August 20, 2011
The financial burden of running Europe is not divided evenly among European countries. This fact makes the upcoming 2012 EU budget negotiations noteworthy even across the Atlantic.
Next year, the EU will decide on the exact composition of its budget document for the years 2014-2020 — how much will be spent on what, and who will shoulder the lion’s share of the burden. It is in America’s interest to ensure that Britain, the staunchest and most loyal ally to the United States, is not burdened with an unfair share of EU budget contributions. Yet this is exactly what will happen if the U.K. rebate is reduced or abolished.
First, some background. When the U.K. joined what was then the European Economic Community in 1973, it was one of the poorest countries in Europe and had a small agricultural sector. Yet its budgetary contributions were disproportionately large, because the EEC’s largest spending item, the socialist Common Agricultural Policy (CAP), constituted 66% of the entire EEC budget, and the U.K. benefited little from it. France and West Germany benefitted the most.
In 1984, Margaret Thatcher negotiated and won a budget rebate which, to a large degree (though not completely), corrected this anomaly. The rebate was a deduction from the U.K.’s net contribution to the annual EU budget in a given year, calculated as 66% of the U.K.’s net contribution in the previous year. For example, the U.K.’s contribution in 1985 amounted to 66% of the nation’s contribution to the 1984 budget.
Even then, though, the EU’s spending on agriculture never dropped below 40% of the total EU budget, and that was in the 1990s. No serious reform of the CAP ever occurred. Thus, the U.K. continued to contribute more on net to the EU budget than any other country other than Germany.
Nonetheless, in 2005, Tony Blair surrendered a large part of the U.K.’s now-smaller budget rebate, caving in to the demands of other 24 EU member-states led by France, which managed to block any reform of the CAP and won an increase of spending on agriculture (to 47% of the total EU budget in 2009). Blair thus contradicted himself — he earlier claimed that the budget rebate was fully justified until and unless the CAP were to be reformed or abolished. He advocated CAP reform and an increase of spending on R&D programs, which would have been beneficial for the entire EU.
But Britain surrendered to France (that doesn’t happen often!), and the EU is now laboring under obsolete budget principles, while its industrial base is obsolete. Blair later offered pathetic “justifications” that the U.K. was “transferring wealth from Western to Eastern Europe,” even though British voters did not consent to this.
Now Nicolas Sarkozy is building a coalition of EU states to block any CAP reform and any cuts of EU spending on farms (which, by the way, causes food costs in the EU to be twice what they would be in the absence of the CAP).
Sarkozy is, of course, an unpopular president craving votes. He is dependent on French farmers and other special interest groups for reelection. But that doesn’t entitle him and other European “leaders” to British taxpayers’ money.
It also doesn’t change the fact that with the now-reduced British rebate, the annual EU budget is even more unfair than it was before 2005. Even with the budget rebate, the U.K. is now (as it was even before 2005) the second-largest net contributor to the EU budget, trailing only Germany and paying the EU on net over 3 billion EUR per year. That is, every year, the U.K. pays the EU over 3 billion EUR more than it gets from the EU budget, with the rebate accounted for.
By contrast, France’s annual net contribution is only 2 billion EUR, and Italy’s is only a little over 1 billion EUR, even though these three countries have roughly equal populations and GDPs. Not surprisingly, this is reflected in per capita net contributions: France’s and Italy’s contributions are significantly smaller than the U.K.’s.
This is primarily because France and Italy simply get more from the EU’s annual budget than the U.K. does. France is by far the single largest beneficiary of gross EU spending, to the tune of ca. 14 billion EUR per year, and Italy to the tune of ca. 11 billion EUR per year. The U.K. receives only ca. 7-8 billion EUR per year.
France is also the chief beneficiary of EU farm spending, to the tune of 10 billion EUR per year; Italy receives 6 billion EUR annually, and the U.K. only 4 billion EUR per annum.
The EU’s second-largest budget item is “regional aid,” which is spent mostly subsidizing rich countries like Spain (the chief beneficiary), which has a GDP per capita of over $30,000; Italy; and Germany (East Germany is actually wealthier than the entire New Europe). In that category, Italy and France again beat the U.K., not to mention Spain, Germany, Greece, Poland, and Portugal.
The EU’s R&D budget is tiny — only 4.059 billion EUR per year, which is smaller than the research budget of the DOE, let alone other federal U.S. agencies. This small budget is utterly insufficient to develop new technologies, support research programs, keep the EU’s industrial base up to date, and keep the EU competitive with other entities, including the U.S., China, and India. The EU’s individual member-states also spend only tiny amounts of money on R&D.
Yet continental European governments do not intend to increase it. Instead, they intend to defend the socialist, useless, wasteful CAP, which keeps farmers happy and prevents them from blocking roads. Most importantly, the CAP makes it easier for politicians to get reelected. And who cares about the EU’s obsolete industrial base?
In 2000, the EU launched its “Lisbon Agenda,” which was supposed to make it the world’s most dynamic, most competitive knowledge-based economy by 2010. When that year ended, it was clear that the Agenda was a dismal failure, but EU politicians refused to acknowledge this.
The Lisbon Agenda called on the EU and its member-states to collectively spend 3% of the EU’s total GDP on research. This goal was never met, partly thanks to the French and their allies who sabotaged EU budget reform.
There is, of course, no need to raise taxes or spending to finance new R&D projects. Savings can be made on the forementioned agricultural spending, “aid” to “poor” countries like Spain, and the EU’s excessive administration costs, now running at over 6 billion EUR per year, financing bloated bureaucracies and the perks their employees enjoy, as well as huge, excessively expensive buildings. The EU could thus triple its spending on R&D while still reducing its total annual budget. Agricultural spending and “regional aid” collectively constitute 79% of the total annual EU budget (114 billion EUR).
The British government should make these points, fight for CAP reform (or better yet, the total abolition of the CAP), lobby to increase spending on R&D and decrease “aid” to rich countries like Spain, explain why increased R&D investments would benefit the entire EU and make it more competitive, and veto any budget that reduces the U.K.’s benefits or its budget rebate. The British government’s only allegiance should be to British taxpayers, not to the EU. And America should strongly support the U.K.