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EU budget talks

Bernd Riegert / ng
June 20, 2013

Funding for agriculture, fishing, and economically-weak regions is to be maintained in the EU's next long-term budget. Overall spending, though, has been capped. So how will the member states balance the equation?

Two bright blue euro-piggy-banks in front of the European Central Bank building
Image: picture-alliance/dpa

For months now, member states have been discussing the the EU's long-term budget for the years 2014 to 2020. Most countries want to spend less than the European Commission and the European Parliament proposed.

New role for the EU Parliament

The 2007 Lisbon treaty gives the European Parliament the right to take part in the budget negotiations for the first time. Before that, EU leaders simply set the budget amongst themselves.

However, the Parliament cannot propose a budget of its own: it can only accept or reject the EU leaders' proposals, in full. The upper limit will therefore remain at one trillion euros for seven years.

In future, though, budgeted funds that have not been spent and are not tied to a particular subsidy could be made available for other projects. Until now, any money left over had to go straight back to the member states.

German Chancellor Angela Merkel leaves for a two-hour break during the European Council meeting, at the European Council headquarters in Brussels, Belgium, 08 February 2013. EU heads of States gathered for a two-day summit starting on 7 February with the main purpose to agree on the next Multiannual Financial Framework (MFF). After a long night of negotiations the EU leaders take a break before coming back to discussions. EPA/THIERRY ROGE (recrop of jw03)
Germany is still the largest overall contributor to the EU budgetImage: picture-alliance/dpa

A large part of the EU budget is used to subsidize agriculture (39 percent), as well as to provide the bloc's economically weak areas with so-called structural funds (46 percent). It differs substantially from the national budgets in that it is not financed through taxes, but from the member states' payment contributions and customs revenue.

EU Budget Commissioner Janusz Lewandowski cannot take on debt. After taking off around six percent for administrative costs, funds tied to a particular subsidy or project - agriculture, for example - are paid back to the member states for reinvestment in that particular area.

Who pays what?

In absolute terms, Germany contributes the most of any EU member. Europe's biggest economy paid 9 billion euros into the EU budget in 2012. Poland is the biggest net recipient of funds: that same year, it received 11 billion euros.

Per capita, though, it is the Danes who pay the most: 150 euros per head per year. For Germans, this figure is 110 euros. Hungarians are the biggest per capita net recipients, at 442 euros per head.

The bailout fund, set up to deal with the effects of the financial crisis on Greece, Cyprus, Portugal, Ireland and Spain, is only partially funded by the EU budget. The lion's share of the ESM fund is made up of separate payments from the Eurozone member countries.

Net contributors tighten purse-strings

In February of this year, EU leaders agreed to cap the 2014 - 2020 budget at 908 billion euros - a net reduction of around three percent. The agreement followed intense pressure from Germany and the UK.

Germany's Chancellor Angela Merkel (L), Britain's Prime Minister David Cameron (C) and European Parliament President Martin Schulz (R) attend an European Union leaders summit meeting to discuss the European Union's long-term budget in Brussels February 7, 2013. European Union leaders begin two days of talks on a long-term budget on Thursday, with efforts to refocus spending on growth likely to be thwarted by demands for farm subsidies as pressure to reach a deal grows. REUTERS/Yves Herman (BELGIUM - Tags: POLITICS BUSINESS)
Germany and the UK insisted on a net reductionImage: Reuters

It remains to be seen whether this cap will actually be honored as, due to a technicality, the real cap stands at 960 billion euros. Then there's another, ostensibly separate pot of money to be included, which brings the figure closer to 997 billion - just under one trillion euros.

Automatic inflation adjustment, another special feature of the EU budget, must also be calculated. This is currently around two percent per annum.

The EU will have spent a total of 925 billion euros in 2007 to 2013. That's 55 billion euros more than was originally planned in 2006.

EU budget experts therefore believe that the numbers for the next budget are not set in stone. The EU planned to spend 143 billion euros this year. Already, though, there's a shortfall of 5 billion euros that the EU Parliament, the Council and the Commission are struggling to find.