02 July, 2006
Resolution on the Financing of the European project
The XXI UEF Congress, held in Vienna from 30 June to 2 July 2006,

Since the creation of the common market until the introduction of the Euro, Europe has been the instrument for the modernisation of the economy and society stimulating the Member States to make choices for progress.

In recent years, governments have left it up to Europe to make the difficult choices which they themselves were powerless to achieve and it has been asked to modernise the welfare state, while the Member States maintain the responsibility for promoting economic development. To overcome the crisis which is today shaking Europe, these responsibilities must be substituted:

- only through European integration and further cooperation we can achieve a new phase of development through investment, as envisaged by the Delors plan and the Lisbon agenda for the creation of a knowledge-based society;

- the States must take on, according to their different needs, the burden of modernisation of their welfare regimes, while respecting the principles of the social market economy and the charter of fundamental rights.

Only if Europe has a unified strategy in investment, research, energy and networks this challenge can be overcome and the use of common resources is therefore the objective to be pursued.

One of the European Union’s success stories is its ability to create added values for its member states and citizens. These added values go far beyond the initial goal – the maintenance of peace. With the highest density of states over the world’s smallest continent no single European state is able to meet the challenges of globalisation as efficiently as can be done by applying economies of scale for the provision of public goods. Such public goods can be efficiently created by the EU through political co-operation, standardisation, regulation or indeed through joint financial undertakings. Only the use of the whole range of instruments can ensure the best possible results and actions should therefore always be measured against the principle of subsidiarity, i.e. who is suited best to create added values for the citizens. There is no doubt that there are indeed such measures for which direct European funding is necessary. For these the EU needs to be sufficiently financed.

The current budgetary system of the EU is marked by several shortcomings and serious democratic deficits:

1. the division between compulsory and non-compulsory expenditure

2. the dependency on national contributions on the revenue side

3. the outdated distribution of spending

On top of that, an effort should be made to overcome the current lack of transparency both on the budgetary system (which is not comprehensible and fair) and on European funds, which shall be available and transparent to all.

The European Union currently needs:

1. To overcome the division of compulsory and non-compulsory expenditure

The budget consists of around half and half compulsory (derived from treaty obligations, such as the CAP) and non-compulsory expenditure (e.g. youth, education, research, foreign policy). The EP does not have any scrutiny over the compulsory expenditure.

Several expenditure items such as the European development fund, future administration pension claims or the flexibility instruments are taken out of the normal budgetary procedure, so that democratic scrutiny and transparency are not ensured.

2. A new system of own resources

On the revenue side the Union is becoming ever more dependent on contributions from the member states’ budgets. This creates the false impression of the EU as a cost for the member states. Moreover, it is part of the explanation why the budgetary discussion in Europe is being reduced to nationalist wrangling over member states’ contributions.

The transfer of competences in the area of taxation and budget to the higher level is a characteristic of a federal fiscal order. The reasoning behind this goes beyond the fact that some forms of taxes, i.e. tax on aircraft fuel, are most effectively carried out at EU level. A system where a direct percentage of national taxes, such as VAT, goes to the EU would also contribute to discussions about the effect of EU-policies and general European interests, rather than the current horse trading about net contributions.

It is, however, important that the introduction of an EU tax-percentage is not turning into an additional source of income for the public budgets. A direct EU-tax should be dedicated only to the objective to replace the national contributions and to establish a direct link between the citizens and the EU.

The European budget is an essential instrument and allows the concentration of resources, above all for research; but the budget alone is not enough. Europe must make investments that can and must be financed with loans as happens at State level. It is also necessary to strenuously defend the Stability Pact, which prevents the States from excessive public spending, and bring the debt back to sustainable levels so as not to let the burden fall on future generations. A limited EU public debt, financed by the issuing of European Union Bonds, can strengthen the financial discipline of the States and allow the realisation of those European investments that can create the conditions for all generations to participate in the new phase of the world economy where knowledge and science are the fundamental forces of development.

There is a link between the introduction of a Eurotax and the issue of Union bonds; the conditions to allow a real European tax regime to guarantee their repayment are thus created.

The decision to use a part of the EU’s revenues to support borrowing, rather than increasing current expenditure, is consistent with the role that Europe must assume to make the necessary investments to achieve the knowledge society: the Eurotax will thus be aimed at future generations, and not at increasing transfers. As happened with the Euro which has been able to give constitutional significance to future generations on whom the cost of current expenditure must not fall, the Union bonds and the Eurotax will make the EU’s financial management evolve into an intergenerational solidarity.

3. Facing new needs

The Common Agricultural Policy, which is in exclusive EU competence remains as the single biggest item of the expenditure side accounting for almost half of the budget. CAP is also the only “spending programme” with a 100% financing. In most other subsidies including the structural policy a maximum of 75% financial support is offered. Co-funding has to be provided by lower levels of government or partly through private means.

A transfer of resources from traditional sectors (agriculture) to the sectors of the future (research and development) is needed.

The issue of Union bonds could guarantee important funds to support an expenditure plan aimed at boosting European competitiveness and growth and which should roughly consists of investments in infrastructures, in research and development and higher education expenditure, in renewable energy sources.  

Bringing back the budget to the citizens

The current budgetary system is neither fair, nor comprehensible. The British - and now other - rebates are only examples of exceptions that make the budget incomprehensible for the citizens. The unacceptable fact that new member states contribute to the financing of the British rebate just adds to the inexplicable system.

Funds like the European Globalisation adjustment Fund and the European Development Fund are being kept outside the normal budget, consequently making the budgetary system overcomplex and taking it beyond parliamentary scrutiny.

In particular within the structural funds but also in the Trans-European Networks, a number of projects have already been ear-marked by governments. This procedure violates the principle of parliamentary influence.

Therefore, UEF demands

-    a spending structure that reflects the self-proclaimed goals of the Union, in particular with regards to the strategy for growth and employment (Lisbon Agenda) and sustainable development (Gothenburg Strategy) strategies, to be decided by qualified majority, as already envisaged in the proposed Constitution.

In order to achieve this goal it is necessary to have

-    an EU competence in taxation matters, to be decided by qualified majority

-    the replacement of the current system of national contributions by a direct tax-percentage for the EU

-    that the EU budget illustrates the real revenues and expenditures of the Union as a whole and the inclusion of all extra-funds in the normal budget.

-    the abolishment of all rebates and exceptions and no ear-markings.

-    the launch of Union bond issues, that is EU bonds guaranteed by the European budget (and by the national budgets) to finance an investment plan focused on the Lisbon Agenda to be realised by federal agencies like the EIB and the Galileo project

The Commission and the European Parliament have a crucial role to play

The Commission has supported the Austrian proposal for the introduction of an EU-tax albeit with certain tentativeness. That is not enough. It is up to the Commission to put forward the initiatives to allow the EU to face the new challenges: if there is no action, the European Parliament must react and propose a vote of no-confidence.

It might be objected that it is difficult to formulate proposals acceptable to 25 Member States but the history of European unification in all its difficult stages, from the Euro to Schengen, indicates how things started with a group of countries which was then in time extended to those countries which were not ready to start. The enhanced economic cooperation is envisaged not only in the projected Constitution but also in the Treaty of Nice.

The Commission and the European Parliament must take the initiative and present to the Europeans clear and consistent choices for a Europe investing in the future at the European elections of 2009.

Vote on Union bonds, carried 100 in favour, 48 against, 7 abstentions
Overall resolution, carried 118 in favour, 22 against, 11 abstentions

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