"A Budget Matching our Ambitions", speech given at the conference "Shaping our Future" (8.1.2018) - Main contents
A few days before the important orientation debate in the EU Commission on the long-term EU Budget (MFF), a few ideas and concepts that are currently discussed in the EU Commission: on the seize of the budget, cuts and fresh money.
Mr President, dear Jean-Claude Juncker,
Dear Minister Pavlova on behalf of the Bulgarian Presidency,
Dear Euro Group President Mario Centeno,
Dear Chairman of the EU Parliament's Budget Committee Mr. Arthuis
I also greet all other Members of the European Parliament who are present,
Jean-Claude Juncker just talked about the future of Europe. In politics, as a general rule, if you want to shape the future, you have three instruments at your disposal:
Communication: convincing speeches, public relations
Rules: regulation, deregulation, standardisation, legislation
Money: investments, programmes, projects which set the direction, financed or co-financed with tax payers’ money
The multiannual financial framework (MFF) for the next decade is accordingly just one part of the toolbox that the EU has as its disposal to shape the future. But it is an important one. As in the case of communication and rules, financial resources allow us to set the direction for Europe in the coming decade on the basis of solidarity between the 27 Member States of the European Union.
But first we need to address two crucial sets of questions: material ones and formal ones. I would like to present to you today about a dozen provisional positions which are currently discussed in the EU Commission and ask you to give us your feedback on them. All of them are provisional, and if you got better arguments or ideas, we are more than happy to hear them and to integrate them in the Commission's proposal which is scheduled for May this year.
We have two financial gaps: One on the revenue side and one on the expenditure side of the budget. The gap on the revenue side is due to the fact that, sadly, the United Kingdom is leaving the European Union. As we are losing a net-contributor, it means that following a transitional period, which is currently being negotiated by our chief-negotiator Michel Barnier, we will face a structural financial gap of estimated Euro 12 to 13 billion annually. In addition to this, we face a gap on the expenditure side, as we have to assume more and more new tasks which could not be foreseen in full in the years 2011, 2012 and 2013, but are either better dealt with at the European level or that can only be successfully addressed at the European level: fighting terrorism, internal and external security, border control, investing in defence and defence research in the interest of our taxpayers and citizens as well as major research projects to improve our competitiveness in the digital age. All that has to be funded.
(Close the two gaps: Savings and fresh money)
Now let's come to the question of how to close these two gaps. Our positions on this are still provisional, but I would like to present them to you today, so you know in which direction we would like to go.
The Brexit gap can be closed with a 50:50 approach. This means that 50 percent should be covered by savings in the existing budget structure by cutting existing programmes, while another 50 percent should be made up through "fresh money".
As for new tasks which come on top of what we have done in the past, I would propose a ratio 20:80, that means - 20% from savings and 80% fresh money.
This is justified, I believe, because we fulfil these tasks in the very interest of the Member States and thereby help them to save money, as it is the case in defence research. I know that for some of you, 80 or 50 percent of fresh money may seem a lot, for others it will not be enough.
In order to get agreement on the Multi-Annual Financial Framework through, we need unanimity. We need the agreement from 27 governments - 27 European affairs ministers and also 27 Finance ministers - plus, for the decision on own resources, we also need the agreement from the Parliaments at national level. They will all have to agree. This is why I call on to you and all governments and Parliaments to be flexible. If there is no room for manoeuvre, we will not find a compromise and there will be no Multi-Annual Financial Framework. But if we are able to get the agreement, it would be a great sign of good governance, especially if it happens at the time when Britain is leaving the EU. It might also come as a surprise to our friends in Asia, the United States, and to Messrs. Erdogan, Putin or Trump that we are capable of acting while being democrats and deciding on the basis of unanimity. If we remain flexible, there is room for compromise.
We also believe that new tasks should not be funded by debt. As a guiding principle since its inception, the EU is not allowed to run debt. We do not have debt and we should not have debt in the future. Ask people in Berlin, Stuttgart, Vienna, Paris or Rom, what their level of public debts is? Ours is zero.
If we want to close the two gaps, we will have to make cuts somewhere. This is why we have conducted a "spending review", where we looked at the efficiency of every current programme. We need to make cuts in most of the programmes without however damaging our existing policies. What does this mean for the Common Agricultural Policy (CAP) and for Cohesion Policy? They remain important in the next MFF, with a share of around 30% of the budget. At present, the have a share of over 35%.
There are two programmes, we would like to exclude from any cuts, as they are closely linked to youth and our future. This is on the one hand the Erasmus+ programme for the young generation. We want more young people, be they students, academics or employees to travel across Europe and get to know the culture, languages and the labour markets of our countries. We therefore need more money for Erasmus+, rather than less. The same applies to our research programme "Horizon post 2020".
I would like to propose also a new heading in our EU Budget for this: "Future, Innovation and Youth". When you look at national budget structures in the Member States, the headings used are easy to understand. They are called culture, infrastructure, welfare, environment, defence. Our 5 headings are called 1a, heading 1b, 2, 3, 4, and 5. Very few people actually know what is behind our current budget headings. I am convinced that we need to make the whole budget easier to understand for a wider public. Headings should clearly indicate policies and objectives. So "Future, Innovation, Youth" could cover Erasmus+, Horizon, our European solidarity corps and all other projects relating to youth and innovation.
(Added value in the EU Budget)
We are also determined to include in our future financial framework only programmes or projects with a clear European added value. No Euro will be spent, if the relevant criteria is not met.
This is a crucial point for me. I believe in subsidiarity, and in my view the European Union needs to bring a clear European added value. How to define this term more precisely in political and legal terms will be up to us to discuss in the next few weeks. There are examples where the European value added is more evident than in other cases. Example Number One: Take the electrification of a cross-border railroad from the Black Sea along the Danube River. This is a clear case of European added value, as it is providing mobility and cross border infrastructure. Example Number Two: To conduct research, our research communities need maybe 3 supercomputers in the European Union which are among the top 10 worldwide, not 27 different ones, to be competitive with other regions in the world. This is also a clear case of European added value.
(EU added value cohesion: Difference in GDP per capita
With Example Number Three I like to provoke you: What about funding a railway in Bulgaria, which links Sofia to the countryside? Is this also added value for the European Union? Or for Bulgaria only?
In my view, we should look at GDP per capita. Worldwide average GDP per capita is 16 000 Euro per year. In the European Union it is 25 000 Euro per capita. In Luxembourg it is 103 000. In Ireland 62 000, Sweden 52 000, Germany 42 000, Frankreich 38 000, Bulgaria 7 000. We have therefore in the European Union a minimum of 7 000 and a maximum of 103 000. This difference in GDP per capita tears our European family apart. We therefore need to reduce those differences, not by reducing the level in Luxembourg but by raising the level in Bulgaria.
How successful cohesion policy can be, is best shown by new Member States. Their economic development is impressive, and some of them, have come close to the EU average. I do not know whether we will still need cohesion policy in 2050 but certainly in the next decade this is necessary, if we want to remain competitive and make a wise choice.
Why? Let me use another example: the city of Görlitz at the German-Polish border. For me, Görlitz is "the" European city. It was Bohemian, under Karl IV, also under the house of Luxembourg, after that German and then was split into two halves: one Polish and one German half. After the reunification of Germany, for more than 14 years, it got substantial financial support from the West and this led to a flourishing landscape in the area, from 1990 to 2004. The Eastern part of Görlitz in Poland was only financed by EU cohesion policy after Poland joined the Union. Since then there has been a strong improvement, but it still needs cohesion money for some years more to ensure that what has started but has not been completed yet, is not going to be destroyed or damaged. Görlitz shows that cohesion policy delivers and that it takes some time to deliver.
(Haushalte sind immer Finanztransfers)
Ladies and gentlemen, I believe that countries such as Bulgaria should continue to benefit from smart financial transfers. In Germany, the term "transfer union" is perceived rather negatively. I am in favour of smart transfers. Any budget at local, regional, national level is based in good part on transfers from one side to another. I will do everything so that the concept of net contributor does not remain in the foreground of our discussion. Do you know who the biggest net contributor is? It is not Germany. It is Luxembourg, when you take the per capita perspective. In Germany, people believe that they are the biggest net contributors but this is not correct. In terms of GDP per capita, it is Luxembourg, while Belgium and Denmark are number two and three. And in addition to this, you will find that at least 70% of the cohesion money spent to new Member States, finds its way back to the German economy via orders from German industry across all sectors.
We should make it clear that the cheap, populist argument dividing the world into net contributors and net receivers does not hold when you consider everything you get back in return. In Europe, we all benefit from the same standards on our internal market plus the markets of Switzerland, Norway and the associated Balkans. That is why I call for an intelligent definition of what a beneficiary is.
(Financing new tasks not at the expense of old tasks)
Then there is the question of traditional and new expenditures.
If you are to finance what we do for migration by cutting cohesion policy, you are going to split the European family further. And we already have more than enough splits …
We need to be more intelligent than that. We can make reasonable cuts - maybe 5 to 10% - but we also need fresh money to deal with migration, border management and development policy.
Europe remains attractive. I say this without being arrogant. In terms of living standards, democracy, human rights, we remain attractive, especially in comparison with our rather unstable neighbourhood. Greece, Bulgaria, Italy and Spain have considerable instability in their immediate neighbourhood. That is why the Mediterranean and the Middle East is common responsibility, our common destiny. We have to work together there. That is what is intelligent to do.
we do not need 2% of the European GDP. Just a little bit more than 1%. I would say, we need 1.1x percent.
A little bit more than 1.1%. Help me to uphold that argument. Support me in reaching out to your national parliaments. From 100 euro on your salary slip, an average of 50 euros goes to tax authority. Out of the 50 euros that are taken away from the European taxpayers, only 1 euro goes to the European Union budget. The rest stays in Member States, at national, regional and local level. If you talk about a “slim Europe”, something my Bavarian friends are supporting - then you should remember, the EU budget represents just 1 euro out of 50. There is not much you can do on a slimmer basis.
So I am not talking about 2% of the EU GDP - just 1.1x%. That is what I am fighting for. And I have been visiting many capitals to defend that case and doing everything to convince everybody now and I will do so in May, when we will make our formal proposal.
(Eurozone budget line in EU Budget)
Some people have been talking about the idea of a euro area budget. It is an idea that goes back to 2011. At that time it was perhaps appropriate but it is out of date now. In 2011, there were 17 Member States in the euro area, out of 28 EU member states. Now we are talking about 19 out of what will soon be 27 Member States. And our Bulgarian friends and others are thinking hard about joining the euro area. Now, once the UK will have left us, the 19 existing euro area countries will represent 85% of the EU’s GDP. Should we exclude the other 15%? No, I don't think so. Which is why a euro area budget line in a common budget is ok, and why we do not need a separate euro area budget.
(Monti Own Resources and Oettinger proposal tax on plastic?)
Mario Monti's High Level Group has been looking at possible new own resources. And at present we are looking at what we could include in our proposal. That High-Level Group had 3 representatives from the Parliament, 3 representatives from the Commission and 3 representatives from the Council. And they decided unanimously. This is why my message to Member States will be: Do not file it vertically and throw it immediately in your wastebasket. That is something which has been agreed on unanimously. Among the ideas that we are considering I could mention climate protection is a European task, as we have clear EU CO2 reduction targets. We spoke with one voice in Paris. The European Emission Trading System (ETS) is a European policy. The only non-European part is the fact that the revenues from the ETS go to national budgets. I think it would make sense that proceeds from our climate protection policy, from what has been agreed in Paris and Marrakesh and what we do with the ETS should actually go to the European budget.
A second example. One major environmental policy will concern plastic waste. We have too much packaging material and plastic waste, which pollutes our seas and oceans. And at the beginning of the year China has closed their market, because they do not need the material any more as an input. In the past, they have turned our plastic and synthetics waste into toys.
So, the question arises, should we not tax the production of our plastics and synthetics?
That would be an instrument which could help guide Member States' policies. Some of them are doing this, but not all, so we risk a fragmented market. And in the internal market for goods, imports and exports in Europe, we need to have a common approach. So, that might be an option for new EU revenue.
(Shall the MFF be 5 year or 7 years?)
Then we have to decide how long the Financial Framework should be valid. 5 or 7 years? We have studied all the options: Should we extend it by 2 years because of the United Kingdom leaving and the more expenditure? Council wants us to go for 7, Parliament wants us to go for 5 so as to align the financial with the democratic cycle, because the Parliament and the Commission have 5-year mandates after all. Now if a Juncker Commission makes a proposal that has to be dealt with by the next Commission and if the current Parliament adopts a budget which the next Parliament will have to live with, then this is not very democratic anymore. I propose therefore that for one last time we should have a 7-year framework followed then by financial frameworks spanning 5 years, in line with the democratic cycle of Parliamentary and Commission mandates. So 7 years this time would serve as a bridge towards a more democratic system on a 5-yearly basis thereafter.
A few words on the rebates. If we end the British rebate, which is the mother of all rebates, then we should also allow the kids to move out. No more rebates! This would reduce red tape and we will certainly propose that there will no longer be any rebates under the new MFF.
On the question of the what Mr. Arthuis calls the Galaxy, i.e. EU finances beyond the Multi-Annual Financial Framework and the EU budget. Budgetary sovereignty is a very important responsibility for a European Parliament. And I also think, it is indeed a valid the question to ask which financial instruments currently outside the EU Budget should be integrated into the budget. The European Development Fund is a prominent example.
When discussing financial cuts, we should also look at our current budget heading 5: staff and administration. You cannot really avoid this discussion. But my request as Commissioner for budget and personnel is this: in the last 5 years, our Commission staff numbers have been reduced by 5%. But there is a limit to what is feasible, what can be done. So please, make sure that the Commission will still be able to act, that it has enough people. When the number of Member States goes down, we might have to reduce the number of people but let us work the next few years on the basis of a stable staff number and only after that, when we see where we are heading, make appropriate and sensible reductions to the Commission staff numbers because the UK is no longer a EU member.
(Time table after our proposal)
One final point. What should be the time frame for the adoption of our proposal? Let me look back in time. In June 2011, the President of the Commission made his proposal but not much happened after that. In my earlier function as Prime Minister for Baden-Württemberg in Germany, I was also responsible for the budget. It was in September that we presented our budget for the following year. In the EU, we do it usually at the end of December the year before. Well, can anybody explain to us why budgetary framework for the next decade should be so early? It only makes sense if it is not going to be put in the drawer and discussed properly only much later. Our partners need legal and financial security. That is clear for all spending programmes, in particular regarding Horizon post-2020, for the CAP, for cohesion policy. Stakeholders want to know where they stand, as early as possible, how big the cuts are going to be. But the proposal of the Barroso Commission was adopted only in December 2013. Why? I will be frank with you: Because it was not a priority for the Council, German elections were coming up and people started to make a move. That seems to be how seriously people take European budget. So in all due modesty, I would like to ask governments when they do intent to adopt European budget. Will they be ready to discuss starting it in May 2018?
We have the sixth MFF. The first started in 1988. There were never budgetary discussions which were interrupted by the European elections with one exception. In 1999, the budget for 2000-2006, but at that time the European Parliament did not have a decisive role to play in EU budgetary matters. But they certainly do now. So there are 2 possibilities. The first one would be to submit and then to see what happens. It is then very likely that we have an election campaign with leading contenders, one promising "a paradise with more money" and the other promising "less spending, as little money as possible for Brussels". You can predict easily what is more attractive and thus likely to happen. Once the Parliament will have assumed office, listened to all the 27 new Commissioners, and we will have a new Commission in place, then some of our proposals will have to be changed and then the Commission will submit a new proposal. And we'll be in the same situation again and we'll be in December 2020, not having learnt from the mistakes of last time round.
This is the reason why I am in favour of good governance: We submit in May and the Bulgarian presidency and our Austrian friends, our Romanian friends, are called up to take it up immediately and put it on the agenda of the European Council in time. If they start to discuss in February and it becomes a priority, we hope, we can close the negotiations at Sibiu in May 2019. If we succeed in this, we would send a strong message to the world: Europe is capable of acting and even reaching unanimity.
So those are the main messages: Security, economic strength, competitiveness, solidarity and sustainability. We will only spent money, if we can show it brings added value. And it is in this mind-set that we will ask Member States to give us money: to implement policies with a European added value.
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