The European Union budget for 2018: A case of three paradoxes

  • Insights
  • 03/08/2017 09:39


Märt Kivine, Estonian Deputy Finance Minister
Märt Kivine, Estonian Deputy Finance Minister Special Representative in charge of the negotiations for the EU budget 2018 (photo: Estonian Ministry of Finance)

While holding the Presidency of the Council of the European Union, Estonia will have to find an agreement on the budget of the European Union for 2018. The framework for this exists and the task seems easy at first glance; the goal is to achieve a result that is in everyone’s interests and seems to have been agreed on in advance. Yet, achieving this result is a fine art that requires the holder of the Presidency of the Council of the EU to be committed and manage three paradoxes.

Author: Märt Kivine, Estonian Deputy Finance Minister, Special Representative in charge of the negotiations for the EU budget 2018

The three paradoxes of the annual budget of the European Union are:

  • the expenditure side of the budget is not directly linked to (tax) revenue and the European Parliament has been given a massive role in decision-making
  • the annual budget is subject to a long-term budgetary framework
  • the annual budgeting process is always emotion-filled and tense

The Estonian Presidency programme states that we as the holders of the Presidency of the Council of the European Union have to lead the negotiations in the Council and with the European Parliament to reach an agreement about the budget for 2018, which will guarantee the funds the European Union needs for the achievement of its goals, and the implementation of its policies.

The government has approved the approach of the budget of the European Union for 2018, it must still support and boost economic growth and employment in the EU, and react to migration and security challenges. The limits and expenses of the annual budget were agreed upon years ago within the scope of the multiannual financial framework (MFF) of the European Union.

Now, let’s take a closer look at the three paradoxes.

Representation without taxation?

The principle of representative democracy – representation with taxation – has acquired a rather uniquely modified shape in the budgetary architecture of the European Union. The European Parliament in particular, and to some extent the European Commission as well, seems to be ‘over-represented’.

The European Parliament has a massive role in deciding on the expenditure of the budget of the European Union, but unlike national parliaments, it is not authorised to make decisions about taxes, i.e. revenue. Expenditure comes from EU member states, by an agreement between the member states. (In all honesty, the revenue of the EU is an issue that needs to be resolved in the coming years, and people are already looking for a solution.)

There is a reason for this however, the European Parliament is the main representative body of the European Union with a direct connection to voters and citizens via direct elections. Giving the last word in issues concerning the European Union’s budget to the Parliament means that the EU budget would be approved by a democratically elected institution, the reasonable majority of members of which (obviously, sceptics also participate in the process) are pro-European, interested in improving cooperation and possessing a clear vision. Something that is actually entirely positive.

Long-term budget view

The European Union’s annual budget was actually determined years ago. This concerns the structure of the budget as well as maximum amounts. This again differs from national budgets, because fixing expenditure for such a long period is rare (although some more developed countries, including Estonia, are trying to achieve this through their budgetary strategies).

The European Parliament also has an important role in the history of this decision. In the 1970s and 80s, annual budgets were often adopted with delays, as the budget’s lack of transparency, quality, etc., were causes for concern. Systematic criticisms of the budget resulted in the agreement about the first MFF in 1988, the goals of which were to stabilise the revenue of the EU and provide security to expenditure, and the financing of EU policies for longer than one budgetary year.

The EU budget for 2018 will be prepared within the scope of the currently valid 2014-2020 MFF. This means that the budget headings and maximum framework have been established in the budget. This, in its turn, means that making fundamental changes in a budget prepared for a year is very difficult. Thus, as logic tells us, preparing the annual budget should be a formality or like a ‘walk in the park’.

Responsibility to the taxpayer

And yet, budget negotiations are always an interesting, if not strenuous, task every year and for every holder of the Presidency of the Council of the European Union.

Basically, the budget of the EU consists of two columns. The first of them is what is known as a budget of liabilities, which determines the maximum amounts, and to the extent of which actions can be initiated and financing promises can be made, for example, during 2018. The second column includes the budget of payments, which should provide the funds for covering the actions that are already ongoing or the amounts that will become due during the budgetary year of 2018.

The European Commission submits the draft of the annual budget in this format every year proceeding from the agreed MFF. The member states are the first to assess this draft, as their primary responsibility is to look after the interests of their taxpayers and guarantee that the actual use and planning of the use of the budget is economical and accurate. There’s always room for improvement and savings here, because delays and problems always occur in the actual implementation of the plans of the MFF. The external environment also changes; for example, the migration crisis had not been taken into account in the MFF. And, all in all, the correct planning and implementation of a budget is more than just a theoretical task – let’s recall the end of the previous century, a time when a composition of the European Commission had to resign due to an improper use of the budget!

Needless to say, the European Commission’s view on necessary funds is always more ambitious than the actual possibilities. The European Parliament pictures an even larger Europe with an even bigger budget. This is the situation Estonia as the holder of the Presidency of the Council of the EU will be in when trying to find common ground on the budget in the second half of 2017.

Where do we stand with the 2018 budget today?

The European Commission made the proposal for the 2018 budget of the European Union on 30 May 2017. The liabilities set out in the draft of the budget of the European Union for 2018 amounted to EUR 160.6 billion (a 1.7% increase compared to 2017) and disbursements in the amount of EUR 145.4 billion (+8.1%).

On 7 July the Council, or the budgetary committee that unites the member states, reached a unanimous decision about the budgetary position after a highly detailed analysis that took weeks. The Council is of the opinion that the 2018 budget could include liabilities for EUR 158.9 billion (+0.6% vs 2017) and payments for EUR 144.4 billion (+7.4 vs 2017). This is the position that Estonia now has to represent and defend during the Estonian Presidency.

Considering the budgetary position of the Council, it can be said that the EU budget for 2018 is a growth budget in all primary aspects and it complies with the MFF. The Council suggested reducing the rapid growth of some programmes and made well-reasoned suggestions for saving money on operating expenses, but the total size of the budget is bigger than the 2017 budget of the EU.

We want to continue supporting the improvement of Europe’s competitiveness, the creation of jobs and investments via the EU budget, and to defend the expenditure intended for the migration policy and security. However, we also find it necessary to include adequate reserves within the scope of the MFF in order to react to crises and unexpected events (such as the re-intensification of the migration crisis) should it be required.

Following the spirit and text of the treaties of the European Union, the Estonian Presidency will now start negotiations with European Parliament whilst regularly consulting with the European Commission, and expects to achieve a constructive compromise as a result of this. The first stage has been completed, budget negotiations will continue in October and November, and the goal is to complete negotiations successfully by the third week of November. European Parliament also approved its budgetary position through voting, and it will be defended as passionately and firmly as the Council’s position. It clearly stipulates bigger expenditure.

Our goal is to agree upon the 2018 budget of the European Union in a constructive and respectful dialogue with all partners, thereby proving that European institutions can also cooperate and act in the difficult times of today. The role of Estonia as the Presidency holder is to be the conciliator and to offer compromises whilst representing a way of thinking that bolsters and promotes the idea of Europe in a constructive manner.

In conclusion, the budgetary process includes a number of technical and political nuances, stirs emotions and results in sleepless nights for negotiators as well as disappointment for many interested parties. And yet, this is what makes agreeing on the annual budget a very European process, because a successful conclusion cannot be achieved in a manner where one party is the winner. No, the result is that everyone is a winner. This also makes Europe a winner.