Stingy EU 2012 budget: 0.98% of GNI

The Autumn 2011 European Economic Forecast from the Commission offers sobering reading about dashed hopes and danger zone entry, but let me pick just a detail. The predicted inflation rate is 3.0 per cent this year and 2.0 per cent in 2012 (against the background of GDP growth for EU-27 of 1.6 and 0.6 per cent respectively).

As we saw, for the German chancellor Angela Merkel and the UK prime minister David Cameron the inflation rate was the limit of the growth of the budget of the European Union for 2012. Both Germany and Britain are off target with regard to the EU stability and growth pact.

The inflation rate was also the focus of the press release from the Council ahead of the Conciliation Committee with the European Parliament.

Since the early hours of Saturday morning we have the outline of the 2012 budget after conciliation, where the member states and especially the net payers railroaded the more active ambitions of the European Commission and the European Parliament:

3126th Council meeting Economic and Financial Affairs (BUDGET) and Conciliation Committee; Brussels, 18 November 2011 (provisional vision, 17016/11)

The end result in a nutshell focuses on concrete expenditure (actual payments):

The Council and the European Parliament, meeting within the Conciliation Committee, agreed to limit the total amount of payments for the 2012 EU budget to EUR 129.088 billion. This corresponds to 0.98% of the EU's Gross National Income (GNI) and represents an increase of 1.86% compared to the EU budget 2011 as amended by amending budget Nos 1-6. The agreed payments increase remains below the latest Commission inflation forecast of 2% for the EU in 2012, meaning that in real terms the agreement is tantamount to a reduction of the EU budget. The EU herewith rally to the important member states' efforts to consolidate national public finances.

The Commission and the EP had requested more on grounds of fighting the economic crisis by active means:

In its position adopted on 26 October the European Parliament requested an amount of EUR 133.139 billion in payments (+5.23% compared to the budget 2011 as amended by amending budget No 1). The Commission proposed for 2012 an amount of EUR 132.739 billion in payments, leading to an increase of 4.9%.

The Council is expected to formally adopt the 2012 budget on 30 November and the European Parliament to vote on 1 December 2011.

You find details of different budget posts in the conclusions and you can watch the video recording (25:38) of the press conference with Jacek Dominik (Polish presidency), budget commissioner Janusz Lewandowski, Alain Lamassoure (EP) and Francesca Balzani (EP).

***

Accounting for less than one per cent of total production, hardly the budget of a super state, with total government spending at more than 50 per cent of GDP in the European Union.



Ralf Grahn

European Central Bank offers economic policy advice

Eurozone woes seem to be going nowhere, but there are different angles regarding the causes and remedies. The blog post Economic policy making becomes challenging mentioned the latest reports from the European Commission:

Directorate-General for Economic and Financial Affairs (Ecfin) of the European Commission: 2011 Report on Public finances in EMU (European Economy 3/2011)

European Commission (Ecfin): Interim Forecast September 2011 (14 pages)


European Central Bank

The editorial of the latest Monthly Bulletin of the European Central Bank (15 September 2011) is available in 22 official EU languages. The English version:

Editorial – 15 September 2011 – Monthly Bulletin

Uncertainty and risks abound:

... the Governing Council expects the euro area economy to grow moderately, subject to particularly high uncertainty and intensified downside risks.

The ECB does not abandon its anti-inflationary role, but it has participated heavily through market measures to shore up liquidity for banks and governments in trouble. However, the European Central Bank wants to see swift and decisive economic policy action from governments and parliaments in the euro area:

Turning to fiscal policies, a number of governments have announced additional measures to ensure the achievement of their consolidation targets and to strengthen the legal basis for national fiscal rules. To ensure credibility, it is now crucial that the announced measures be frontloaded and implemented in full. Governments need to stand ready to implement further consolidation measures, notably on the expenditure side, if risks regarding the attainment of the current fiscal targets materialise. Countries that enjoy better than expected economic and fiscal developments should make full use of this room for manoeuvre for faster deficit and debt reduction. All euro area governments need to demonstrate their inflexible determination to fully honour their own individual sovereign signature, which is a decisive element in ensuring financial stability in the euro area as a whole.

Fiscal consolidation and structural reforms must go hand in hand to strengthen confidence, growth prospects and job creation. The Governing Council therefore urges all euro area governments to decisively and swiftly implement substantial and comprehensive structural reforms. This will help these countries to strengthen competitiveness, increase the flexibility of their economies and enhance their longer-term growth potential. In this respect, labour market reforms are key, with a focus on the removal of rigidities and the implementation of measures which enhance wage flexibility. In particular, there is a need for the elimination of automatic wage indexation clauses and a strengthening of firm-level agreements so that wages and working conditions can be tailored to firms’ specific needs. These measures should be accompanied by structural reforms that increase competition in product markets, particularly in services – including the liberalisation of closed professions – and, where appropriate, the privatisation of services currently provided by the public sector, thereby facilitating productivity growth and supporting competitiveness.

Not to everybody's liking, but the ECB carries a big stick.



Ralf Grahn

Eurobarometer: Separating the wheat from the chaff

Since the spring 2009 Eurobarometer, EU citizens see unemployment and the economic situation as the main worries facing their country. In May 2010 rising prices (inflation) are still the principal concern at a personal level (although with great differences between countries), followed by the economic situation and unemployment.

About four out of five respondents feel that the national, the EU and the world economy are in a bad shape, and more than a third experience the domestic employment situation as “very bad”.



It’s the economy, stupid


Now put yourself in the position of the European Commission, treaty bound to promote the general interest of the European Union.



Confronted with the First Results of the Spring 2010 Standard Eurobarometer 73, could you realistically contemplate ignoring or even downplaying the massive evidence of public opinion, what Europeans are worried about?

Writing your press release, could you disregard that these citizens expect more from the European Union than from their national governments or international financial institutions? (We are going to return to the expectations in a future blog post.)



It’s the economy, stupid, said a curious Yankee in Europe’s court: US and EU citizens share common priorities about economic woes.

Could you refuse to take notice, in good faith?

Hardly.



Back to square one

Discussion can improve our understanding, if we are willing to look at the evidence and test various claims in order to arrive at reasonable interpretations and conclusions.

Big ifs, it seems.

The hyperactive Swedish libertarian blogger Henrik Alexandersson works for the Pirate Party (Green Group) MEP Christian Engström in the European Parliament, and he produces a mass of blog entries on important issues, such as data retention, privacy, netizens’ rights and intellectual property rights.



To keep his libertarian juices flowing, he regularly takes swipes at the European Union. In a blog post yesterday he accused the Commission of cheating in a press release: EU fifflar med opinionen.

Henriksson does not mention the Eurobarometer poll. He does not even specify the ‘dishonest’press release or link to it.



He disregards the whole Eurobarometer controversy and the later discussion, uncritically using Open Europe’s blog post as his only source and link.

No hearing the other side - Audiatur et altera pars - for Henriksson.



Almost a week from the EU Commission’s press release (26 August 2010, IP/10/1071; available in 22 languages) and Open Europe’s vehement attack, Henriksson brings the discussion back to square one, having learnt nothing in the meantime.

Henriksson may have indulged his readers by feeding their prejudices, but he did nothing to make the discussion move forward.



The attitude of the French blog La lettre volée is as cavalier, dismissing the Commission’s interpretation as Orwellian, without caring to look at the facts and arguments.

Pretty useless, in fact.



Commission press release



I already opined that it would have been unbelievable if the European Commission had disregarded the massive worries of Europeans - economic ones - and ignored citizens’ expectations concerning EU level action, but the press release did actually mention sinking support for EU membership, even if discreetly and in context:

When asked about the benefits of EU membership, 49% of Europeans said in May that EU membership of their country was a “good thing” (-4 compared to autumn 2009). Public support for EU membership was still higher than in 2001, when following the downturn after the burst of the "Internet bubble", public support for EU membership stood at 48%.

The survey also found that in May 2010 trust in the EU institutions remained higher compared to national governments or national parliaments (42% vs. 29% and 31%, respectively), even though confidence in the EU fell at the height of the crisis (to 42% from 48% in autumn 2009). Trust was most pronounced in Estonia (68%), Slovakia (65%), Bulgaria and Denmark (61%), whilst it was lowest in the United Kingdom (20%).

In addition, confidence in the EU and national governments/parliaments from spring 2001 to spring 2010 was depicted in one of the few selected charts in the press release, which also contained a link to the first full results and country factsheets.




Having sorted out the chaff, let us move on to the wheat.




Ralf Grahn



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