3. Assess the reasons why current funding arrangements for the EU budget are regarded as inappropriate and unfair?
The budget of the EU has always been an issue of high political tension. Each member state is concerned about their contributions and how much funds they receive. But the current budget “does not reflect its main task and policy goals” (Gros, 2008, p. 8).
The main issue still concerns CAP. Although it is a declining sector, it still receives more than 40 per cent of the budget. Already historically, agricultural spending has been deforming factor in the EU economy which led to tension between member states. (IP Global, 2005) This policy does not increase solidarity as the majority of available funds is paid to richer farmers in richer member states. France itself receives more than one-third of funds and France, Germany and Italy together receive about one-half of the funding for agriculture. (Gros, 2008, p. 4) Furthermore, fair distribution within each member state is another issue as 20 percent of the farmers receive almost 80 percent of the money. (Spiegel, 2008)
Moreover, new EU member states are expected to suffer from this policy as the agriculture spending influences prices and reduces the amount of money which could be spent on investment in industries and services which have a bigger potential for progress and productivity. (IP Global, 2005)
Another main issue is the “UK rebate” which was introduced in 1984. This is a system that provides Britain with a refund of 66 percent of its made payments to the EU. (Heinemann, 2008, p. 112) The reason for its introduction was that Britain was the third poorest country of the Community in 1984 and had to pay a high amount to the EU but due to its minor agricultural sector, it could receive only a small proportion of the budget. (Gros, 2009, p. 12)
4. Critically evaluate present and future challenges facing the financing of the EU as it seeks to achieve the goals of the Lisbon Agenda.
The Lisbon Agenda sets a framework for action until 2010. It specifically aims to increase European competitiveness by investing in a knowledge-driven and highly productive society. The main areas set out in the Lisbon strategy are the following: (Johnson, 2008, p. 18)
- Creating an effective internal market
- Promoting free and fair trade within Europe and beyond
- Better regulation that supports business while not undermining consumers
- Improving European infrastructure to support mobility across Europe
- Investing in R&D to promote change across the EU
- Boosting innovation to help EU firms excel in product development
- Creating a strong industrial base to ensure sustainable development
- More and better jobs that offer better value-added and less insecurity
One key area is investing in R&D. This one can be dealt as a key growth factor as it comes to the fact that the European Union wants to become the most productive economy worldwide and successfully compete with other clubs. (Artis and Nixson, 2007, p. 23) Therefore, more funds should be allocated for research and development and spending on agriculture should be reduced to a minimum as it does not foster European competitiveness.
Another challenge consists in the enlargement of the EU. At present and in future there will be more poorer member states, mostly Eastern European countries, which need financial help in order to be competitive and only a few richer states that make the most payments. (EurActiv (a), 2003)
The main problem remains to be decision-making in conjunction with special interests of each member state. Most countries mainly focus on net contributions and how much money they receive from the EU. Strong agricultural unions in countries impose pressure upon their countries, which will not likely scare off their voters. (Weber, 1999, p. 118) Thus, the requirement to reach unanimity among all member states when it comes to reform the budget, leads to a strong status quo basis. If no consensus is reached upon a specific topic the appropriations forecasted for the last year will be continued. Indeed, fundamental changes are needed both in decision-making processes and budget in order to ensure the Union’s competitiveness. Therefore, the so-called ‘sunset’ clauses would help to avoid the status quo problematic as they ensure that an explicit agreement must be made in order to continue with the former expenditure plan. (Gros, 2009, p. 17)
Reference List
Books
Artis M. and Nixson F (2007) The economics of the European Union: policy and analysis. 4th edition. New York: Oxford University Press.
Heinemann F., Mohl P and Osterloh S. (2008) Reform Options for the EU Own Resources System. Mannheim:Springerverlag.
McDonald F. and Dearden S. (2005) European Economic Integration. 4th edition. Harlow: Pearson.
Weber D. (1999) The Franco-German Relationship in the European Union. London: Routledge.
Electronic Journals
Doménech (2000) Fiscal flows in Europe: The redistributive effects of the EU budget, Review of World Economics vol. 136 (4) [online]. Available from:
http://www.springerlink.com/content/j88w477516t63xl2/fulltext.pdf?page=1.
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Internet sources
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