How to shift the EU's spending priorities? The multi-annual financial framework 2007 - 13 in perspective
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RJPP299838 Techset Composition Ltd, Salisbury, U.K. 3/3/2008
Journal of European Public Policy 15:4 June 2008: 531 – 549
How to shift the EU’s spending
priorities? The multi-annual financial
5
framework 2007 – 13 in perspective
Joachim Schild
10
15
ABSTRACT At the Lisbon European Council in 2000, heads of state and govern-
ment made strong political commitments to invest in Europe’s future, in order to
transform its economy into ‘the most competitive knowledge based economy in
the world’ by 2010. To what extent were the Lisbon goals translated into a shift
20
in spending priorities during the negotiations on the EU’s multi-annual financial
framework (2007 –13)? Could the stated competitiveness goals be underpinned by
a reallocation of scarce financial resources in the EU’s budget? This paper starts
with theoretical considerations on the odds of shifting financial priorities in the
EU’s ‘consensus democracy’. Then it gives an overview of the slow pace of change
to be found in the new financial perspective which is to be compared to earlier
deals on the multi-annual budget since 1988. In order to explain this result, the
25
political context and the sequence of decision-making is examined, looking at
the respective roles of the Commission, the European Council, and the European
Parliament.
KEY WORDS EU budgetary politics; financial perspective; intergovernmental
bargaining theory; joint decision trap; Lisbon goals; spending priorities.
30
INTRODUCTION
‘As it stands today, the EU budget is a historical relic. Expenditures, revenues
35 and procedures are all inconsistent with the present and future state of EU inte-
gration’ (Sapir et al. 2003: 162). This harsh criticism led the authors of the
quoted study, commissioned by the European Commission and known as the
‘Sapir Report’, to formulate a number of reform proposals. The key intention
was to transform the European budget so that it could become a major instru-
40 ment for the achievement of the Lisbon goals.
At the Lisbon European Council in 2000, the European Union (EU) set itself
the objective of becoming ‘the most competitive knowledge based economy in
the world’ by 2010. Heads of state and government made political commit-
ments to increase research budgets and to invest in Europe’s future. Of
45 course, the attainment of the Lisbon goals is primarily the responsibility of
Journal of European Public Policy
ISSN 1350-1763 print; 1466-4429 online # 2008 Taylor & Francis
http:==www.tandf.co.uk/journals
DOI: 10.1080/13501760801996725532 Journal of European Public Policy
the member states. But the question still remains: How can the stated
competitiveness goals be underpinned by a reallocation of scarce financial
resources in the EU’s budget?
The decisions on the multi-annual budget had to be taken against the back-
50 ground of ‘low-growth malaise’ in the EU and the failure to meet the goals of the
Lisbon agenda, especially its competitiveness goal. One of the key questions
with regard to these thorny budget negotiations was the following: Would the
EU succeed in transforming its budget into a ‘Prodi/Barroso budget’, empha-
sizing the competitiveness goals of the Lisbon agenda, after having had a ‘de
55 Gaulle budget’ which almost exclusively financed the common agricultural
policy (CAP) in the 1970s, and a ‘Delors budget’ (Lafan and Lindner 2005:
199) since the late 1980s, which channelled ever more money into cohesion
policy and the structural funds?
A cursory look at the first analyses and comments on the budget deal struck in
60 the early morning hours of 17 December 2005 points in the opposite direction: ‘A
prolongation of the status quo’ (Becker 2006) or ‘New budget, old dilemmas’
(Begg and Heinemann 2006). In this article, I shall try to have a closer look at
the balance between the reform ambition of some – the Commission, the Euro-
pean Parliament (EP), the British presidency – and the final results; at the balance
65 of innovative versus status quo elements. The paper starts with some theoretical
considerations on the odds of shifting financial priorities in the EU’s ‘consensus
democracy’. Then it gives a broad overview of the pace of change which is to
be compared to earlier deals on the multi-annual budget since 1988. In order
to explain the results, the sequence of decision-making – concentrating on the
70 expenditure side of the budget – is examined, looking at the respective roles of
the Commission, the European Council, and the EP.
THEORETICAL CONSIDERATIONS AND EMPIRICAL
75
INDICATORS
There are plenty of good reasons which lead us to expect that budgetary politics
in the political system of the EU is status quo oriented and, at best, slow to
change.
The EU can be described as a political system quite close to Arend Lijphart’s
80 ideal type of a consensus model of democracy (Lijphart 1999: 42 – 7). Consen-
sus democracies perform strongly in accommodating very divergent interests of
their citizens, social groups or constituent parts; but they certainly do not have
the reputation of being particularly well suited for swift shifts of political and
financial priorities in response to new challenges and changed economic
85 circumstances.
In the field of budgetary politics, the consensus features of the EU’s political
system are clearly visible. The most important forum for striking a deal in the
process of negotiating the financial framework of the EU is the European
Council (Laffan and Lindner 2005: 196). Heads of state and government
90 have to broker a final political compromise after protracted bargaining in theJ. Schild: How to Shift the EU’s Spending Priorities? 533
Council. These periodic strategic bargains on large financial packages are subject
to the condition of unanimous decision-making. In a later stage of decision-
making, the European Commission and the EP must be taken on board in
order to sign an ‘Interinstitutional Agreement’ (IIA) between the Commission,
95 the Council, and the EP. The IIA gives the political compromises of the Euro-
pean Council a binding force with respect to the overall amount of the budget
and the distribution of resources among the different budget headings. Theor-
etically, the necessity of signing an IIA adds two further veto players to the
process: the Commission and especially the EP, as the second branch of the
100 EU’s budgetary authority.
A rational choice-oriented institutionalist interpretation of budgetary politics
might point to the very high number of veto players – no less than 27 (25
member states, the Commission, and the EP) at the latest round of negotiations
on the multi-annual budget. This decision-making framework seems ideally
105 suited for resistance to change. It is also an ideal framework for defending
vested interests, especially agricultural interests. Veto player analysis would
then predict a small ‘win set’ and a high degree of policy stability (Tsebelis
2002). Budgetary politics in the framework of the EU’s financial perspective
thus quite closely resembles the ‘joint decision trap’ as analysed by Fritz
110 Scharpf (Scharpf 1988): the actors produce lowest common denominator
decisions with widely undesired outcomes, at least from a European point of
view, if one takes the financing of European public goods as the yardstick for
evaluating the results of negotiations (Begg 2005: 17). Actors find themselves
locked in a situation producing systematically suboptimal outcomes, heavily
115 favouring the status quo, and seemingly unable to change the decision-
making rules to overcome this situation.
A historical-institutionalist account of budgetary policy might point to the
framing of single-point negotiations on the budget by the established practice
of mid-term financial frameworks based on interinstitutional agreements, creat-
120 ing institutional and procedural path dependencies and preventing individual
member states from leaving the table. Budgetary negotiations are seen as
embedded in established institutional practices, behavioural norms and a pro-
cedural acquis (Laffan 2000; Lindner 2006). Not to sign an interinstitutional
agreement on the mid-term budget and instead to return to the conflict-
125 ridden annual budget negotiations of the 1970s and 1980s can be seen as
running against the prevailing ‘logic of appropriateness’. This has important
consequences for the ability of the EU to shift its expenditure priorities. The
multi-annual financial perspectives are relatively rigid, and since 1993 spending
priorities are fixed for no less than seven years. The price to pay for improving
130 efficiency and reducing conflict in budgetary politics through a rule-bound and
predictable procedure was to reduce flexibility and to introduce a status quo bias
(Enderlein et al. 2005: 27).
Nevertheless, change does occur. It may even occur at a tremendous pace in a
short period of time. Why and under which circumstances is change possible or
135 even likely?534 Journal of European Public Policy
Five sources of policy change might be identified:
. Package deals between member states, linking the negotiations on the budget
to a broader agenda of integrative steps.
140
. The policy environment: high economic growth rates and sound national
budgetary situations allow not only for a higher EU budget but also for
shifts in the structure of the budget owing to above-average growth rates of
prioritized budget headings.
. Changes in the interests of individual member states.
145
. Changes in the configuration of member states’ interests.
. Strong institutional political leadership, especially an agenda-setting power of
the Commission.
An intergovernmentalist or ‘exchange’ explanation of budgetary nego-
tiations would point, first of all, to large package deals and the use of
150 side-payments in their context as a possible tool for change. This tool has
been widely used in the past, especially in negotiating the so-called Delors
I and Delors II packages in 1988 and 1993. The structure and composition
of the EU’s budget were changed quickly and profoundly, the share of struc- Q1
tural funds within the overall budget rising from 15 per cent in 1988 to no
155 less than 30 per cent in 1992 and reaching a peak in 1999 at 36 per cent of
the budget.1 The major reason is to be found in the logic of side-payments.
In the two cases of the Delors I and Delors II packages, the Commission
took advantage of a favourable configuration of member state interests that
provided it with a ‘window of opportunity’ for itself and a group of
160 member states. The pursuit of the single European market project in the
second half of the 1980s and of the historical project of building the econ-
omic and monetary union (EMU) at the beginning of the 1990s, high on the
agenda of the economically most advanced member states, afforded the less
advanced member states tremendous negotiating power. They obtained
165 huge compensation payments, the doubling of structural fund resources
from 1988 to 1992, and a further steep increase of structural funds as well
as the creation of the cohesion fund in 1993 (Allen 2005: 217– 22; Gerbet
1999: 435; Moravcsik 1998: 374).
The political economy of these changes was such that the increasing share
170 of the structural funds and the cohesion fund could be financed by an overall
increase in the budget, that is ‘on top’ and not at the expense of other budget
headings such as the CAP. The financial burden was shifted to taxpayers,
especially in those member states, such as Germany, which had to foot the
bill.
175 Thus change in spending priorities seems most likely under two conditions:
If there is a ‘big integration project’ highly prioritized by a critical mass of
member states in a policy environment of a growing budget, when the shift
in spending priorities is gradual in nature, without imposing net sacrifices
for vested interests and creating the impression of a positive sum game. On
180 the other hand, change is much less likely in a situation where nationalJ. Schild: How to Shift the EU’s Spending Priorities? 535
finance ministers are keeping a tight hold on their governments’ purse strings
owing to high deficits in their national budgets. In such a case, a zero-sum
logic of budgetary decision-making is likely to prevail, creating clearly ident-
ifiable loser groups.
185 From an intergovernmental bargaining point of view, room for change in
spending priorities also depends very much on changes in the political prefer-
ences of member states (which usually do not change quickly) and changes in
the configuration of preferences. The latter might occur following enlargements
of the EU, increasing the heterogeneity among member states in their level of
190 prosperity and affecting the balance of power between net receivers and net con-
tributors to the budget (Lindner 2006: 29).
Hence intergovernmental bargaining theory leads us to believe that quite
favourable conditions must be met in order to shift spending priorities under
the condition of unanimous decision-making. This is probably the case as
195 long as calculations of net balances of budget flows are used by individual
member states as a proxy variable for their ‘national interests’.
A neofunctionalist interpretation would point to the power of supranational
institutions, especially the agenda-setting power of the Commission. Under
favourable circumstances, the Commission might use a ‘policy window’
200 (Kingdon 1984) to press for change. This might be the case if the Commission
can rely on the support of a transnational coalition of interests (Laffan 1997:
63– 9, 103– 6). Following this line of reasoning, the agenda-setting and nego-
tiating skills of the Delors Commission are frequently cited in the literature
in order to explain the setting-up of the first financial framework in 1988 and
205 the steep increase in structural fund spending (Hooghe 1996; Laffan 1997:
63– 9; Laffan 2000: 730– 3).
But what exactly do we mean when we speak of a change in spending priori-
ties? The following empirical indicators will be used in order to track changes to
Lisbon-related spending priorities:
210
. The budget share of research and development (R&D) Expenditures.2 This
can be seen as the most clear-cut expression of the ‘future-oriented nature’
of the budget.
. The planned evolution of so-called goal (1a) expenditures (‘Competitiveness
215 for growth and employment’) which, according to the Commission, should
translate the Lisbon goals in a newly introduced separate budget heading.
This budget heading includes, amongst other things, R&D expenditures,
funds for transport and energy, for education and training, and for a compe-
titiveness and innovation programme. As R&D expenditures represent the
220 main item in this budget heading (65 per cent of the total sum), it is close
to the first indicator.
. Besides these quantitative indicators, I will look for qualitative changes in the
ways the structural funds are to be spent and how the Commission will make
sure that the Lisbon goals guide the selection of projects to be co-financed by
225 the Community.536 Journal of European Public Policy
THE OVERALL PICTURE: HOW MUCH CHANGE?
Let us first look at long-term trends in the overall increase in the budget before
turning to its structure. In order to get an impression of the political will to
230
change the budget, we might compare the rate of change as reflected in the
decisions on the financial perspectives since 1988. It seems better not to look
at real spending in the past, but at the projected change of spending patterns
at the time of decision-making in order to make a judgement on the willingness
of political decision-makers to listen to the ‘winds of change’.
235
The first two multi-annual financial frameworks of the Community, the
so-called Delors I and Delors II packages, contained a substantial increase in
the maximum amount of own resources available at the Community level.
Since 1999 and the ‘Agenda 2000’ package, however, ‘stabilisation of
expenditure was the main concern of the member states during the negotiations’
240
(European Commission 2002: 81).
As an indicator for the pace of change, we can compare the average annual
growth rate (in constant prices) of all financial perspectives up to now, as
projected at the time of decision-making and expressed in the respective IIAs.
See Table 1. It is quite clear that the new financial perspective marks a
245
turning point with regard to budget growth rates. New political priorities are
hard to finance in an ‘on-top’ manner when the average annual growth rate
falls below 1 per cent in real terms, staying well below the projected gross
national income (GNI) growth rate of 2.3 per cent. The question of how a
slowly increasing Brussels pie is cut into slices becomes all the more important.
250
In order to have a more detailed picture of the amount of change, we can
start by looking at the empirical indicator which should tap the ‘future-
oriented’ nature of the budget in the most direct way. Figure 1 displays the
ratio of R&D expenditures as a share of the global budget3 for the timespan
1968 to 2004, expressed in real payments, and 2005 to 2013, expressed in
255
appropriations for commitments. It is evident from Figure 1 that the EU is
Table 1 Average real annual budget growth rates: comparison of financial
260 Perspectives 1988 – 2013
Delors I Delors II Agenda 2000 Agenda 2007
1988 – 92 1993 –99 2000 – 06 2007 – 13
3.9 % 3.3 % 2.6 % 0.9 %
265
Sources: Own calculations, figures up to Agenda 2000 based on: European
Commission, DG for Budget, ‘European Union. Public finance’, Luxembourg 2002,
pp. 38, 57 and 82; figures for 2007 –13 in: Interinstitutional Agreement between
the European Parliament, the Council and the Commission on budgetary discipline
and sound financial management, Official Journal of the European Union, 2006/C
270 139, June 2006, p. 10.J. Schild: How to Shift the EU’s Spending Priorities? 537
275
280
285
Figure 1 R&D expenditures (percentage share of the overall budget)6 Q4
making an effort to bring the budget more in line with the Lisbon goals. The
290
part of R&D expenditures as a share of the global budget will rise by 2.7 per-
centage points from 4.3 per cent in 2007 to 7 per cent in 2013, representing an
increase of 75 per cent from 2006 to 2013 (in constant prices).4 Nonetheless,
this remains well below the initial proposal of the Commission, which foresaw
in increase of no less than 166 per cent for the same period (2006– 13) to a
295
share of 8.6 per cent of the budget in 2013).5 Our second empirical indicator,
the overall share of the ‘Lisbon’ heading inside the financial perspective, dis-
plays indeed a growing segment for the years to come, rising from 7 per
cent of the overall budget in 2007 to 10.2 per cent in 2013.7
Change there is, but only of a slow and incremental nature. It does not in any
300
way come close to the sweeping change introduced in the budget structure and
its priorities over time reflected in the Delors I and Delors II packages. As the
long-term evolution of the EU’s budget structure makes clear (see Figure 2),
there were times in the past when profound changes in spending priorities
could be agreed upon and were translated into the annual budgets. The question
305
of why there was no serious effort to use the budget as a tool-kit for reforms
becomes all the more important.
310
THE COMMISSION: AN AGENDA-SETTER WITH CLIPPED
WINGS
The agenda-setting power of the Commission has been tightly constrained in
this round of budgetary policy-making. The first major decision was taken in
October 2002. During the final stage of the negotiations opening the way for
315 Eastern enlargement, France and Germany found a compromise on CAP spend-538 Journal of European Public Policy
320
325
330
Figure 2 Share of different policies in total EU spending 1958 – 2005 (percentage
payments)
Source: European Union. Financial Report 2005, Luxembourg: Office for Official
Publications of the European Communities, 2006, Annex I, Table 11 (Community
335 budget only).
ing up to 2013. This bilateral agreement was endorsed, with little change, by the
European Council of Brussels.8 France got its way in securing the financial inter-
340 est of French farmers. As a consequence of this decision, the most important
budget subheading was politically locked in until 2013. Shifting financial priori-
ties in favour of the competitiveness goals of the Lisbon agenda without rever-
sing this European Council decision could only mean redistribution among the
other budget headings.
345 The second important constraint with regard to the agenda-setting power of
the Commission was to be found in a joint letter from six member states, all net
contributors to the EU budget, to the president of the Commission dating from
December 2003.9 In this letter, Austria, France, Germany, the Netherlands,
Sweden and the UK warned the Commission that they would not be prepared
350 to accept a budget beyond the actual level of the EU’s expenditures of 1 per cent
of the EU’s GNI. For the first time since the introduction of the multi-annual
financial frameworks, a powerful group of countries did not even wait for the
Commission to put its proposal on the table before publicly building coalitions
and loudly stating their preferences.
355 After hot internal disputes (Steenblock and Hartwig: 2004: 85) the Commis-
sion took a rather cautious approach. In its proposal, published in February
2004,10 it anticipated the member states’ reluctance to increase the budget in
an environment of sluggish growth rates by foreseeing average yearly spending
commitments of 1.14 per cent of GNI and a lower growth rate of the budget
360 than in the past. Furthermore, the Commission did not want to reopen theJ. Schild: How to Shift the EU’s Spending Priorities? 539
debate on CAP spending. In view of this rather conservative approach, the
Parliament reproached the Commission for not playing ‘its role of “honest
broker” between the Parliament and the Council’ and for its ‘tendency to
play in favour of the Council’.11
365 Nevertheless, the Commission proposal contained a pronounced shift in the
allocation of resources between the different budget headings ‘towards growth
and employment with a focus on knowledge based activities such as research
and innovation’.12 In particular, subheading (1a) ‘Competitiveness for growth
and employment’, heading (3) ‘Citizenship, freedom, security and justice’, and
370 heading (4) ‘The EU as a global partner’ foresaw important increases in spending
(see Table 2). However, what looks at first glance like a bold proposal must be
seen in the light of the aforementioned constraints on the negotiations. It was
clear right from the start that the final result would lie somewhere between the
Commission’s proposal and the 1 per cent limit set by the net contributors. It
375 was also equally clear that the CAP heading would be almost completely
exempted from downward adjustments and that the second largest budget
item, cohesion policy, would have important defenders among the member
states. The odds of deep cuts by the Council into the headings with the highest
percentage increase in the Commission’s initial proposals were thus quite high.
380 The proposal nevertheless contained a number of innovative elements point-
ing towards the realization of the Lisbon goals. Most importantly, the Commis-
sion advocated some qualitative changes in cohesion policy. It made it clear that
it would push towards the integration of the Lisbon goals with the national or
regional development plans to be negotiated in the cohesion policy between
385 itself and the member states. This push would be based on strategy papers to
be adopted by the Council on the spending priorities for cohesion policy
Table 2 Shift in the allocation of resources between budget headings 2006–13
390 according to the Commission’s proposal from February 2004 (in constant 2004 prices)
2006 2013 Difference %
1 Sustainable growth 46,621 75,950 63
(1a) Competitiveness for growth and 8,791 25,825 194
395 employment
(1b) Cohesion for growth and employment 37,830 50,125 33
2 Preservation and management of natural 56,015 57,805 3
resources
of which: agriculture – market-related 43,735 42,293 23
400 expenditure and direct payments
3 Citizenship, freedom, security and justice 2,342 4,455 90
4 the EU as a global partner 11,232 15,740 40
Sources: Own computation, figures based on European Commission. Commission
tables’ detailed proposals for Community spending for 2007 – 13, IP/04/910, Brus-
405 sels, 14 July 2004.540 Journal of European Public Policy
funds, eventually giving the Commission a lever to channel more money
towards innovative industries or research instead of spending on infrastructure
projects. Particularly in the second objective of the cohesion policy, the ‘regional
competitiveness and employment’ goal, the Commission made it clear that
410 ‘interventions would need to concentrate on a limited number of policy priori-
ties linked to the Lisbon and Goteborg agenda.’13 The ‘Lisbon rhetoric’ was skil-
fully used by the Commission in its institutional self-interest to push for a bigger
budget and for tighter control of the member states’ cohesion policy.14
But the ability of the Commission to set the agenda for the upcoming budget
415 debates was narrowly circumscribed. The limited role of the Commission
during the agenda 2007 negotiating process stands in distinct contrast to its
earlier performance in contributing to a shift in political and financial priorities,
especially in the 1988 and 1992 negotiations on the Delors I and Delors II
packages.
420
BARGAINING IN THE COUNCIL
Within the Council, there were few advocates for change in the Lisbon goals.
Such an advocacy role in favour of making the competitiveness of the EU the
425 overriding goal would have found its expression in:
(a) calling into question the locking-in of the CAP budget up to 2013;
(b) a clearly expressed preference for high expenditures under budget heading
(1a) ‘Competitiveness for growth and employment’;
430
(c) a preference for an enlarged budget, allowing for a higher share of Lisbon-
related items in the budget without cutting back the absolute volume of
CAP and cohesion policy funds.
It is no surprise that this last option found the greatest number of supporters,
especially among the member states receiving net flows from the budget.
435 During the negotiations in the Council, the member states held widely diver-
ging views on the overall level of EU spending, ranging from strong support
of the Commission’s proposal by many delegations to the position outlined
by the six net contributors in their joint letter. In terms of appropriations for
commitments, the Commission’s proposal suggested an average figure of 1.26
440 per cent of GNI, whereas the six net contributors made clear during the nego-
tiations that their figure of 1 per cent of GNI did not refer to appropriations for
spending but for commitments (usually substantially higher then appropriations
for spending, let alone effective spending levels).15 Because of the joint ‘letter of
the six’ in December 2003, the member states receiving net flows and pleading
445 for a rising overall scope of the budget in an enlarged Union found themselves
on the defensive right from the beginning.
Shifting financial priorities under the condition of a stable upper ceiling of
expenditures (relative to GNI) and the balanced budget rule would have
meant redistributing resources not only between budget headings but also
450 between member states. The only way to avoid conflicts in redistributionJ. Schild: How to Shift the EU’s Spending Priorities? 541
would be to reallocate resources only at the margins, translating the growth-
driven rise in the overall budget into differential growth rates for individual
expenditure headings. During the earlier phases of the negotiating process,
only Sweden pushed for bringing the CAP issue back on to the table (Becker
455 2005: 187). Great Britain raised the CAP issue too, but this was only done in
the latest stages of the process in response to increased French political pressure
to abolish the British budget rebate (as France is the member state bearing the
greatest burden of financing this rebate). Tony Blair had accepted, grudgingly,
the compromise on CAP spending in October 2002, and during the whole
460 negotiating process, up to the first failure to come to an agreement in June
2005 under the presidency of Luxembourg, the British made no attempt to
reopen the CAP issue (Mayhew 2005). The fervent plea of Tony Blair in
favour of a future-oriented budget16 was not reflected in the behaviour of the
British delegation at the negotiation table up to this point. The attacks on
465 CAP spending during the British presidency served the double purpose of
defending the British rebate against powerful opponents and of taking stock
for the next financial perspective.
The compromise hammered out by the European Council17 in the night of
16– 17 December 2005 was very close to the initial positions of the net contri-
470 buting states:
. The own resources ceiling remained unchanged at 1.24 per cent of GNI.
. Overall spending in terms of appropriations for commitments was set at a
level of 862.4 billion E (in constant 2004 prices) for the entire period
475 from 2007 to 2013, representing 1.045 per cent of EU GNI. These figures
translate beyond any doubt into a political victory for the net contributing
states. In terms of spending commitments, always lower than commitments
for appropriation, this comes close to their initial demand of 1 per cent.
. The funds included under the Lisbon heading (1a) ‘Competitiveness for
480 growth and employment’) were to be increased from 8.250 million E in
2007 to 12.600 million E in 2013, which represents 7.5 per cent annual Q2
real growth compared to 2006, well below the growth rate proposed by the
Commission.
. Inside this budget subheading, composed of five broad objectives –
485 research and technological development, European networks, education
and training, promoting competitiveness in a fully integrated single
market, and the social policy agenda – the European Council favoured a
clear priority for research funding that ‘should therefore be increased
such that by 2013 the resources available are around 75 per cent higher
490 in real terms than in 2006’.18
. With regard to the pursuit of the Lisbon goals using instruments of the EU’s
cohesion policy, the European Council followed the basic concept of the
Commission. It agreed that 60 per cent of the money to be spent under
the ‘convergence objective’ and 75 per cent of the sums spent under
495 the ‘regional competitiveness and employment objective’ should be spent542 Journal of European Public Policy
according to criteria designed to ensure that the goals of the Lisbon agenda
would be met by the programmes and projects funded through the structural
funds and the cohesion fund. These criteria, however, only apply to the EU
15, and not to the new member states. This means that roughly 60 per cent of
500 the resources available for cohesion policy in the EU 15 are to be spent
according to Lisbon-related spending criteria that have to be defined by the
Council based on a proposal from the Commission. As roughly 50 per
cent of the resources dedicated to the EU’s cohesion policy will be going
to the EU 15, this means in turn that at least 30 per cent of the entire sum
505 of cohesion policy resources (adding up to 307.7 billion E) will be distributed
using the Lisbon-related criteria for allocating scarce resources.
The overall picture conveyed by the European Council’s decisions is that of slow
progress on expenditure. Just as many observers assumed before the end-game
510
inside the European Council, R&D expenditures suffered the deepest cuts com-
pared to the initial proposal of the Commission.
Of course, there is a certain emphasis on the Lisbon-related budget heading
and especially on R&D spending. However, these high growth rates start from a
low absolute level of spending. A thorough reorientation of priorities, as called
515
for by the Sapir Report, would have led to quite different spending patterns
(Begg and Heinemann 2006: 1).
THE PARLIAMENT: A POWERLESS VETO PLAYER?
520 The EP was a veto player in the negotiation process on the multi-annual finan-
cial framework. Its consent was necessary as it had to sign an IIA with the
Council and the Commission in order to give a binding force to the political
compromises on the multi-annual budget hammered out by the European
Council. How did the EP use its veto power?
525 In order to strengthen its position, the Parliament set up a temporary com-
mittee – for the first time since the financial perspective came into existence –
and adopted – equally for the first time – a comprehensive negotiation position
in advance of the European Council’s final agreement on the budget.
The EP broadly supported the approach taken by the Commission in its
530 initial proposal from February 2004. It welcomed the substantial increases in
spending under the Lisbon heading, and in the two other fields singled out
by the Commission as deserving additional funds in order to match the EU’s
political priorities, namely Justice and Home Affairs and External Relations
of the EU. Nevertheless, it proposed to reduce the Lisbon heading in the Com-
535 mission’s proposal in order to shift 4 billion E Lisbon-related funds (mainly
heading (1a)) to heading (3): Citizenship (1.3 billion E) and to heading (4)
The EU as a global partner (2.7 billion E).20 It also advocated a gradual intro-
duction of compulsory national co-financing of the CAP by the EU 15 member
states which would have reduced the financial burden for the Community’s
540 budget. However, the EP’s own proposal was close to the Commission’s withJ. Schild: How to Shift the EU’s Spending Priorities? 543
regard to overall spending and the breakdown between the individual headings
of the budget (see Table 3).
Following the European Council’s decision to inflict heavy cuts on the
amount of money available for the political priorities stated by the Commission
545 and the Parliament, the EP deplored ‘the unacceptable reduction in commit-
ments in respect of competitiveness, growth and employment, despite the
emphasis given by all the EU institutions to the Lisbon strategy and the cuts
in relation to citizenship, freedom, security and justice and external actions’21
and rejected the European Council’s agreement.
550 Despite its strong rhetoric, the EP was only marginally able to influence the
final outcome. It raised the overall budget by 2 billion E to a level of 864 billion
E, an increase of just 0.23 per cent compared to the European Council agree-
ment of 17 December 2005. This small increase went mainly to the competi-
tiveness or Lisbon heading.
555 The fact that the amount and distribution of the multi-annual budget, as
agreed upon in the European Council, remained, by and large, unchanged
does not really come as a surprise in the light of past developments (see Table 4).
Why is the influence of the EP on the final outcome of the negotiations so
negligible? Usually, the EP is keen to use the leverage given to it by its veto
560 right on the IIA to improve its procedural rights in the yearly budget battle
with the Council (Becker 2005). Institutional self-interest prevails over policy
interests. The EP might also find it difficult, internally, to balance the policy
priorities of its members and its committees. Nevertheless, it had different
policy and budgetary priorities from the Council (see Table 3).
565 The main reason for its lack of influence is to be found in the sequence of
moves in this collective game. After the Commission’s initial proposal,
decision-making shifts to the Council. When the European Council, after
protracted and highly conflict-laden negotiations on thorny distributional
issues, finally reaches agreement, it is extremely hard for the EP to reopen
570 this package. The EP comes seriously into play only when negotiating the
IIA with the Council and the Commission. During the 2005 round of nego-
tiations, where the European Council only reached an agreement at the
second attempt after the first failure of June 2005, the EP’s room for
manoeuvre was extremely limited, all the more so as the time factor was
575 running against its interests. The closer the start of a new period of the finan-
cial perspective without final agreement between the institutions, the greater
the political pressures will be. This is a result of the complexity of the nego-
tiations, where agreement between the institutions on the financial perspec-
tive is closely linked to the arena of decision-making on the legislative
580 package, as it opens the way for adoption of the individual spending
programmes. This explains the highly binding nature of the political compro-
mise struck between the member states at European Council level (Becker
2005: 183). The EP could only take a hard line at the risk of a breakaway
of the Members of the European Parliament (MEPs) from poorer member
585 states which depend on the timely flow of regional aid.630
625
620
615
610
605
600
595
590
544
Journal of European Public Policy
Table 3 : Financial perspective 2004 – 13: initial proposals and final results
Difference
European European European IIA – COM Difference
Commission Parliament Council Interinstitutional proposal IIA– COM
(10 Feb. (8 June (17 Dec. Agreement (in million proposal
2004) 2005) 2005) (May 2006) euro) (%)
1 Sustainable growth 458,015 459,035 379,739 382,139 275,876 216,6
(1a) Competitiveness for growth and 121,685 120,563 72,120 74,098 247,587 239,1
employment
(1b) Cohesion for growth and 336,330 338,472 307,619 308,041 228,289 28,4
employment
2 Preservation and management of 400,275 396,248 371,245 371,344 228,931 27,2
natural resources
of which: Agriculture – market support 301,074 293,105 293,105 293,105 27,969 22,6
measures and direct aid payments
3 Citizenship, freedom, security and 20,945 19,437 10,270 10,770 210,175 248,6
justice
4 The EU as global partner 87,890 70,697 50,010 49,463 238,427 243,7
5 Administration 57,670 28,62019 50,300 49,800 27,870 213,6
6 Compensation (Bulgaria, Romania) 240 800 800 800 560 233,3
Total commitment appropriations 1,025,035 974,837 862,364 864,316 160,719 215,7
in % of GNI 1.26 1.18 1.05 1.05
Sources: Cf. notes 7, 10, 17 and 20 (own computation).J. Schild: How to Shift the EU’s Spending Priorities? 545
Table 4 Political agreement of the European Council and Interinstitutional
Agreement compared (in billion E/ECUs)
European Interinstitutional Difference
Council Agreement %
635
Delors II package (1993– 99) 530.5 528.9 21.6
Agenda 2000 (2000– 06) 702.8 704.2 1.5
Agenda 2007 (2007– 13) 862.4 864.3 2.0
Sources: Cf. Table 1.
640
THEORETICAL LESSONS FROM THE AGENDA 2007 AND
FUTURE PROSPECTS
645 In the past, changes in overall levels of the budget and in spending priorities
were possible when budgetary decision-making was linked to major integration
projects, and when net contributors to the budget were willing to accept side-
payments in order to advance their interests in non-budgetary policy fields
(single market in 1988, monetary union in 1992). The experience of the nego-
650 tiations on the financial framework 2007– 13 shows, ex negativo, the strength of
the side-payment argument. In this case, there was no major integrative hurdle
to be overcome and, accordingly, the net contributors were less willing to
accommodate the interests of poorer member states. This finding is in line
with an intergovernmentalist or ‘exchange’ explanation of budgetary
655 negotiations.
Another lesson is that changes in individual member states’ preferences, and
especially the changing configuration of interests in the European Council, have
huge repercussions on both the climate and the result of the negotiations.
Germany was less willing than ever to foot the bill for a growing budget
660 (Maurer et al. 2004), owing to the consequences of reunification for the national
budget and owing to her failure, during four years (2002– 05), to comply with
the deficit criteria of the Stability and Growth Pact.
Overall, the balance of power between net contributors and net recipients
among the member states has shifted profoundly. Until 1988 only Germany
665 and the UK were net contributors to the budget, but already by the mid-
1990s, with the accession of Austria, Finland and Sweden, the majority of
member states were net contributors. Of course, this situation changed again
with the accession of ten new member states, most of them net recipients.
However, the existence of a powerful and influential coalition of net contribu-
670 tors profoundly changed the configuration of member states’ interests under-
lying this round of budget negotiations. Hence, a rationalist, interest-based
and intergovernmentalist approach is very powerful in accounting for the
final outcome of the negotiations, at least in terms of overall budget size.
With regard to spending priorities, the negotiations leading to the financial fra-
675 mework 2007–13 have clearly shown that ‘competitiveness’, being a somewhat546 Journal of European Public Policy
diffuse goal, does not have a strong lobby inside the EU’s decision-making
process. As the group of potential ‘Lisbon budget’ winners is quite large and
diffuse and as the potential losers of a shift in priorities are more concentrated
and politically more vociferous, the Commission was not able to build a powerful
680 coalition of societal actors and interest groups to push for a change in spending
priorities. The unpredictability of the distributive impact of Lisbon-related expen-
ditures – for example, in the case of research expenditure, where research teams
have to apply competitively for EU funding – is another aspect of the expla-
nation. Member states, following a logic of net flows from the budget, were
685 more reluctant to increase this budget heading at the expense of others, where con-
sequences in terms of net flows were more predictable.
The Commission’s main success in framing the budgetary debates in terms of
the competitiveness goal of the Lisbon agenda was to gain better control over
member state cohesion policy. But this detail in a complex overall picture
690 does not strongly support neofunctionalist claims.
With regard to the funding of the global role of the Union, the lack of a
powerful lobby inside the EU might explain the huge difference between the
initial proposal of the Commission (heading (4): ‘The EU as a global
partner’) and the final result (see Table 3). Vested interests inside the EU
695 prevail over potential beneficiaries in third countries.
Another lesson is the importance of path dependencies as emphasized by his-
torical institutionalists: cases in point are the British rebate and extra funds for
cohesion policy for individual countries and regions without any economic
rationale. Special arrangements like those in favour of thinly populated
700 regions in wealthy countries such as Sweden, Finland and Austria are the politi-
cal price for reaching an agreement under unanimity conditions.
Discontent with the current structure of the budget found its expression in a
revision clause in the European Council’s conclusion of December 2005 which
was actively supported by Sweden, Great Britain and the EP. In 2008– 09, there
705 will be a ‘full, wide ranging review covering all aspects of EU spending, including
the CAP’22 based on a Commission report. The Commission started a broad
consultation process in September 2007 to launch this debate in order to
prepare the negotiations on the next financial framework 2014– 20.23 Are
there any reasons to believe that the upcoming round of negotiations might be
710 more successful than the last in shifting spending priorities towards a Lisbon-
oriented budget, given an even higher number of veto players (because of the
accession of Bulgaria and Romania) and unchanged decision-making rules?
Two potential sources of change may be identified: a possible change in the
policy environment and a change in member state preferences. The tremendous
715 and potentially long-lasting increase in agricultural commodity prices on the
world market clearly changes the policy environment for the agenda 2014 nego-
tiations, and could open a window of opportunity for reducing agricultural sub-
sidies. The odds of CAP reform might be improved by the fact that France’s
economic benefits from this policy will be more and more reduced after the
720 phasing-in of the new member states into the CAP framework of directJ. Schild: How to Shift the EU’s Spending Priorities? 547
payments. Thus, French willingness to exchange a downsizing of CAP
expenditures against a further reduction of the British rebate might grow.
And a sensible improvement in the situation regarding national budgets
might relax constraints on the revenue side of the European budget.
725 Only these combined changes in the policy environment and in member state
preferences are likely to provide the necessary (albeit not sufficient) conditions
for closing the huge gap between Lisbon rhetoric and the structure of the
EU’s budget.
730 Biographical note: Joachim Schild is Professor of Political Science / Compara-
tive Government at the University of Trier, Germany.
Address for correspondence: Joachim Schild, University of Trier, FB-III: Pol-
itical Science, Universitätsring 15, D-54286 Trier, Germany. Tel. þ49 (0) 651
735 201 2123. Fax: þ49 (0) 651 201 3917. email: schild@uni-trier.de
ACKNOWLEDGEMENTS
I would like to thank Peter Becker and three anonymous referees for their
740
helpful comments on an earlier draft of this article, Philipp Hessel, Judith
Gouverneur and Philipp Niemann for their help in collecting and presenting
the data used, and Joanna Ardizzone for her proof reading.
745
NOTES
1 European Union. Financial Report 2004, Luxembourg: Office for Official Publi-
cations of the European Communities, 2005, pp. 148– 9.
2 Real past R&D expenditures, commitments for appropriations in the 7th frame-
work programme for research and technological development running from 2007
750 to 2013, based on the final compromise on the financial perspective from May
2006.
3 The figures for the global budget used to calculate this share do not include the
budget of the European Development Fund.
4 Cf. Commission of the European Communities: Q&A on Interinstitutional Agree-
ment on Budgetary Discipline and Sound Financial Management 2007 –2013
755 MEMO/06/204, Brussels, 17 May 2006.
5 Cf. European Commission. New proposals for growth and jobs under the next
Financial Framework 2007 – 2013, IP/05/389, Brussels, 6 April 2005.
6 Sources: European Union. Financial Report 2004, Brussels 2005 for R&D real
spending up to 2004; figures for 2005 and 2006: European Commission: Q3
General budget of the European Union for the financial year 2006. The figures,
760 Brussels/Luxembourg, January 2006; figures for 2007 –13: Commission of the
European Communities: Amended proposal for a decision of the European Parlia-
ment and the Council concerning the 7th framework programme of the European
Community for research, technological development and demonstration activities
(2007 –2013), Brussels, 28 June 2006 (COM(2006) 364final), p. 66.
7 Interinstitutional Agreement between the European Parliament, the Council and
765 the Commission on budgetary discipline and sound financial management, Official548 Journal of European Public Policy
Journal of the European Union, 2006/C 139, 14 June 2006, Annex I (own compu-
tation).
8 Brussels European Council, 24 and 25 October 2002, Presidency Conclusions,
14702/02, POLGEN 67, Brussels, 26 November 2002.
9 This joint letter is to be found at: www.bmdf.co.uk/blairlettereubudget.pdf
770 10 European Commission, Building our common future, policy challenges and bud-
getary means of the enlarged union 2007 – 2013, COM (2004) 101 final/2,
Brussels, 26 February 2004.
11 Cf. European Parliament: Report on the Interinstitutional Agreement on budgetary
discipline and sound financial management, Committee on Budgets, Rapporteur:
Reimer Böge, A6-0150/2006, Brussels, 27 April 2006, p. 37.
775 12 Cf. European Commission: New proposals for growth and jobs under the next
Financial Framework 2007– 2013, Brussels, 6 April 2005 (IP/05/389).
13 European Commission, Building our common future, op. cit., p. 16.
14 I would like to thank an anonymous referee for his helpful comment on this point.
15 See the progress report of the Irish Presidency: Council of the European Union.
Report from the Presidency to the European Council, Financial Framework for
780 2007– 2013: Analytical Report, Brussels, 7 June 2004 (CADREFIN 11), pp.
6– 7; for an overview of the initial positions of the member states in these nego-
tiations, see Maurer et al. (2004).
16 UK Presidency of the EU 2005. Speech to the European Parliament, 23 June 2005.
The speech of Prime Minister Tony Blair is to be found at http://www.fco.gov.uk/
Files/kfile/UKEUPresidency2005_Sp_PM_EuropeanParliament_230605,0.pdf#
785 search¼per cent22europeanper cent20parliamentper cent20tonyper cent20blairper
cent20juneper cent2023per cent202005per cent22
17 Council of the European Union. Note from the Presidency to the European
Council on the Financial Perspective 2007– 13, 15915/0, CADREFIN 268, B-
russels, 19 December 2005.
18 Ibid., p. 5.
790 19 The Commission, following an activity-based budgeting approach, assigned admin-
istrative costs to policy fields. For the sake of a better comparison, the total amount
of administrative costs is displayed here (as in the IIA). The administrative expen-
ditures in the EP’s proposal reflect the activity-based approach of the Commission,
criticized by Parliament for its lack of transparency.
20 Cf. European Parliament Resolution on policy challenges and budgetary means of
795 the enlarged Union 2007 –2013, P6_TA(2005)0224, point 49.
21 European Parliament resolution on the European Council’s position on the Finan-
cial Perspective and the renewal of the Interinstitutional Agreement 2007 – 2013,
P6_TA(2006)0010, Brussels, 18 January 2006, point 4.
22 Cf. note 17.
23 Cf. Communication from the Commission: Reforming the budget, changing
800 Europe. A public consultation paper in view of the 2008/2009 budget review,
Brussels, 12 September 2007 SEC(2007) 1188 final.
805
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