Written by Matthew Parry,
The principle of subsidiarity means that the European Union (EU) should act where it can do so more effectively than its constituent Member States individually, and this also holds true in the area of public finance – the EU’s budget together with off-budget tools for financing EU policies. At €160.1 billion in 2018 – or approximately 1 % of Member States’ collective gross national income (GNI) – the EU budget is a great deal smaller in relative terms than EU national governments’ budgets. It serves mainly as a vehicle for investment, particularly in the areas of rural and regional development, industrial research and support for small and medium-sized enterprises (SMEs), and political and economic development in neighbouring countries. These policies are designed to yield European public goods, with benefits that go beyond the national borders of individual EU countries. The Commission calculates that they do so for less than the cost of one cup of coffee a day per citizen.
During the 2014-2019 parliamentary term, the EU has been buffeted by challenges to its capacity to act, including financially, by geopolitical instability in the wider region, the migration and refugee crisis, and unresolved questions about the future of the euro, linked to the legacy of the economic, financial and sovereign debt crises. However, the EU has also seen several notable achievements. These include the update to the financial rules governing the use of EU funds, simplifying the rules and strengthening the focus on performance and results; the creation of a European Public Prosecutor’s Office to help address the roughly 0.35 % of the EU budget at risk of fraud; a mid-term revision of the multiannual financial framework (MFF), enhancing its flexibility to provide for a more responsive EU; the development of proposals for new sources of revenue in time for negotiations on the post-2020 MFF; and policy innovation in the field of financial engineering, helping EU finance go further by leveraging private investment.
The 2019 elections will mark a turning point in the future financing of EU policies, as negotiations on the next multiannual spending plan gather pace. The Commission has proposed a 2021-2027 MFF totalling 1.11 % of the post-Brexit EU-27’s GNI, and new sources of EU revenue to reduce the burden on national treasuries and forge a clearer link between revenue and policies. It also proposes to consolidate progress made in the current term with regard to budgetary flexibility, financial integrity and the rule of law, and in encouraging private investment in Europe.
Read this complete briefing on ‘EU policies – Delivering for citizens: Future financing of EU policies‘ in the Think Tank pages of the European Parliament.