, then social and lastly political.

2.6.1. This political crisis has been generated by the gap between the growing concerns and resulting expectations with regard to the EU of Europeans calling for tangible benefits for their daily lives, and the current limited powers and financial resources allocated to the EU itself. This gap has triggered the rising intolerance and nationalist and populist parties which are calling into question both the European project and the EU itself.

2.7. The debate on the future of the EU is occurring at a time of great economic, social, political and institutional concern and uncertainty among the European people (10). Firstly, the economic and financial crisis is still having a heavy impact, particularly in the Member States hardest hit, in some regions and especially on medium and low incomes. Secondly, as a result, there is widespread scepticism as to whether the Member States and the EU will be able to maintain economic prosperity and social cohesion in the age of globalisation and international competition (11). Thirdly, there is the growing influx of migrants and refugees fleeing war and poverty in Africa and the Middle East. Fourthly, and most recently, there is the United Kingdom’s decision to leave the EU, which has proven that belonging to the EU is not an option to be taken for granted, and neither is it irreversible: the decision to leave could spread to other Member States.

3. Specific comments

3.1. In terms of expenditure, the key element is the principle of European added value, which may seem paradoxical at a time when — on the one hand — demands for national governments to be given more independence are increasing, up to the extreme hypothesis of leaving the EU while — on the other — the logic of a fair return, of dividing Member States into net contributors and beneficiaries, and of ad hoc rebates for individual Member States, can no longer really be justified.

3.1.1. The Commission is correct to make this point, however, since a broad political consensus in favour of EU action could focus its budget on delivering at EU level real benefits for Europeans that individual Member States cannot achieve on their own.

3.1.2. Therefore, the EESC agrees with the Commission that the principle of European added value must be at the core of the discussion on the future of European finances. Specifically, it must (12): — achieve the objectives set by the principles underpinning the EU’s legal order, particularly Article 3 of the EU Treaty, which sets the objective of ensuring that EU citizens are guaranteed decent living conditions that preserve their well-being (13), — shape a budget establishing European public goods, able to help defend Europe’s fundamental freedoms, the single market and economic and monetary union (14).

3.1.3. It is here that complete compliance with Article 311 of the TFEU becomes essential, in keeping with which ‘…the Union shall provide itself with the means necessary to attain its objectives and carry through its policies’.

3.2. The reflection paper shows clearly that global challenges and crises require a European response which concentrates EU budget resources sufficiently and taps synergies with national budgets and channels them towards programmes with a high level of European added value able to: — use medium- to long-term investments to redynamise economic, social and environmental development, employment, innovation and competitiveness, in the face of stagnant productivity and investments, an ageing population and climate change, — protect the most disadvantaged regions and most vulnerable social groups, which have been harmed by the continuing economic crisis and by the damaging effects of globalisation (15), — respond promptly and flexibly — as regards both revenue and expenditure — to the asymmetric shocks which are hitting some Member States, the migration and refugee crisis, internal security concerns, external emergencies and common defence.

3.3. Among the aspects with the greatest European added value, the measures already identified by the EESC with regard to the MFF reflect the content of the EESC resolution on the white paper (16): — a coordinated European industrial policy to boost employment and foster competitiveness in a social market economy, facilitating dialogue between all stakeholders, investment and support for small and medium-sized enterprises (SMEs), — upward social convergence in parallel with economic convergence, in terms of employment and social outcomes, through the implementation of the European Pillar of Social Rights and the extension of the European Social Fund (ESF), — a migration policy that affords refugees protection under international law and enables them to integrate into the EU, a Common Asylum System, action to combat illegal migration and human trafficking, and the promotion of legal paths of access, — action to combat climate change on the basis of the Paris Agreement and ecological transition, promoting the 2030 Agenda for Sustainable Development across all EU policies, — a reformed common agricultural policy (CAP), with a view to meeting objectives in terms of environmental quality, rural development, food security and support for farmers’ incomes, — a reformed cohesion policy, with clearly identified outcomes, systematic verification during implementation and ex post impact assessment, promoting transparency and mobilising partnerships, — financing of major investments in infrastructure, trans-European networks, and research and innovation, beginning with the European Fund for Strategic Investments (EFSI) and Horizon 2020, — an independent eurozone budget able to provide a temporary but significant transfer of resources in the event of regional shocks, counteract severe recessions in the area as a whole and ensure the necessary financial stability (17), with a macroeconomic stabilisation function to safeguard investment and to prevent unemployment and insecurity.

3.3.1. The macroeconomic stabilisation function is particularly important, as one of the causes of the strategic crisis in the EU and the rise of populism is the negative impact on those social groups and economic sectors that are ‘losing out’ from globalisation and changes in technology and IT. While Member States are less able to act independently and change the labour market and welfare system, no social safety net has yet been put in place at EU level enabling everyone to reap the benefits of growth and global competition (18).

3.4. The EU budget must therefore be able to provide the resources needed to achieve the strategic priorities, using suitable rationalisation, efficiency and effectiveness criteria for its structure and for the way in which it is evaluated and updated (19): — the adoption of a more decidedly performance- and results-oriented approach, — evaluating the quality of the regulatory framework for allocating the EU budget, — analysing developments in expenditure as a continuous medium-term process in which individual years represent a specific development trajectory that is required to secure the relevant results, — the need to take account of the very close links between the EU budget, economic policy governance and current European economy dynamics, — the need for continuity in EU budget policy and the implementation and evaluation of its goals.

3.4.1. Specifically, the balanced budget rule should be flanked by other indicators gauging the performance of expenditure and the outcomes for people’s well-being, to be identified in the framework of the European Semester, using appropriate methods and arrangements agreed with the European Parliament and national parliaments.

3.5. The galaxy of resources available at EU level has also become highly complex and opaque. In addition to the traditional grants and subsidies, it includes financial instruments for leveraging private capital (through the EFSI and the Structural Funds) and instruments such as the European Stability Mechanism (ESM), comprising eurozone countries but outside the scope of the EU, which aim to secure financial stabilisation (20).

3.6. As regards revenue, the EESC agrees with the analysis in the report on Future financing of the EU by the High Level Group on Own Resources chaired by Mario Monti (21). It is particularly important to agree on a new budget which consists predominantly of autonomous, transparent and fair own resources. These would reach the EU budget directly without going via the Member States but would not exacerbate the tax burden or further penalise either the most disadvantaged Europeans or SMEs.

3.6.1. Some of the new resources proposed by the report would provide European added value in terms of revenue, being levied at the most appropriate level both to act on transnational mobile tax bases and to counteract the global impact on the environment: taxing corporations (CCCTB) (22), especially multinationals, financial transactions, fuels and carbon dioxide emissions.

3.6.2. In this context, the EESC also points to the importance of combating tax evasion by means of increased transparency (23), along with all forms of unfair tax competition between Member States.

3.7. Brexit will inevitably have an impact on the post-2020 EU budget. While the actual figure has not yet been officially established by any EU institution (24), the following three options set out potential ways to offset the resulting budget deficit: (i) an increase in contributions by EU Member States; (ii) a cut in EU spending; (iii) a combination of the two. It is here that Brexit is revealed as both a threat and an opportunity for the EU budget.

3.7.1. It is a threat because if the next negotiations on the post-2020 MFF are dominated by the ‘fair return’ principle, they will exacerbate the current divide between net contributor and net beneficiary Member States, moving further away from the principle of European added value and thus deepening the uncertainty seeping into the EU venture.

3.7.2. At the same time, Brexit is an important opportunity both to reform the EU budget, improving it in terms of quantity and quality by overhauling its spending mechanisms, and — accepting the proposal made in the Monti report — to establish a key system of own resources for the EU. An exemplary, efficient, effective and transparent EU budget can then be shaped, which will gain credibility in the eyes of Europeans and make the advantages of Europe and the costs of non-Europe more visible to them.

3.7.3. It should therefore be ensured that: (a) the European Commission sets a figure on the impact of both ‘hard’ and ‘soft’ Brexit scenarios on EU budget revenue and expenditure as soon as possible; this should in fact have been done in the Reflection paper with a view to the proposal for the post-2020 MFF; (b) a serious, transparent and public debate on the EU budget is launched involving all the institutional, political and social stakeholders, along with civil society and the European public; (c) there is, however, no reduction in the resources earmarked for cohesion policies or social objectives, as these are crucial tools for the EU’s development. When shaping the EU budget and facing diverging and opposing interests, it will thus be possible, transparently and democratically, to make choices able to bring those interests together and produce solutions on which everyone can agree.

Brussels, 19 October 2017. The President of the European Economic and Social Committee Georges DASSIS

(1) The package includes the EESC opinions on Euro area economic policy 2017 (additional opinion) (see page 216 of the current Official Journal), Capital Markets Union: Mid-term Review (see page 117 of the current Official Journal), Deepening EMU by 2025 (see page 124 of the current Official Journal) and EU finances by 2025.

(2) EESC resolution of 6 July 2017: The Commission's White Paper on the Future of Europe and beyond. OJ C 345, 13.10.2017, p. 11.

(3) OJ C 451,16.12.2014, p. 10 and OJ C 332, 8.10.2015, p. 8.

(4) EESC resolution of 6 July 2017: The Commission's White Paper on the Future of Europe and beyond: ‘The EESC does not believe that a choice between scenarios is a successful method for promoting a common sense of purpose or for defining the future path’. OJ C 345, 13.10.2017, p. 11.

(5) OJ C 248, 25.8.2011, p. 75, OJ C 229, 31.7.2012, p. 32, OJ C 451, 16.12.2014, p. 10 and OJ C 487, 28.12.2016, p. 62.

(6) ‘… by moving the needle on the subsidiarity gauge towards more and better Europe …’, OJ C 351, 15.11.2012, p. 36.

(7) OJ C 75, 10.3.2017, p. 63, point 1.1.

(8) COM(2017) 358 final, p. 6 (English version).

(9) The budget is capped at 1,2 % of Gross National Income (GNI) by the Council decision on the EU’s own resources (2014/335/EU, Euratom) but according to the approach taken in this opinion (i.e. first identify political priorities and then determine the resources needed to achieve them), the EU budget must not be limited to a predetermined cap.

(10) OJ C 75, 10.3.2017, p. 63, point 2.3.

(11) Only one third of Europeans trust the EU and its institutions. European Commission, Public Opinion in the European Union — Standard Eurobarometer 85, May 2016.

(12) COM(2017) 358 final, p. 9 (English version).

(13) ‘The Union’s aim is to promote peace, its values and the well-being of its peoples.’

(14) ‘The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress …’ (Article 3(3) TEU).

(15) COM(2017) 240 final; Growing unequal? Income distribution and poverty in OECD countries, OECD, 2008; Divided we stand: why inequality keeps rising, OECD, 2011; In it together. Why less inequality benefits all, OECD, 2015.

(16) EESC resolution of 6 July 2017: The Commission's White Paper on the Future of Europe and beyond, point 13. OJ C 345, 13.10.2017, p. 11.

(17) OJ C 177, 18.5.2016, p. 41, point 3.5.

(18) OJ C 75, 10.3.2017, p. 63, point 4. See also P. De Grauwe, What Future for the EU After Brexit?, CEPS, October 2016.

(19) OJ C 75, 10.3.2017, p. 63.

(20) Future financing of the EU. Final report and recommendations of the High Level Group on Own Resources, December 2016, p. 82-84.

(21) Future financing of the EU. Final report and recommendations of the High Level Group on Own Resources, December 2016.

(22) Welcomed as far back as 2011 by the EESC in its opinion on a Common Consolidated Corporate Tax Base, OJ C 24, 28.1.2012, p. 63 and in 2017 in the EESC opinion on a Common (Consolidated) Corporate Tax Base. Not published yet.

(23) OJ C 487, 28.12.2016, p. 62.

(24) Various research institutes estimate the UK’s net average annual contribution to the EU budget at between EUR 8 billion (Institute for Fiscal Studies; Centre for European Policy Studies), EUR 10 billion (J. Delors Institute Berlin — Bertelsman Stiftung) and EUR 20-27 billion (European Policy Centre). See Institute for Fiscal Studies, 2016, The Budget of the EU: a guide. IFS Briefing Note BN 181. J. Browne, P. Johnson, D. Phillips; CEPS, 2016, The impact of Brexit on the EU Budget: A non-catastrophic event. J.Nunez Ferrer; D. Rinaldi, Policy Brief 347; J.Delors Institute Berlin — Bertelmans Stiftung, 2017, Brexit and the EU Budget: Threat or Opportunity? J. Haas- E. Rubio; EPC, 2017, EU Budget post-Brexit — Confronting reality, exploring viable solutions. E. Chonicz. Discussion Paper.