The Warsaw Network
Budget of the European Union
11.05.2018

The Union is making a plan and guessing what the EU will look like in 10 years. Just like in the communist countries back in the day

Commissioner Günther Oettinger presented the financial perspective of the European Community for the years 2021-2027. None of the Polish economists will criticise the EU budget constructed the way it is, because with all the reservations they have about the EU’s conduct, the benefits that flow from the common market still outweigh the inconveniences associated with the progressing centralisation and bureaucracy. And if anything at all, the budget proposed by the Commission actually amounts to centralisation and bureaucracy. None of the serious Polish economists or politicians, however, have any doubt that if the Polish budget were constructed in this fashion, not only it would not be approved, but it would end up in a scandal and those who put it forward would be discredited for good. And it is not about the amounts assigned to individual items, but about the very philosophy of creating the Multiannual Financial Perspective.

It is difficult to find any rational explanation as to why plans span over as many as 7 years. The concept is very similar to the 5-year plans created in the countries subject to central planning in communist economies. But it was so ineffective that even in Poland in the mid-70s, such planning was abandoned. In the case of the European Union, we indeed have 7-year plans. In the Soviet Union, the First Secretary of the Communist Party, Nikita Khrushchev, did experimentally introduce a 7-year plan once, but the idea was abandoned in 1965.

The Union, however, is not discouraged and foretells the future. A 7-year perspective means that European officials have to forecast on the basis of macroeconomic indicators almost 10 years in advance. Geniuses won’t be enough here. One must have a crystal ball and precise instructions how to use it, in order to predict in 2018, for example, what the inflation and GDP dynamics will be in 2026, while at the same time averaging them and weighing them accordingly for all 27 countries of the Community.

Another issue is the size of the budget. Officials from Brussels apparently haven’t noticed that the second largest European economy is leaving the Union. The United Kingdom paid 13 billion euro a year to the joint coffers. Although this money will no longer be available, the EU budget is growing by more than nearly 180 billion to 1.279 trillion.

This gap needs to be filled, so officials assume that contributions from individual countries will increase by 10 percentage points to 1.1% of GDP from each EU country. However, the problem is that some members strongly oppose increasing these burdens, among them the Netherlands, Denmark or Austria. For a fact only France, Germany, Poland and Luxembourg are in favour of this proposal. Mark Rutte, the Dutch Prime Minister, has already announced that his country will not agree to this Financial Perspective or higher contributions, because to him it’s clear that a smaller EU should have a smaller budget.

In a nutshell, officials shaping the budget have no idea really how high the contributions from individual member states are, nor do they know the revenues that will be achieved. It’s like constructing a budget at the national level, not knowing what the tax rates are.

The Eurocrats also failed to consider what impact Brexit will have on the economies of other EU countries. You can still hear how badly it will affect Great Britain, yet the effects it will have on, for example, the Netherlands, Poland or Germany are completely ignored. Meanwhile, German economists estimate that Brexit will cost Germany alone up to 7 billion euro annually.

The Financial Perspective also proposed that the payment of funds for individual countries be subject to compliance with the “principles of the rule of law”. Of course, Poland and Hungary are targets thereof. There is no need to engage in the analysis of the muddled Eurocrats’ language. The thing boils down to this: if officials recognise that the “rule of law” is violated in a given country, they will not give money for its project X.

Let us skip the considerations concerning the very legality of such an idea or the usurpation by officials in Brussels of the right to evaluate activities in Poland, Hungary or anywhere else. In practice, this amounts to further deterioration of the system’s efficiency. Hypothetically speaking, under “normal conditions” the money would be allocated to project X and not to project Y, because it would be considered “inferior”. However, if officials recognise that project X comes from a country where these principles of the rule of law are violated, then the money won’t go there. They will allocate the funds to the “worse” project Y.

In addition to the political aspect of attempting to subjugate “unruly” countries by unelected Brussels officials, the whole operation looks like a flexible mechanism for patching Brexit holes. If it turns out that the budget is a fiction, and it will, then officials, under the guise of the fight for the rule of law, will be able to control fund transfers, concealing the fact that there aren’t any funds for the accepted projects. With a snap of their fingers, they save money.

Everything also indicates that the budget really serves as a tool for centralising the power of Brussels and for subordinating the governments of individual member states. It is also intended to allow acting on the basis of what has transpired. State budgets, in addition to having an economic dimension, are always a political tool. In the case of Brussels, however, this last function completely dominates any other, including the cohesion of the development of Europe.

The idea behind the budget so designed will become the source of a constant “war” for money. It will be difficult to explain to Poles or Hungarians why funding has been suspended and why, for example, it has been redirected to Spain, whose largest region thinks about sovereignty, and whose authorities are hiding from the government in Madrid. The discussion about a two-speed Europe will continue unabated, but not as Brussels imagines it. There will be two Europes – one that can be punished and subordinated; and another, better – like Spain, which one will possibly sometimes have to bribe. And no one will care how the rule of law is observed there.

Author: Dariusz Matuszak