When is money not "real money"? Let's ask the European Commission...

There is a select group of masochists out there (us included) who devote their time to studying the inner workings of the EU budget. Its a very dry and technical process but at the end of the day the numbers matter - the UK's gross annual contribution (post rebate) this year is around €14.7bn, which easily exceeds the £7bn in fresh tax cuts David Cameron pledged at the Tory party conference yesterday.

Today, Commission President Barroso urged member states to sign off on a €4.7bn 'top up' to this year's budget, an issue we covered back in June. What struck us however was some of the language in a separate Q&A put out by the Commission, which contains gems like:

"The EU budget consists of commitment appropriations and payment appropriations. Broadly speaking, commitments are usually higher than payment appropriations and do not constitute "real money"; they could be compared to the amount mentioned in a contract any household or private company commits itself to pay at the completion of any given work. Payments, on the other hand, are "real money"; they are what the EU budget has to pay, again, just like any household or private company has to pay the builders once any contracted work is completed."

However, it is highly disingenuous to describe new spending commitments in the budget as not "real money" given that they are inextricably linked with payments: as the Commission itself is fond of saying, today's commitments are tomorrow's payments while today's payments are yesterday's commitments. 

It might however explain why the Commission is so frivolous when it comes to making new spending promises before then pressuring national governments to stump up extra cash i.e. "real money" to make up the difference.

EU spending to go up by only 1.3% next year (well, only if you buy the Commission's spin)

The European Commission has this afternoon put out its draft EU budget for 2015 which proposes total new spending commitments amounting to €145.6bn and €142.1bn in actual expenditure. The accompanying press release proudly proclaims that:

"The proposed increase of 2.1% in commitments and 1.3% in payments is virtually absorbed by the estimated inflation rate for 2015."

A below inflation increase would amount to a real terms cut which would be welcome but is that really the case?

The 2014 budget as signed off by member states and the European Parliament sets the level of payments at €135.5bn, so in actual fact the Commission's proposal constitutes a 4.9% increase, not 1.3%. So what accounts for the difference?

Well, a couple of weeks ago, on the 28th of May to be exact, the Commission proposed to retroactively top up the budget by €4.7bn in order to

"cover legal obligations in research and innovation, education and support for small and medium-sized enterprises. Higher reimbursement claims from Member States in cohesion policy have to be addressed as well as the difficult situation in the Ukraine."

This €4.7bn would come from a mixture of spare cash from the 2013 budget and income from fines levied by the Commission on companies breaking EU law as well as fresh funds from member states. However, this top-up still needs to be signed off by member states (the decision will be taken under QMV) so it is disingenuous to tack it onto what has already been agreed and present it as a lower overall increase.

Ultimately, the top-up itself is not completely the Commission's fault - member states often submit higher claims than the agreed budget allows, forcing the Commission to retroactively top the budget up (this annual ritual is as depressing as it is predictable). However that does not justify the Commission putting such dubious spin on the issue. This kind of stuff doesn't help in boosting citizens trust in EU just after the European elections produced a record strong showing for anti-EU parties.

EU budget talks: The dust has settled - and they all won!

We've been listening to the national press briefings of several EU leaders following the deal on the EU budget (which we analyse here). And you got it - they all won! (well, almost). Here goes:

David Cameron (UK)

• The British Prime Minister said, "I think the British public can be proud that we have cut the seven-year credit card limit for the European Union for the first time ever." 

• He went on, "The only way you can best protect the British taxpayer is to keep overall spending down, and that’s what we’ve done, and also to keep what remains of the rebate, and it is completely untouched." 

• On the possibility of MEPs staging a secret ballot vote on the next long-term EU budget, Cameron said, "Of course the European Parliament has a role, and we should respect that. But I don't really understand secret ballots. Parliaments and votes should be open, should be transparent, people should be accountable for how they cast their votes."

Angela Merkel (Germany)

• As usual, the German Chancellor - the power-broker - did not give away too much during her presser. She said, "The effort was worth it…in my view this agreement is good and important." 

• She also warned that "the negotiations with the European Parliament won't be easy".

François Hollande (France)

• The French President, a bit sulky, said this was "the best deal" on offer given the circumstances.

• He repeatedly stressed that the UK wanted payment appropriations to be lower than €900bn over seven years, while France was insisting on €913bn (see here if you are not familiar with the commitments vs payments distinction). According to Hollande, given that the final compromise was reached at €908.4bn, "Everyone will say who made the bigger step" - a way to suggest that David Cameron had given up more than he did.

• According to Hollande, France will also save some €140m a year on its financing of the various rebates. On the rebates, the French President made his most interesting remark (see here, around 16:00 in). He said, "I knew that there was no possibility to put into question the British rebate, because you know that it is provided for by the [EU] Treaties [which, by the way, is incorrect]. Therefore, it is immutable" at least until the Treaties are re-opened for negotiations. The British, he added, "should keep this in mind, including when they demand treaty changes." If this is not a threat, then what is?  

• He said that funding for agriculture has gone down overall, but he has made sure that aid to French farmers will remain at the same levels as in 2007-2013. Now, that's what you call 'solidarité', right?

• Finally, the French President admitted that the UK was not on its own in these negotiations, as "other countries wanted more for themselves and less for Europe".  

Mario Monti (Italy)

• The (caretaker) Italian Prime Minister hailed a "particularly significant improvement" in Italy's net position compared to other big net contributors to the EU budget.

• He said Italy has secured an extra €3.5bn in funding compared to the compromise proposal on the table at the November summit.

• Furthermore, Italy will save around €600m a year on its financing of the various rebates.

Mariano Rajoy (Spain)

• The Spanish Prime Minister said the deal is "very good for Spain". Contrary to expectations, Spain will remain a net recipient from the EU budget over 2014-2020 - which is huge. 

• Rajoy was particularly pleased by the fact that Spain "will get almost 30%" of the new fund for youth unemployment included in the next long-term EU budget. 

Mark Rutte (Netherlands)

• The Dutch Prime Minister opted for a lower profile. He said, "Of course you never completely get it your way with 27 member states, but I think that we as the Netherlands can be satisfied." 

• He described the deal as a "sober" budget, and said that the Netherlands "worked well together" with Sweden, Germany, Denmark, and the UK.  

Helle Thorning-Schmidt (Denmark)

• The Danish Prime Minister said her country "came here with three priorities, and we satisfied all of them", pointing out that she had secured an annual rebate of €130m.

Fredrik Reinfeldt (Sweden)

• The Swedish Prime Minister said the deal was "a surprisingly good result".

• He argued that, contrary to fears that Sweden's contribution to the EU budget would increase, it is, in fact, set to drop slightly.

Donald Tusk (Poland)

• The Polish Prime Minister spoke of "a huge success" for his country, stressing that Poland's receipts will increase by €4bn despite the long-term EU budget facing a €38bn cut from the previous seven-year period.

• He went even further, claiming today was "one of the happiest days of my life". Wow!

Werner Faymann (Austria)

• The Austrian Chancellor was less enthusiastic than many of his counterparts. He said the deal struck this afternoon is "presentable" for Austria - which managed to secure a rebate, although it will be phased out by 2016 (see the final deal here).

Petr Necas (Czech Republic)

• The Czech Prime Minister was pleased about his choice to threaten a veto. He said, "If the Czech Republic had not seriously threatened to block the negotiations, then it would not have been possible to negotiate a better outcome."

Fact-checking Commissioner Lewandowski (Spin alert!)

When the Commission talks about the EU budget, it's always worth taking their "facts" with a pinch of salt - they have a record of spinning the figures pretty shamelessly.  

The issue of the EU budget is refusing to go away – the torturous discussions over the 2014 – 2020 financial framework have only been deferred, while the European Parliament and member states are still at war over the 2012 and 2013 annual budgets. However, rather than working on constructive proposals to trim expenditure, EU Budget Commissioner Janusz Lewandowski (pictured) seems to be conducting a PR campaign in favour of greater EU spending.

And you guessed it, he's being generous with the truth. 

In an interview with Bild, he made a few points that were either highly contestable or outright factually incorrect. Here is our quick fisk of some of his arguments:

Bild: Why is the Commission not making any savings?
Lewandowski: That is not quite true. With regard to 2013 our proposal is consistent in real terms, which means we are only seeking an adjustment in line with inflation. 

Lewandowski is being disingenuous – the latest draft for the 2013 budget forward by the Commission foresees a 6.7% increase in spending, well above inflation. The real terms freeze refers to the ‘commitments’ section of the budget, not the actual cash contributed by member states.

Lewandowski: Many German states such as Brandenburg, Schleswig-Holstein and Saxony are dependent on EU funding. 

Well, "dependent" is an interesting choice of words. For richer member states, the structural funds involve recycling cash. As we have shown, there's no good reason for the EU’s continued involvement in the regional policy of wealthier member states such as the UK and Germany. In fact, there's no conclusive evidence that the structural funds offer the best comparative use of public money considering their contradictory criteria, and their deadweight, opportunity, and administrative costs.

But Lewandowski also shows poor understanding of the redistribution flows within Germany - and the relative wealth of German länder. If by "dependent" he means "net recipient", he is correct that Brandenburg and Saxony (both formerly in the DDR) are net recipients of EU structural funds. However, Schleswig-Holstein is definitely a net contributor, and a big one at that. According to recent research published by Open Europe’s German sister organisation, Open Europe Berlin, Schleswig-Holstein pays €3.80 into the structural funds (via general taxation) for every €1 it gets back. If Lewandowski wanted to prove our point that the structural funds suffer from irrational redistribution patterns, he did a good job. But such a poor grasp of the basics is worrying from the Budgetary Commissioner.

Bild: All member countries have to save - why not the EU?
Lewandowski: It is misleading to use national austerity programmes to justify cuts to the EU budget. The EU budget is far too small to significantly affect the deficits [in national budgets]. It accounts for only 1% of EU GDP. 

Leaving aside the boring and completely arbitrary debate about the EU budget ‘only’ being 1% of EU-wide GDP, Lewandowski is on shaky ground when asserting that contributions to the EU budget only have a negligible impact on national deficit targets. For example, France is seeking to reduce its budget deficit by €33bn next year (a mix of cuts and tax increases) whereas its contribution to the 2013 annual budget is set to be €21.8bn - hardly insignificant. 

Lewandowski also ignores the symbolic impact of the EU demanding higher contributions at a time of national austerity – one of the factors contributing to citizens’ widespread disillusionment with the EU. 

So not Lewandowski's finest hour. If he is stuck for inspiration we would recommend he takes a look at our ‘alternative EU budget’ for 2012 which cut EU spending by €41bn (almost 30%) while also re-focussing the remaining spending far more effectively on boosting jobs and growth.

Fact-checking the Commission's EU budget claims (it ain't pretty)

The European Commission has its own dedicated "myth buster" which aims to explain to the masses and media how terrific the EU budget is, and that all claims to the contrary are "euro myths". Despite making some fair points, overall the list is generally silly and counterproductive. For example, it claims that an EU subsidy to a dog fitness centre in Hungary (that never was built) is a "myth", as the money was since paid back.  However, it fails to acknowledge that the dog centre was only forced to pay back the EU subsidies once Open Europe and others brought the sorry episode to the attention of international media. The Commission was blissfully unaware at the time we highlighted the example, and showed little interest in investigating the case (even claiming that the finding wasn't "serious"). To then come back and present it as a "myth" is laughable (for exactly how laughable, see here).

It illustrates how the Commission likes to take the moral high ground on facts and figures, but often itself engages in spinning exercises that would make Malcolm Tucker proud.

Its presentation for its proposal for the 2013 EU budget, which includes a 6.8% increase in spending, is a case in point. In fact, it was so full of dodgy figures that we felt it was in need of a serious fact-check. So this morning we published one. Here goes (the full fact-check note is available here):

FACT CHECK: THE COMMISSION’S EU DRAFT BUDGET 

1. IS THE EU REALLY CUTTING STAFF?

The claim: “[The Commission is] cutting its staff by 1%, the first step towards the goal of a 5% reduction of staff in 5 years”.

The reality: The EU will only cut 6 jobs net out of 41,000 jobs in 2013 while the Commission will reduce its workforce by 0.5%.

2. IS EU ADMIN SPENDING ACTUALLY FROZEN?

The claim: “[The budget] also freezes the Commission's administrative budget at well below inflation level…The vast majority of people across the EU feel the daily pain of the crisis as their national, regional and local governments have to make cuts, therefore a ‘business as usual’ attitude from the EU institutions is simply not acceptable.”

The reality: Overall EU administration spending to increase by 3.2%.

3. DO THE OTHER EU INSTITUTIONS REALLY SAVE “WHEREVER POSSIBLE”?

The claim: “[The draft budget] includes a strong emphasis on savings and cost efficiency…pressure was exerted on every EU institution and agency to seek savings wherever possible. Most EU agencies will actually see a real cut in their annual budget.”

The reality: Apart from the Commission, many of the EU’s other institutions, committees, quangos and agencies have seen their budgets go up despite adding no discernible value or duplicating tasks, although it is welcome that many of the EU’s decentralised agencies have indeed had their budgets frozen or cut in absolute terms.

4. WILL THE INCREASED SPENDING REALLY PROMOTE JOBS AND GROWTH?

The claim: “€62.5 billion in payments are devoted to job friendly growth in Europe”.

The reality: As several studies have concluded, the EU’s jobs and growth programmes are inefficient and their overall impact is inconclusive, while too much money is still wasted on farm subsidies to landowners with no link to any meaningful economic activity.

5. DOES THE COMMISSION REALLY HAVE NO CHOICE BUT TO INCREASE SPENDING?

The claim: “The EU budget must meet its contractual obligations of current and previous years vis-à-vis the Member States and other recipients.”

The reality: Yes the Commission is legally obliged to make certain payments based on previous years’ commitments. However, both national governments and households also have to pay bills at the end of the month or year. The Commission must likewise learn how to prioritise and find savings if there is not enough money in the pot (the last two years have produced surpluses in the EU budget).

 So as austerity sweeps Europe, is this a serious budget proposal? You decide....