The Future EU Budget – implications for Romania

Policy Brief, No. 10, July 2011

Author: Mihai Panaite

The Romanian Center for European Policies (CRPE) released the report „The Future EU Budget. What changes, what stays and the implications for Romania”.

The report analyzes the European Commission’s proposal on the 2014-2020 Multiannual Financial Framework. The key findings are:

1. Compared to the previous MFF, we notice a priority switch from agriculture to research and innovation. However, the magnitude of this change is moderate.

2. The cohesion policy will benefit from slightly increased allocations and will comprise a new instrument, the Connecting Europe Facility. It should help accelerate the large transport, energy and communications infrastructure projects. Another proposal states to set up a 5% reserve from each Member State’s quota, which could only be used by those states with the best performance in managing funds.

3. The EC proposed to establish an own resource based on a tax on financial transactions. This would be applied to financial institutions. It remains to be seen whether the British will accept it or not, since London is Europe’s main financial centre and therefore the tax would mainly affect UK. However, experience shows that solutions can be found in cases when a Member State is unevenly affected by the financial flows to and from the EU.

4. The current VAT-based resource would disappear, being replaced by an upgraded one. The modernized VAT resource would require the transfer to the European budget of maximum 2% from the VAT for goods and services collected in each Member State. This implies an increase in direct EU revenues and a future decrease of Member States contributions.

5. Although the budget adoption procedure only entitles the Parliament to a vote of approval or rejection, it insists on achieving the right to make amendments and change the content of the proposal. In this regard, we will most likely witness an institutional conflict between the European Parliament and the European Council.

6. Two opposing groups will inevitably appear within the Council: the first one will include the net contributors who will ask for a limited European budget, while the second will comprise of new Member States and the Parliament which will request a larger budget. In fact, the first signals in this direction have already appeared – we suspect that the group in favor of a larger budget has already emerged, opposing the contributors’ group.

7. With regard to our country, the Romanian officials will go to negotiations without two major arguments: that money was spent and it was spent properly.This has two main reasons: first, the absorption of funds in the current MFF does not exceed, by any calculation, 5% of the total, and, second, some payments were frozen because of irregularities and some Member States’ conviction that Romania is not a state of law.  However, it is expected to obtain not less than an acceptable financial package, since Romanian interests and issues are similar with those of other countries from the group in favor of an increased European budget (such as Poland).

The author of this report is Mihai Panaite, CRPE affiliated expert. He worked as parliamentary assistant at the European Parliament, as economist at the Ministry of Finances (2002-2007) and he graduated the “European Political Economy” master program at London School of Economics.

This report was issued as part of the project “Romania Active in European Debates II”, coordinated by the Romanian Center for European Policies (CRPE) and financed by the Soros Foundation, part of the Foreign Affairs Initiative.

 The content of this report does not necessarily represent the official position of the Soros Foundation.

The opinions expressed in this report are not necessarily the positions of all CRPE affiliated experts or those of CRPE partner institutions and organizations.

The report is available, here.