Opinion of the European Economic and Social Committee on EU budget reform and future financing
Date: 2008-03-12
Institutions: European Economic and Social Committee
Subjects: Community budget, budget policy, drawing up of the EU budget, financing of the EU budget, implementation of the budget

9.8.2008

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Official Journal of the European Union

C 204/113

effective regulations at European level means that such docu-
mentation is often not provided. This is particularly burdensome
for SMEs, which can often ill afford to carry out professional
risk assessments.

4.11
The access to the adequate manufacturers' documenta-
tion would enable trade unions and insurance companies to
irre-
undertake various activities aimed at protecting workers,

spective of the deadline for the implementation of the directive
and its future provisions (in line with the universally recom-
mended practice of avoiding unnecessary risk, where possible).

4.12
The EESC is concerned that the postponement of the
transposition deadline may lead to new equipment entering into
service which lacks any documentation on the risks arising
during use or repair.

Brussels, 12 March 2008.

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS

Opinion of the European Economic and Social Committee on EU budget reform and future
financing

(2008/C 204/23)

On 25 September 2007 the European Economic and Social Committee decided to draw up an own-initiative
opinion, under Rule 29(2) of its Rules of Procedure, on

EU budget reform and future financing.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible
for preparing the Committee's work on the subject, adopted its opinion on 20 February 2008. The rappor-
teur was Ms Florio.

At its 443rd plenary session, on 12 March 2008, the European Economic and Social Committee adopted
the following opinion by 113 votes to 18 with 15 abstentions.

1. Conclusions and recommendations

Commission to clarify which instruments it intends to use in
the consultation procedure.

1.1
The radical changes of recent decades have led the Euro-
pean Union to launch a new political agenda whose priorities
include climate change, energy and immigration: new issues
requiring a rapid response. The EESC is keen to take part in the
debate opened up by the Commission on budget policy, the key
to rising to the above challenges.

1.2
The review of the European budget comes in the context
of the sensitive ratification period of the Lisbon Treaty and is
directly connected to the debate on cohesion and research
policy and the CAP ‘health check’. Moreover, the elections to the
European Parliament and the installation of the new Commis-
sion are in sight. For this reason, the EESC would stress the diffi-
culty of holding such an important debate at a time when two
major institutions are undergoing renewal. The EESC also hopes
that the governments of the 27 Member States will be prepared
to take bold strategic decisions. The Committee urges the

There is a fundamental choice to be made when shaping
system.
federalism or an intergovernmental
the arrangements for financing the budget are one

1.3
budget policy:
Clearly,
measure of the level of advancement of European integration.

1.4
Before assessing what economic resources are needed
and what methods will be used to locate them, it will be neces-
sary to ensure that the Community's policies are up to date, in
particular those that have a long history and which, despite
having had a positive impact on development and economic
growth, will need to be adjusted and bolstered if they are to
respond to the new challenges. An in-depth, courageous analysis
of the Structural Funds, cohesion funds, regional policies etc.
needs to be carried out, to analyse in particular their impact and
effectiveness in the new Member States, taking into account the
Fourth report on economic and social cohesion (COM(2007)
273 final) on which the EESC recently issued an opinion (1).

(1) See EESC opinion on the Fourth Report on Economic and Social Cohesion,

CESE 1712/2007.

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1.5
The review should be guided by the principles governing
European integration, starting from the principle of sustainable
development:
solidarity, proportionality, peace, prosperity,
freedom, security, general wellbeing, fairness and redistribution.
The frame of reference for any proposal regarding the future
financial perspectives must be the need to provide an effective
response to the serious dangers associated with climate change.
Meanwhile, a major effort is needed to deliver indispensable
information, transparency and clarity regarding the
additional
ways European taxpayers' money is collected and spent, not
least to combat Euroscepticism.

at the level of resources needed, the entire system of ex-ante and
ex-post evaluation needs to be beefed up. The independence and
transparency of the evaluating body must be ensured.

1.12
Such evaluation must take account of the efficacy and
the interaction of the various systems of public spending: EU,
national and regional, as well as the possibility that several
bodies may interact in the process (European Investment Bank,
public-private partnerships, etc.).

1.6
It is time to consider the case for doing away once and
for all with all the rebates, prerogatives and derogations that
mark the current budget. The reform must take a real step
forward, away from these provisions that run counter to the
European integration spirit of solidarity.

1.13
Consistency with macroeconomic policy instruments
will need to be ensured. For example, the Stability and Growth
Pact sets out strict stability criteria, but says almost nothing
about growth and thus about public investment. Improved coor-
dination of national budget policies will also be needed.

The EESC believes that Community budget

1.7
financing
should be reviewed in line with Treaty Article 269 (2). Looking
at the various reform options, the Committee would stress that
whatever solution is chosen it will have to be applied gradually.
A broad consensus will have to be sought with national parlia-
ments and local and regional authorities and above all, priority
should be given to the principle of each Member State's fiscal
capacity, also taking into account the increased scale of spending
objectives. On this note, the EESC would reiterate the position
already stated in its opinion on Building our common future:
Policy challenges and budgetary means of the enlarged Union
2007-2013 (3).

1.8
In the light of the widespread renationalisation of poli-
cies, the budget's implementation phase is becoming increas-
ingly delicate with regard to the relationship between Com-
munity institutions and the public, as well as the public percep-
tion of Community action. Greater sharing of responsibility
between the Commission and Member States in budget imple-
mentation is an important element, not least in involving all the
economic and social players (as set out in the new Article 274
of the Lisbon Treaty). The EESC believes that long-term strate-
gies should be pursued with financial continuity, whereas some
room for manoeuvre might prove necessary in the event of
changed circumstances or the need for a rapid response.

1.9
The principle of participation and contribution that
underpins the tax systems of many EU countries, based on fair-
ness and redistribution, seems to have proved most effective and
efficient.

All stakeholders at every level, from national govern-
1.10
ments to individual members of the public, are both responsible
for and benefit from Community funds.

In order to properly adjust new and old policies to
1.11
international challenges, and thus be in a better position to look

(2) The first paragraph of Article 269 states that ‘Without prejudice to
the budget shall be financed wholly from own

revenue,

other
resources.’

(3) See EESC opinion on Building our common future: Policy challenges and
the enlarged Union 2007-2013, OJ C 74 of

budgetary means of
23.5.2005, p. 32.

1.14
New economic and financial phenomena have appeared
on the world stage in recent years: there is greater international
competition, and employment in the European Union is more
vulnerable. Funds such as the Globalisation Adjustment Fund
are an example of the instruments that are needed, but not yet
adequate, to address this kind of phenomenon.

2. Introduction

The Communication from the Commission SEC(2007)
2.1
1188 launched a public consultation for all interested parties in
view of the 2008/2009 budget review. On the basis of the
outcome of this preliminary consultation process, which will
end on 15 April 2008, the Commission will, presumably either
at the end of 2008 or in early 2009, present a text (it is not yet
clear whether this is to be a white paper) that will form a
proposal for assessing, reviewing and amending the EU's own
resources system and the financing and spending arrangements
for Community activities.

2.2
After the end of the consultation, scheduled for 15 April
2008, the conclusions will be presented by the Commission at a
conference (27 May 2008). By the end of 2008/early 2009, the
Commission will present a new review document; the specific
proposal will be presented during the third and final phase
(2010/2011).

2.3
The EESC has the duty and opportunity to answer the
questions raised by the Commission's consultation paper and to
give its opinion on the concrete proposals put forward by the
other institutions on the reform of the EU budget system.

2.4
The need for a thorough reform of the EU budget is of
fundamental and primary importance not only to ensure the
functioning and fair and transparent financing of the EU and its
policies, but also to move beyond the recent institutional crisis
and make the best of the results achieved by the Lisbon Treaty.

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3. A brief history of the EU budget

The EU budget should be viewed as one of the key
3.1
instruments
for achieving EU policy objectives. Although
substantial in absolute terms, as a percentage the EU budget is
quite modest and despite the enlargement of the EU to include
27 countries, it has gone down steadily in recent years (4).

3.2
Some EU policies, such as cohesion policy, need financial
support for their implementation, whereas other policies, such
as competition, benefit from other instruments for achieving
their goals. The financing and functioning of the budget must
therefore be such that the policy objectives which have their
fundamental basis in the budget can be achieved.

The EU budget has from the very beginning been
3.3
amended and adapted to reflect the successive stages of Euro-
pean integration: the single market, enlargements, and, in par-
ticular,
the widening scope of EU policies. Traditionally, a
considerable part of the budget has been allocated to a relatively
small number of policies, while policy objectives themselves
have also undergone changes and developments that justify a
budget review.

3.4
The European Coal and Steel Community (ECSC), set up
in 1952, was genuinely financed by its own system of own
resources derived from fixed quotas based on steel production
in tonnes, which the coal and steel industries paid directly to
the Community budget. In accordance with the principle of soli-
darity and in order to guarantee independence from national
interests, the EC Treaty stipulates that
‘without prejudice to
other revenue, the budget shall be financed wholly from own
resources’ (Article 269).

3.5
The Luxembourg Council Decision of 21 April 1970
introduced an authentic financing system based on own
resources, in the form of revenue specifically allocated to the
Community to finance its budget and due to it by right without
need for further decisions by the Member States. At present, the
EU's funds consist of its own resources, made up of agricultural
and customs duties on imports from non-EU countries, a
resource levied from the harmonised value added tax (VAT)
base, and a rate to be levied on Gross National Income (GNI) if
and when the first three resources are not enough to cover the
Communities' financial commitments.

3.6
Calculating the VAT resource by applying an average
weighted rate on the total net revenue (the so-called ‘revenue
method’) transformed the VAT resource from a ‘genuine’ own
resource to a statistical device for calculating the contribution of
each Member State, which is far removed from the spirit in
which it was introduced.

3.7
The provenance of the EU's own resources has changed
time. The Commission's consultation paper
radically over
itself (5) points out that whereas in 1988 the GNI resource
made up less than 11 % of EU financing, compared to 28 %
provided by custom duties and agricultural levies and 57 % by

(4) See diagrams attached.
(5) SEC(2007) 1188 — Communication from the Commission —
Reforming the budget, changing Europe — a public consultation paper
in view of the 2008/2009 budget review.

the VAT-based own resource,
in 2013 the GNI resource will
provide about 74 % of EU financing, against 13 % for customs
and agricultural levies and 12 % for the VAT-based resource.

3.8
This means that the majority of resources are currently
derived, and will increasingly be derived in the near future, from
the budgets of individual Member States, and are sometimes
presented as ‘expenditure items’. We need only consider that in
2013, own resources as such will be reduced to 12 %, thereby
resulting in a total dissociation between the financing of the
budget and the letter and spirit of the Treaty.

3.9
The structure of budget expenditure, as well as its finan-
cing resources, has changed considerably over time. Payments
for the Common Agricultural Policy (CAP), for instance, reached
a peak of 70.8 % in 1985 and went down to 60 % of total
expenditure in 1988; in 2013 CAP expenditure will be virtually
halved to 32 %. Cohesion policy has, on the other hand, experi-
enced an opposite trend: whereas in 1965 expenditure on this
policy amounted to only 6 %, it rose to 10.8 % in 1985, 17.2 %
in 1988, and will amount to 35.7 % of the EU budget in 2013.
The planned CAP review will have to take account not only of
support for farming, but also of the benefits that it has secured
for the EU public particularly in terms of quality and control.

3.10
A problem with coherence has emerged particularly
since the Maastricht treaty: the European Union has gained new
powers and, little by little, new objectives have been announced
(for instance, recently, the commitment regarding environmental
issues), but these have not been reflected in the size of the EU's
budget, which has remained essentially unchanged.

3.11
There are a series of instruments including, for instance,
the recently introduced European Globalisation Adjustment
Fund, which are not written into the budget. These are not
accounted for financially in any specific way, but their operation
and subsequent use are dependent on surpluses in other budget
headings and other Community funds that have been released.
In practice, this system means that such instruments are of
minor importance and their financing and running is in essence
marginal.

3.12
the UK
Other aspects including the introduction of
rebate in 1985, which was subsequently extended to other
states, not to mention the numerous derogations and imbal-
ances that make the budget so complex and lacking in transpar-
ency, add to the urgency and importance of reviewing the
budget and how it is operated and financed.

4. The need for a budget review to prepare the European

Union for future challenges

4.1
The EESC considers that the characteristics of the budget
of such a unique entity as the European Union should reflect
the fundamental principles of European integration as enshrined
in the treaties, and the founding treaties in particular. The objec-
tives of peace, prosperity, freedom, security, general wellbeing,

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fairness and redistribution should be the main reference points
when it comes to adopting decisions. Considering challenges
such as climate change and environmental degradation, sustain-
ability should also be included as a strong guiding principle for
all expenditure in the future budget.

EU budget. It welcomes the debate launched by the European
Parliament's Lamassoure report (6), which includes ideas for a
review of the own resources system:

— VAT

— excise duties on transport fuel and other energy taxes;

The solutions adopted should be geared towards making
4.2
the overall framework for managing the budget more trans-
parent and easy to understand, thereby establishing a more
direct link between the EU public and the EU institutions.

— excise duties on tobacco and alcohol;

— tax on company profits.

4.3
The budget review should ensure respect for the principle
of equity among Member States, moving beyond any deroga-
tions, concessions or prerogatives. Each Member State's contri-
bution to financing the budget should reflect its general level of
prosperity and principles of solidarity.

4.4
In keeping with the principle of non-discrimination and
equality for all EU citizens, the budget review should provide for
special measures to move beyond the system of derogations,
privileges and exceptions enjoyed by some Member States.

European citizens should be able to benefit from more
5.5
and better information, and transparency and efficiency in the
system. Moreover, they should be given the means to verify and
assess how their contributions to the EU are spent on its func-
tioning and policies, participating as knowledgeably as possible.
Such arrangements are fundamental to all democratic govern-
ments.

Clearly, the arrangements for financing the budget are
5.6
one measure of the level of advancement of European integra-
tion. In a more federal system, a European tax would be a fair
method, and would be more transparent. However, to suggest
that in the current situation European economists might fail to
find a solution is wrong and demonstrates a lack of political
will.

5. Moving on from the present financing system

6. Policies and role of the European Union

The European Commission's consultation paper should
5.1
provide an opportunity for all stakeholders, be they institutional,
political or social, to hold serious discussions aimed at over-
coming the contradictions that characterise the EU budget and,
above all, the way it is financed.

5.2
The EESC underlines that, given the sensitivity of the
issue, broad consensus among all interested parties, i.e. ranging
from national parliaments to the social partners, should be
sought; and that during the implementation process, the amend-
ments adopted should be phased in gradually in order to ensure
widespread adherence to the reform, thereby avoiding preferen-
tial treatment among Member States.

the budget review should result

On the basis of the new Lisbon Treaty, the EESC believes
5.3
in a budget financing
that
system involving new forms of own resources. In particular, two
inconsistencies that characterise the present situation must be
remedied: the fact that 70 % of resources come from Gross
National Income, which, on paper at least, should only play a
residual role, and the situation whereby approximately 85 % of
the total derives from resources that are not actually ‘own
resources’ and therefore allocated directly to the EU.

6.1
In Communication SEC(2007) 1188, the Commission
lists a series of factors (7) that have a direct and indirect impact
on the Union's strategic choices and political agenda. These
factors range from an ageing population to scientific and tech-
nological progress,
the competitiveness of global markets,
climate change, Europe's commitment to solidarity, and rural
development policies.

6.2
As the budget is an essential tool for meeting the objec-
tives that underpin EU progress, its review should be conducted
in the light of a full and in-depth discussion of the role and
aims of the 27-member EU.

6.3
For this reason, the EESC would argue that during this
consultation phase, there is a need to build a consensus, both
within and outside the institutions, around the policies that are
deemed to be of fundamental importance for Europe's future. It
will then be necessary to determine how the European Union
has strengthened its role and sphere of
influence in those
sectors. This makes it all the more necessary that the process be
conducted in the light of the new treaty.

6.4 When decisions are taken on the policies that will form
the linchpins of the EU's activities in the coming years, a careful
analysis should be made of all the inconsistencies and delays of
the past, particularly in the financing system, so as to avoid
repeating the same mistakes.

5.4
For these reasons, the EESC hopes for a return to the
letter and spirit of Article 269 of the Treaty, which unequivo-
cally establishes the primacy of own resources for financing the

(6) European Parliament, Report on the future of the European Union's own
resources (A6-0066/2007), of 13 March 2007, rapporteur: Alain Lamas-
soure.

(7) See point 2.1 of Communication SEC(2007) 1188.

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6.5
In the various areas of activity and more specific policies
described by the Commission in the consultation paper as
future challenges, special emphasis, not least in financial terms,
should be placed on action in support of economic and social
cohesion. Disparities have grown, particularly since the recent
enlargement of the EU. The budget review must be used as an
opportunity to continue promoting the development of
less
developed regions, for the obvious reason that economic and
social progress in the less wealthy regions of the Union will
have a positive impact on all the Member States and their
economies.

Furthermore, as has already been mentioned, the EU's
6.6
work must continue to be guided by the values of solidarity and
social justice. In the face of challenges such as immigration, the
EU must learn how to project its role and social model beyond
its borders, by having instruments to hand, of a financial nature
in particular, aimed at tackling the causes of immigration in the
countries of origin.

Dealing with the challenge of climate change is becoming
6.7
an increasingly important priority for Europe and should be
reflected in spending priorities in the future. Additional funds
need to be committed to research and development in break-
through technologies in the energy and transport field and for
the development of methods for carbon capture and storage.
Major funds should also be allocated to supporting adaptation
and mitigation measures in the least developed countries and to
support low carbon investments in the emerging economies.

7. Explaining budget policies to the public

7.1
The European Union's institutional crisis has been due in
part to the budget structure itself, which is in serious need of
reform.
In the present situation, the short-sighted debate of
recent years on the EU's own resources contributes to the EU's
poor image. Complexity, lack of transparency and derogations
and exceptions are all factors that distance us from the princi-
ples of European integration and perpetuate Euroscepticism.

Given the difficulties encountered during the constitu-
7.2
tional (and subsequently Lisbon) treaty process, the budget and
its necessary reform should not contribute further to the idea
that the EU citizen's money is being poured into a ‘bottomless
pit’. For this reason, the link between spending and outcomes
has to be more explicitly spelt out.

8. What future for the EU's own resources?

(rapporteur: Mr Lamassoure) (8) criticises the current budget
system and its financing and advocates a reform to be intro-
duced in two stages but which should form part of a single deci-
sion. The transitional first phase would lead to an improvement
of
the current system of national contributions while the
second, in the view of the EP, should lead to the creation of a
genuine own resource for the European Union to replace the
existing mechanisms.

8.3
In emphasising that a European tax would not be in the
least revolutionary insofar as it would not change the tax
burden for citizens, the EP sets out the criteria for the new
system: sufficiency, stability, visibility and simplicity, low oper-
ating costs, efficient allocation of resources, vertical equity
(redistribution), horizontal equity (equal
impact on all EU
taxpayers), and fair contributions (in line with the wealth and
prosperity of each Member State).

8.4 Working from the observation it has made on a number
of occasions regarding the European budget's insufficiency to
meet the objectives pursued and challenges faced by the EU, the
EESC would like to launch a debate on the possibility of a Euro-
pean tax. By examining the various degrees of importance of
Community legislation, one idea might be to use possible sanc-
tions against countries failing to transpose certain fundamentally
important directives to finance projects of European interest.

8.5
The EESC appreciates the rigour of the report and its
wealth of proposals, and agrees with the EP's analysis of the
budget's present state of health and the need to reform it. Never-
theless, it would draw attention to the difficulties involved in
introducing a system such as the one described. The introduc-
tion of financing based on a ‘European tax’ would undoubtedly
be met with considerable resistance, first and foremost due to
problems in putting the idea across to the public.

8.6
On this note, the European Union ought to put more
effort into fully developing the protection and promotion of
cohesion,
the environment, employment and the European
social model, in addition to support for competitiveness.

The EESC hopes that the decisions to be taken on the
8.7
reform of EU budget financing will take greater account of the
fiscal capacity of each Member State,
in a spirit of fairness,
equality and solidarity, doing away with derogations and excep-
tions. Furthermore, the EESC would argue that the debate on
resources, though of primary importance, must not be allowed
to overshadow or upstage the discussion on the Union's stra-
tegic choices, its role and its policies.

8.1
The debate on EU financing provisions is one of the
most controversial aspects of the discussion on budget reform.
The budget's current financing framework (outlined in point
3.7)
from financing based mainly on own
resources. The options for reform range from the introduction
of a new own resources system replacing what went before, to
options favouring Member States' GNI.

is quite distinct

9. Transparent
methods

and

effective

budget

implementation

9.1
Budget implementation is another important subject up
for review. Transparency, reliability and clarity are the key
criteria at this stage. It is at the implementation phase in particu-
lar that the European public comes face to face with EU action

8.2
The European Parliament's report on the future of the
European Union's own resources, adopted in March 2007

(8) http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//

NONSGML+REPORT+A6-2007-0066+0+DOC+WORD+V0//EN.

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and can judge its practical results. In addition, it will be neces-
sary to ensure that the budgetary cycle is synchronised with the
terms of office of the European Parliament, the Commission,
and the European Council.

9.2
The EESC would argue that further efforts are needed in
the area of public information on the results of European poli-
cies and funds, for two main reasons: 1) in the interests of
to combat Euroscepticism and frequently
transparency; 2)
biased reporting that focuses on failures rather than the more
common success stories.

9.3
As regards the stability of the financial frameworks and
their internal flexibility, the EESC would argue that the EU's
long-term strategies (for instance, employment, research and
development, environment and energy) must be boosted by an
assurance of continuity, whereas for short-term priorities a
margin of flexibility should be allowed, with a view to adjusting
to changing circumstances and ensuring a rapid reaction, above
all leaving room for action by Member States.

9.4
Inevitably, the debate on budget implementation must
also look at budget management and accountability. Currently,
80 % of the budget is managed directly by the Member States,
while the remaining 20 % is managed by the European Commis-
sion, which however has responsibility for overall budget imple-
mentation. The EESC would argue that
there is a case for
discussing the relevance of this division of responsibilities.

9.5
In this respect, the utmost consideration must be given
to the new treaty, which amends Article 274 as follows: in the
first paragraph, the words at the beginning ‘The Commission
shall implement the budget’ are replaced by ‘The Commission
implement the budget in cooperation with the Member
shall
States’; the second paragraph is replaced by the following: ‘The
regulations shall lay down the control and audit obligations of
the Member States in the implementation of the budget and the
resulting responsibilities. They shall also lay down the responsi-
bilities and detailed rules for each institution concerning its part
in effecting its own expenditure.’

Brussels, 12 March 2008.

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS

APPENDIX

to the opinion of the European Economic and Social Committee

The following amendments, which received at least a quarter of the votes cast, were rejected in the course of the debate
(Rule 54(3) of the Rules of Procedure):

Point 1.3

Delete point 1.3:

‘There is a fundamental choice to be made when shaping budget policy: federalism or an intergovernmental system.
Clearly, the arrangements for financing the budget are one measure of the level of advancement of European integra-
tion.’

Voting

For: 40 Against: 87 Abstentions: 10

Point 7.3

After current point 7.2 insert a new point 7.3 as follows:

‘One of the major concerns about the present system of EU finances is the inability to manage them in such a way
that the Auditors will sign off the accounts. The annual charade whereby the Auditors decline to sign off most of the
expenditure gives rise to very adverse publicity in the Member States. Any new system must resolve this problem.’

Voting

For: 37 Against: 94 Abstentions: 12