Commission's draft budget for 2014: The Good, the Bad and the Ugly

While all eyes will be on George Osborne and Ed Balls this afternoon, the EU Commission has slipped out its draft annual budget for 2014. This is important as it the first budget to be drawn up using the reduced expenditure limits (or 'ceilings' in EU-speak) agreed by David Cameron and other EU leaders in February. However, the European Parliament so far refused to sign off on these, so they remain provisional for the moment (more on this later). Here is our breakdown of the content of the budget according to the good, the bad and the ugly, continuing an earlier OE tradition.

The Good

Compared with 2013, there's a cut to the 2014 EU budget. The headline figure is a cut in both commitments and payments from €151.6bn and €144.5bn down to €142bn and €135.9bn respectively. This is a 6% cut in commitments and a 5.8% cut in payments. This is clearly a win for David Cameron who was mandated by parliament to secure a real terms cut in spending, but is also not all what it seems to be (see below). Next year's savings would be even lower if not for the fact some spending - such as the new €6bn youth unemployment initiative - is being 'front loaded' onto this years' budget.

Some particularly wasteful spending has been cut, for example the commitments on 'Communication actions' defined as spending aimed at "increasing the interest, understanding and involvement of citizens in the EU integration and policy-making process" has been cut by 20%.

The Bad

Somewhat bizarrely, the above savings have only materialised because a lot of money has been added onto the 2013 annual budget via a number of 'amending budgets' (a favourite tool for the EP and Commission) - increasing the total from €132.8bn to €144.5bn. If not for this additional cash, we would have seen an overall increase in 2014. While some of this additional spending can be justified - for example to accommodate Croatia - many believe that the bulk has been requested by the Commission simply to use up all the available money left under the current long-term budget rather than because it corresponds to an actual need for funds.

The European Parliament has made payment in full of this amount a pre-condition for agreeing to the 2014-2020 budget, and so far most of it has been pledged by member states (although the UK was recently outvoted on committing an additional €7.3bn of the additional funds requested as annual budgets are decided by QMV, not unanimity). In total, €3.9bn remains outstanding, so taking this off the total means we only have a reduction of 3.2%.

The Ugly

The substance of the budget remains broadly unreformed with the bulk of the budget still going towards distorting farm subsidies and regional development subsidies for wealthier member states (although the proportion of the latter has been reduced). In fairness overall spending on the CAP has decreased by 2.3%, but the amount going on farm subsidies tied to land ownership or production levels (the new CAP rules allow some re-coupling) will go up by 0.3%.

Administrative spending is set to go up again by 1.5% overall. The table below gives the full breakdown:

• While the drop in spending on European Schools is welcome, many of the other headings see increases at a time when the EU should be busting a gut to cut down on administrative spending, as member states have been for the last couple of years.
• The Commission has made some cut backs but due to salary increases of 0.9% it sees a 0.1% increase (or 0.8% increase when including cost of Croatia's accession). 
• Spending on EU officials' pensions has also increased by 7.2% due to the number of staff retiring ahead of the entry into force of the new Staff Regulations. This highlights the need to make further and more urgent progress on making EU expenditure on former officials' pensions sustainable.
• While the Court of Auditors, an institution that often flags up EU waste and mismanagement, sees its budget cut by 4.2%, the European Parliament sees its budget go up by 1.7% despite the fact that it has not committed to reducing its headcount unlike other institutions. This news comes the day after we highlighted a video of two MEPs pushing and shoving a journalist who had the nerve to challenge them for allegedly signing in to claim to their daily allowance before 'sodding off' straight away.
• Spending on the EU's 'decentralised agencies' which form the bulk of the EU's 52 quangos are set to receive a 3.8% increase while the European and Economic and Social Committee and the Committee of the Regions see a 0.2% cut and a 0.3% increase respectively despite the fact that these organisations are outdated, with no evidence of their usefulness whatsoever.
• While expenditure on the EU's external policies (aid and development) sees a fairly substantial cut of 8.2%, for some reason the institution that manages this expenditure - Baroness Ashton's External Action Service - has been awarded a 3.2% increase. In contrast the FCO sees an 8% cut in todays spending review.

The deal all rests on the European Parliament agreeing to the 2014 - 2020 MFF otherwise the 2014 budget will revert to 2013 ceilings + 2% for inflation. While this would not be an awful result for the UK mainly because of the security guaranteed by the rebate (see here for details), it would nonetheless most probably not result in an actual cut, thereby undermining David Cameron's claim to have achieved a degree of EU reform by cutting the budget for the first time in EU history.

Meanwhile, MEPs' initial responses don't exactly inspire confidence...

The EU budget proposal of the Commission for 2014 is again supporting the recession and unemployment instead fighting it.
— Hannes Swoboda (@Hannes_Swoboda) June 26, 2013

Quango unchained: The EU's subculture you've probably never heard of (but that thinks it embodies your expectations)

EU 'grassroots' engagement

Beyond the spotlight of high-profile crisis meetings of EU leaders exists a very different community. A group that can almost be likened to a sub-culture. They meet in over-sized buildings in Brussels or at conferences and hotels around Europe. You will almost certainly never have heard of them. These are the EU's committees and quangos. Some useful, some completely irrelevant.

Topping this group is the European Economic and Social Committee. If you've never come across it, don't worry - you're in an overwhelming majority and haven't really missed out on anything. The EESC exists in order to act as "a bridge between Europe and organised civil society" by acting as a point of consultation for the EU by bringing together 'representatives of civil society' - 344 from across the whole EU. In practice the majority of these are representatives of trade unions, the third sector and academia, although business people are also represented.

There's only one problem: no one actually quite knows that the EESC actually does. In recent memory, we have yet to see evidence of it actually having had a measurable effect on a single piece of EU policy. The areas it is involved with are well covered by national authorities, the Commission and the European Parliament - which for better or worse actually has some powers.

It's not that the EESC makes "bad" decisions or is actively harmful. The body - much like its cousin the Committee of the Regions - is simply completely irrelevant in terms of what is happening in the real world. And yet, it has a budget of around €130m a year.

The absence of any meaningful impact of a body like the EESC on the multiple crises plaguing the eurozone borders on being comical. We learned today that EESC has appointed a new President, Henri Malosse. He clearly has grand plans for his tenure:

"Henri Malosse is keenly aware of the disconnect between Europe and its citizens, a fact again brought home by the Greek and Cyprus crises. Convinced that one of the answers lies in a rebalancing of forces in Brussels, he wants the European Union's second assembly to do more to embody people's real expectations in areas such as job creation, combating youth alienation, protection of savings and access to health care."

Makes sense. If only the EESC got a bit more power, than we're sure that the collapsed interbank lending market would be restored over-night. A few more EESC conferences would do wonders to bring down unsustainable debt levels in the eurozone. Meanwhile, hire a few more EESC staff and the 27.2% record unemployment rate in Spain would be immediately reversed. If only the EESC could be given enough cash to  embody "real people's expectations", the EU's democratic deficit would practically be closed already. 

Some of Malousse's tweets are also something else:

@citizen_e @euromeet I support This excellent initiative to create a common european identy thanks to education ! #EESC #Windofchange 18/04
— Henri Malosse (@MalosseHenri) April 9, 2013

It's really time to put the #citizen in the engine of #UE and bring#Europe on the right tracks ! #EESC #18april #WindofChange
— Henri Malosse (@MalosseHenri) April 7, 2013

Our point? The EESC is emblematic of the EU's Achilles heel: its incredible difficulty in adapting to changing economic and political circumstances. Everyone knows that the EESC and Committee of the Regions - which together cost taxpayers around €215m - are pointless bodies. They're by-products of a long bygone era, premised on the odd principle that in order for "civil society" and "the regions" to have influence, they need their own dedicated institutions in Brussels. In spite of all of this, they remain in place, partly because they're enshrined in the EU Treaties and it therefore requires unanimity to scrap them.

As we pointed out in our dedicated report on EU quangos, several of the EU's 52 agencies suffer from similar flaws. Scrapping 10 of the least useful, and imposing efficiency savings on the rest, would save taxpayers a total of around €668m.

Not a huge amount of money in the grand scheme of things, but the symbolic value of Europe's failure to address even the most obvious examples of waste and bureaucratic inertia, speaks volumes.