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Friday, October 24, 2014

Updated: Commission silent as foundation for increased EU budget contributions remains unclear

Update 24/10/14 17.05:
Outgoing Commission President Jose Manuel Barroso has just given his press conference which frankly did not clear much up. Barroso insisted, as the Dutch position below does, that this payment demand is part of an annual adjustment which is based off of the revised figures for annual GNI (which are produced by national statistics agencies and then verified by eurostat).

Essentially, he is suggesting that the final figures for the UK in 2013 proved to be so far ahead  of expectations that they altered the UK's share of the budget significantly.

This is not a completely implausible scenario but it leaves some glaring gaps. Firstly, its hard to imagine the economy outperformed so much and other EU economies underperfomed so significantly that the UK has to stump up another €2.1bn. Secondly, this doesn't fit with the leaked doc from the FT. As discussed below, the figures clearly seem to relate to a longer term assessment based off the ESA changes to the way GNI is calculated.

All that said, its becoming increasingly clear that the positions of the Commission, UK and others are not quite compatible so something will have to give in a negotiation.


Currently, there is still no clear explanation for where the demand for increased contributions to the EU budget came from or exactly how it was calculated - see our comprehensive analysis here. While the Dutch and the Brits are both concerned about being asked to contribute more, they are actually putting slightly different versions of events forward. These two split the prevailing theories about how this has come about.

The first version of events, pushed by the Dutch, suggests that this is not as surprising has been made out since it is actually down to the regular assessment of the four cycle of VAT receipts and tax returns related to GDP of countries. When asked by Dutch BNR radio ‘Does this revision have anything to do with the new accounting method?’, Dutch Finance Minister Jeroen Dijsselbloem responded,
“No, this seems to come from a [annual] source revision which is something different from the statistical method that is used to calculate [the GDP].” 
The point that surprised the Dutch was that the demand came out at almost double what they had forecast and there is no clear explanation of why this is.

The other version of events ties into the document leaked by the FT. Judging by this document it is hard not to see this cost as a result of a calculation based off the introduction of the new European System of Accounts 2010. The UK is suggesting it was unaware of such a significant overhaul to the EU budget calculations and has not been included in the discussion around the changes. The document clearly looks to alter the budget contributions over the period between the introduction of the previous system of accounts and the end of 2013. The total figures also line up with the reports and are yet to be rejected or even disputed by anyone. The fact the figures are so large also fits more with this version of events than the regular adjustment - in this sense something will have to give (size of demand primarily) for the first version of events to be true.

What do they agree on?
  • There is clear agreement that this has been handled poorly by the Commission, who is still yet to provide any clarity into the debate or explain exactly how much they are asking for and why.
  • Furthermore, the demand for payment immediately also seems to be a miscalculation by the Commission which caught some unawares at least in terms of the size, if not the timing.
While this may seem trivial it is vitally important that the Commission makes clear and gets to the bottom of what is going on here. Ultimately, Cameron’s options will be very different depending on whether the demand is driven by a unique one off event (such as long terms GDP changes) or part of a regular assessment of the EU budget. In any case, whatever the source serious questions need to be asked about how a bill of €2.1bn can materialise with little or no political discussion.


Jesper said...

Could currency fluctuations have impacted the numbers?
The GBP/EUR exchange rate has varied over the period.

& the period in the table is all the way back to 1995, quite a long period and many yearly contributions to correct.

The EU prompt payment directive (interest rate) might not apply here, if it did then some old debts that hasn't been attempted to be collected might possibly need to be written off.

David Horton said...

It is a familiar feeling for me to huff and puff, and stamp my feet about EU ineptitude, but this latest episode is completely bewildering. Not just the amount of £1.67bn (remember the HS2 is £42bn), it is the reasoning (or lack of), timing and route by which it was released. There is always plenty to criticise the EU about; it is a big fat slow target, the size of a haystack. But I can’t get my head around what has happened or why. No organisation can be this incompetent, can it?

Assuming (perhaps naively) that Cameron knew and didn’t want this released before the Rochester by-election. Understandable and even conscionable in the current political climate. Indications lean towards the EU releasing it. You have to ask why? What (if any) was the EU game plan?

If it has been done to embarrass Cameron to weaken his negotiating position, then it has not been thought through at all. This order to pay has infuriated the populace and Cameron’s show of anger played well in UK. So if anything. Cameron has a stronger negotiating position today, because of an increased mandate stemming from the anger of the people. Essentially the mood now, is “stop immigration, AND don’t pay ‘em a penny”

So perhaps it is to give Cameron a new negotiating tool? "I can't stop immigration, but I HAVE saved the £2bn". This is now not enough. Presumably Barroso meant to be logical, reasonable, but with an air of patronising inevitability. Instead he has come across as stubborn, arrogant and inflammatory. I feel that the mood now, is beyond negotiation. Put simply, the British mood is to say, “ No more talk. Start seeing things our way or we will have a referendum.” The time for horse trading and negotiation is therefore over.

Maybe it is a clumsy attempt to deflect Cameron? Cameron went to Brussels to start up a conversation about freedom of movement. He returns to UK to an angry electorate; an electorate even more committed to take on the EU at its own bullying game. If deflection was the aim, it has failed utterly. The people now want Cameron to not concede an inch.

Conversely, Cameron and the EU have planned the whole thing to create a scenario that shows Cameron as the big Crusader. The knight on a charger, fighting the UK corner in the EU. I’ve read this notion several times but I don’t give it much credence. It’s possible but the risk of it all going badly wrong in May 2015 is too great.

There is then only one possible explanation that I can see.

The EU is simply astonishingly inept. It has not thought through the implications. It has not thought about how this would play in Britain. It has become so arrogant that it does not think it likely that the UK population will object. It tried to embarrass Cameron, but not tactically or clandestinely, oh no. It tried to embarrass him (and the UK) because it believes in its own perfection. As Ms Ashton showed in her moronic handling of Ukraine, the EU is diplomatically immature and that includes how it handles member states.

So what next? Cameron can’t give way or he will be wiped out. But he can’t do nothing either. He must show strong leadership or shrivel and fade away. This leads, somewhat inevitably, to him playing his trump card. He has no option but to say, “We are not paying. We want an opt out of Freedom of Movement. Or I will call a referendum.”

I can’t see that he has a choice. The EU won’t change, can’t change. It is convinced of its omnipotence, so the only answer is to turn our back on it and walk away. Walk away with our billions, our economic recovery and our import market.

R Davis said...

I have read that Cameron is not forthcoming with his checkbook.
A bun fight over MONEY - well, well, well.
Now that they have snatched up their respective chairs its time for ...
All the write ups are positive - yet the chat on the factory floor says they have failed & need to shut down shop.
Oh, to have the media singing your praises.

Rollo said...

I quote Cameron: "People say you'll never be able to cut the EU budget. I've cut the EU budget...I've got a track record of doing what I say I am going to do." Since he has been in power, our contributions have more than doubled; and now this extra 1.7 billion. He is a downright liar.