Austerity lovers and ‘relaxationists’ fight over the EU budget

European Parliament President Martin Schulz (second from right) meets with Commissioner Janusz Lewandowski (third from right), (European Parliament audiovisual services).

European Parliament President Martin Schulz (second from right) meets with Commissioner Janusz Lewandowski (third from right), (European Parliament audiovisual services).

The efforts to reach an agreement between the three most important EU bodies, the Council, the European Parliament and the Commission over the Multiannual Financial Framework 2014-2020, for the Union’s proper spending power, will test not only the cohesion of the EU but also the abilities of the ‘austerity lovers’ to wreak their policy options. Up to now those who support the severe fiscal consolidation have won the first round, by imposing an austerity MFF providing less financial means than during the previous period 2007-2013.

The proposal of an MFF 2014-2020 of €960 billion, which is currently on the table, was approved after lengthy negotiations by the Council of the 27 leaders and constitutes a major victory for the fiscal consolidation supporting countries, including Germany and Britain. This budget proposal was rejected however by the European Parliament in an unseen before unanimity between the four major Parliamentary groups. The main reason for which the legislators rejected unanimously this Council budget proposal was that it contained borrowing for the first time in the history of the EU, a step which is forbidden by the Treaties of the European Union.

In any case this agreement of the 27 EU leaders over a €960 billion ceiling for the 2014-2020 EU expenditure was the outcome of the political mood prevailing some months ago in the entire Union, favouring the consolidation policies. What changed during the last months in the Eurozone and more so in the entire Union is that everybody understood that severe austerity and economic recession are feeding each other. It has become also clear that the 18 month-long recession in the European Economy is now predicted to extend all along this year and only the very optimists expect growth before the end of 2014.

Restricting the scope

Yesterday the representatives of the European Parliament, the Council and the European Commission had their first meeting to reach a compromise on this gigantic 2014-2020 multiannual financial tool. “The Council and the Parliament agreed on both the scope and calendar of the negotiations; this shows the will from both sides to reach a swift agreement on the next financial period, which is what Europe’s regions, businesses, scientists, NGOs and students call for. Therefore our common target to complete the negotiations by the end of the Irish presidency is definitely reachable”, stated the EU Commissioner for financial programming and budget Janusz Lewandowski.

With this statement, however, Lewandowski in trying to preempt the arguments of the other side, the ‘relaxationists’, by restricting ex ante the interested parties to the above mentioned five categories. There is in no reference to the unemployed, the consumer and health policies, the young, the exclusion and many more policy areas and people who depend to some extend on EU spending. This ‘construction’ by the Commissioner is obviously aimed at restricting the scope and the content of the EU spending.

The confrontation

There is more in this though. Given that lately, there is a lot of talk about mutualisation of member states obligations and the emerging need for fiscal transfers from the rich countries to the poor EU member states, Commissioner Lewandowski probably tries to immunise the EU budget from this discussion. If the proposal for fiscal transfers between member states gains momentum, the EU budget is the first obvious tool to start realising this revolutionary change in the European Union. Obviously the Commissioner tries to block such ideas before they gain momentum.

Despite the fact that the European Treaties forbid the direct financial aid between member states, there are ways that the EU budget can overcome this obstacle. Evidently all those discussions for more and tangible solidarity between the EU member states are idealistic plans supported by some European federalists. Seemingly the other side is getting ready from this early stage, to block such prospects. On top of that there are member states like Britain and Sweden which reject anything that could lead to a closer Union. Actually the British Prime Minister David Cameron has promised to hold a referendum over his country’s position in or out from the EU, if he is re-elected in the 2015 elections. There is the Eurozone however, where a more federalist EU may start taking shape.

Undoubtedly the compromise which is going to be achieved over the MFF 2014-2020 will give a clear indication on the power game in today’s Union. The problem is however that such an agreement will bound the EU for the next seven years, despite the provisions for flexibility and revision. Of course there are ways and means to change the basic provisions of the EU budget after some years, but presently the compromise to be reached will be a good indication of what is to follow in the short-term, as far as the confrontation between the austerity lovers and the ‘relaxationists’ is concerned.

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  1. It is true that any indebted person, society or economy who’s survival is dependent on reducing the value of money to a negative real number must be consigning themselves to an unending period of stagnation. The evidence for this is all around us, Japan has ‘survived’ with very high levels of debt (up to 200% of GDP) because interest rates have been negative for years. In ‘surviving’ they have avoided some pain but they are still terminally ill and have no prospect for recovery. Some say that monetarist are sadistic and that they just want to inflict pain for the sake of it is to misconstrue the nature of things. Humans contest and compete (read Darwin) and its clear that without the natural clearing out of the unproductive and noncompetitive parts of our economy (public and private) the whole is doomed to a slow but quite painless decline.

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