How
is the European Union Financed?
In
2003 the European Union spent just over 90 billion euros, almost half
of which went to finance the common agricultural policy. The recent
accession of 10 new Member States, all poorer than any of the previous
15, will inevitably soon push the budget over 100 billion euros, although
steps have been taken to ensure that the relatively backward agriculture
of the new Member States does not send farm spending back to the levels
of 70% and 80% that existed in the past and that other policies receive
adequate finance. The
EU's budget differs from national budgets in that the budgetary
authority, i.e. the European Parliament and the Council of Ministers
in co-decision, sets only the level of expenditure. The European
Commission then collects enough revenue from the Member States to
pay for this agreed spending. It is not a case of seeing how much
money is available and then sharing it among the various policies.
Thus the budget is always balanced and no deficit is possible. However,
spending is not unlimited: the cost of the budget may not exceed
1.24% of the gross national income of the EU.
Where
does the money come from? The Treaty of Rome (1957) provided for
the EEC to be financed by national contributions for a transitional
period, pending the introduction of own resources.
Own resources mean a source of finance independent of the Member
States, consisting of revenue assigned once-and-for-all to the Community
to fund its actions. The Member States are obliged to make this
revenue available to the Community, or now the EU. Although the
European Parliament co-decides how the money is spent, it has no
say over where the own resources come from: this is determined by
the Council, by unanimous agreement, not by majority vote.
In
1970 a Council decision defined Community own resources, ending
the previous system of national contributions, which might be thought
to give Member States scope for controlling Community policies.
This marked the beginning of an autonomous system of financing based
on import duties (customs duties and agricultural levies), as well
as foreseeing a future resource based on value added tax (VAT).
In a single market based on a customs union, it makes no sense for
duties collected on imports at Rotterdam or Antwerp to remain in
the Netherlands or Belgium respectively when the imports may circulate
freely and be destined for the other end of Europe.
VAT
own resources were introduced when import duties proved insufficient
to finance the budget. As import tariffs fall all over the world
as a result of WTO trade negotiations and the establishment of free-trade
agreements, and as former outside countries become Member States
of the EU and its single market, import duties yield less income.
The need to harmonize VAT rules meant that the VAT resource emerged
only in 1980. Its amount is obtained by applying a "rate of
call", currently 0.5%, to a tax-base determined in a uniform
manner. In other words, although VAT is imperfectly harmonized as
regards coverage of goods and services and national tax-rates vary,
Member States base their contributions on the total tax-base (the
value of goods and services sold to consumers) derived from an "idealized"
system of VAT from which all anomalies have been removed. To protect
weaker economies, the base may not exceed 50% of a Member State's
gross national income (GNI). In recent years Greece, Spain, Ireland,
Luxembourg and Portugal, joined occasionally by one or two other
States, apply the rate of call to 50% of their GNI instead of to
their VAT-base. Nearly all the 10 new Member States will have their
VAT contributions reduced by this "capping" mechanism.
Faced
with the growing insufficiency of the VAT resource, in 1988 the
Council introduced a new own resource, based on a uniform percentage
of each Member State's gross national product (GNP, more recently
redefined as gross national income or GNI), to meet any shortfall
in revenue.
Its
own resources set the EU apart from other international bodies,
such as the UN or NATO, which rely for funding on voluntary contributions
from their members. EU Member States may not withhold their contributions
at will, as members of other international organizations have sometimes
done. Moreover, interest is charged on late payments.
In
2003, total revenue of about 93½ billion euros was made up
as follows: just over 10% came from duties and other charges on
imports. Changes in international trading rules reduced the scope
for charging such duties. Also, in 2000, the Member States decided
unanimously that retaining 10% of these duties as a reward for collecting
them was not enough. Since 2000 they retain 25% of the amounts that
they charge on behalf of the EU, which caused some displeasure to
the European Parliament.
About
22.5% came from the VAT-based resource. This has also diminished
as Member States have lowered the rate of call from a high of 1.4%
of the tax-base, via 1% and 0.75% to its present 0.5%. These reductions
mean that direct contributions based on a uniform share of Member
State's GNI now account for about 55% of the EU's income (there
are also some minor sources of income). This was not how the founders
of the own resources system envisaged things. They probably realized
that import duties would decrease owing to successive GATT rounds
and free-trade agreements, but probably did not foresee the extent
of the reduction. Nor might they have expected Member States to
be so greedy over their share.
The
VAT-based resource was optimistically seen in the 1970s as the first
step in the establishment of a genuine fiscal contribution to the
Community's budget: the idea was that one day citizens spending
money on goods and services would contribute part of their VAT directly
to the Community. Instead, Member States have been so anxious to
ensure that they do not pay too much nor their fellow Members too
little that they have increasingly broken the link between individual
Europeans' spending and the budget: the VAT resource is calculated
as an aggregate, like the biggest current resource, the one based
on GNI.
There
is occasional talk of retaining only direct contributions based
on a uniform percentage of GNI, which were originally seen as minor
additions to other revenue to make up a possible shortfall. While
this would be simpler and would reflect, to a degree, countries'
ability to pay, such a move would disappoint those who wish to maintain
a tenuous link between the EU's income and the citizens and businesses
of Europe. At present, products arriving in the EU from the advanced
industrial countries, unless they are subject to special preferential
treatment, must contribute, through import duties, to the European
budget. Similarly, citizens' expenditure on goods and services helps
to determine their country's VAT-based contribution. So long as
this fiscal resource remains, there is a precedent for a European
tax: suggestions have already been made for a Europe-wide energy
tax, environment tax or carbon dioxide tax, or a tax on financial
transactions (similar to the celebrated "Tobin tax") to
fund the budget.
Discussions
of EU budget revenue may seem dry and technical. There are nevertheless
important principles at stake. Those who want the European Union to
have the power to rise above a collection of nationalisms and act
autonomously for the good of all its people and, indeed, of people
in the wider world, should not favour moves towards a system of financing
purely by national contributions that, ultimately, enable the Member
States to hold the purse-strings tight and thus perhaps re-nationalize
common policies now funded by a common budget. This
article was written by a Member of Belgium and Luxembourg Monthly
Meeting who follows the EU's finances closely.
Return
to contents
Development,
Security and Justice
QCEA held
its Associate Members Conference in conjunction with QPSW on the subject
of Economic Justice from 5 to 7 November 2004. This is not a report
of the conference as a whole but rather a reflection on some of the
interconnections between development, security and (economic) justice,
prompted by the talk given by one of the main speakers, Professor
Frances Stewart of the Centre for Research on Inequality, Human Security
and Ethnicity (CRISE) in Oxford. It
is important to look at these interconnections not only because
they are real but more importantly because they are often overlooked.
And in overlooking them, the international community denies itself
the opportunity to address the root causes of violent conflict.
We
hear much of the ‘War on Terrorism’ or the ‘War
on Terror’ and often such discussions are linked to concepts
such as the ‘clash of civilisations’. Often, this is
a thinly veiled reference to a clash between the three mono-theistic
religions, Judaism, Islam, and Christianity. In many instances,
violent conflicts erupt and we hear about them as a conflict between
different ethnic groups which are part of these three faith groups.
This
approach is intended to lead us to think that there is something
intrinsic to one or maybe even all of these religions that lead
them to clash in violent conflicts; it is seen as inevitable and
a result of extreme adherence to ones faith.
But
violent conflicts of this kind tend to be based on political violence,
i.e. violence with a political goal. That may be state takeover,
acquisition of (more) power, the acknowledgement of rights for a
particular group, a wish for autonomy or separation from a larger
state/political entity or the suppression of opposition. None of
these goals are intrinsically religious.
However,
what is also clear is the fact that in many of the violent conflicts
all over the world there are serious and clearly visible economic
and political factors in play. There are political, economic and
social inequalities between different groups and between different
countries. There are differences in the access to resources –
both resources for survival and for economic betterment. There are
different levels of access to jobs and income.
Violent
conflict itself also has economic dimensions – there is money
to be made from it; arms trade, corruption, provision of accommodation
and food to soldiers, human trafficking are all aspects of how people
make money from war. On the other hand, violent conflict has a negative
impact on economic growth, leads to the destruction of infrastructure,
and increases in military expenditure in concert with tax rises
and reductions in government expenditure on health, education and
other social services. And there is often a negative impact on exports.
What
is also true is the fact that the use of identity, be it religion,
culture, language or race, is a powerful mobilising agent in situations
where there is the economic or political breeding ground for conflict.
And once the genie of identity has been released into the conflict,
it is very difficult to put back into the bottle.
What
does that mean for the international community? It means that it
is more important than ever to address the economic, social and
political rootcauses of conflicts in order to remove the incentive
for people to look to group identity to give them something to hold
onto.
This
means redressing the economic balance; this means for the rich countries
to not only tinker with development but to invest heavily in conflict
prone countries in ways that are conflict sensitive, that do not
favour one group over another, in ways that allow people to develop
their economies and their societies to suit their cultural, religious
and ethnic composition. It does not mean diverting scarce development
resources into military security (or so-called ‘peace-keeping’)
operations. It means that investment in short term crisis management
and long term conflict prevention and peace building along side
development must take place and must be adequately funded. It means
that the international community must develop the right tools to
undertake this work and to engage communities (and that means women,
men and children at the grass roots and not just politicians) in
conflict areas in the process to create local ownership. Nothing
short of this will provide long term solutions.
Martina
Weitsch
Return
to contents
Strangers in a Foreign Land – What has been done?
In
October 2000, QCEA’s Associate Members’ Conference in
Leuven addressed a range of issues relating to asylum and migration.
It concluded with a statement which is still relevant today and is
available on our website on http://www.quaker.org/qcea/strangers/statement2000.htm.
The
same Associate Members’ Conference agreed ‘Ideas for
Information, Reflection and Action by Individuals and Meetings’
and it may now be time to reflect on what has been done in response
to these ideas.
Council
Member Dieter Hartwich of Belgium and Luxembourg Monthly Meeting
has agreed to collate any responses QCEA receives to this call.
Tell
us what you and/or your Meeting/Monthly Meeting/General Meeting/Quarterly
Meeting/Yearly Meeting has done in response to the following ideas:
- Invite
speakers to Meeting for an ongoing clarification of thought
- Counter
anti-refugee sentiments (in the press and other places) with informed
statements, including statistics and personal stories where appropriate
- Challenge
myths and stereotypes involving migrants wherever these are encountered
- Encourage
positive reporting in the media
- Lobby
politicians on local/national/European level
- Seek
to understand the root causes of migration
- Seek
to understand the causes of local anti-refugee sentiments
- Activate/reactivate
MM social action groups
- Organise
social events for/with refugees
- Make
available space in Friends’ Meeting Houses for use by refugee
groups
- Befriend
individual refugees
- Find
out information on new asylum seekers arriving in the locality
- Accompany
refugees in their contact with local authorities
- Support
local refugee service initiatives (advocacy, literacy, language,
orientation)
- Organise
collections of furniture, clothes, dictionaries, toys, money
Please
send your responses to this call for feedback to Liz Scurfield
at lscurfield@qcea.org (you
can also send it by fax or post if necessary) by 31 January 2005.
We will then publish the results in our March edition of Around
Europe.
Return
to contents
Back
to the main Around Europe page |
