/Short reckonings make long friends

Short reckonings make long friends

By Andrew Codd, Isaac Duran de Barbozza , Margot Perrier, Alexandra Tendberg

In the preamble of the founding treaty of the European Union it clearly states that members should “strengthen the unity of their economies and to ensure their harmonious development by reducing the dfferences existing between the various regions”, but distributing money without causing protest is difficult to say the least.

2011 budget breakdown

Every country does not contribute equally to the European budget, so to what extent do member states hold to the principle of solidarity? Some of these countries pay more than they receive from the Union, and are thus known as net contributors. The countries saddled with this name would be glad to give their seat to another.

The budget is built each year by the European Commission and has to be approved by both the Council and Parliament. The Commission’s proposal for the 2011 budget includes an increase of about 6%, making the budget a total of €126,66 billion. This is widely considered to be far too great of an increase by members arguing that more attention needs to be paid to the restoration of national public finances.

Janusz Lewandowski

EU budget commissioner, Janusz Lewandowski said to the EU Observer that : “We should structure the flows in and out in such a way that domestic politicians can defend the future budget of the European Union.” In spite of those sweet words, support for the Union by some national politicians has plummeted towards an all-time low.

Next month, Janusz Lewandowski will present an ideas paper that will suggest a “compensation mechanism” for the Union’s net contributors, though details around this are yet unclear.

There’ll be hell to pay!

The European budget does not result directly from totaling all national budgets, but they are more linked than it appears to be, particularly in the Euro-zone. In a letter written on the 23rd of September 2010, and sent to the ministers of finances, their German homologue : Wolfgang Schäuble declared that he agrees with the new European propositions which could have consequences on national budgets. A Task force, lead by Herman von Rompuy (President of the European Council) has proposed new sanctions for member states that do not respect the budgetary disciplines explained in the Stability and Growth Pact (SGP). One of those sanctions, currently examined by the European Commission, could be a European subventions cutback or an automatic fine.

Laws are only as strong as their possible repercussions; thus the European Union is working the same way, essentially forcing member states to conform to the rules. On the 29th of September, the European Commission tabled new grounds for discussion, but some of the countries disliked as much as the proposition for the sanction that went with it. It seems for the time being that members states are more preoccupied with the percentage of non transposed directives than the SGP’s criteria.

Hermon Van Rompuy

As a result of the World economic crisis and the Greek sovereign debt crisis, the EU is going to use sanctions not really to punishanymore but rather to prevent economic disasters. Herman von Rompuy, President of European Council said: “It hasn’t surprised me, on the contrary, I’m happy to see that every member state is focused in moving forwards a stronger Stability Pact to be applied. If we need sanctions, we will create new ones.”

The reasons to implement this legislation does not convince some countries, neither does it appease the countries who are concerned. Germany wants changes for all European members, while The United Kingdom prefers a reform designed and implemented specifically in the Euro-zone. However, within the Euro-zone, most countries do not respect the SGP any more, and they fear the repercussions of an unpopular economic policy.
The countries can still tremble, for the European Union won’t adopt the final plans for a new stability and Growth Pact until summer 2011.

The EU plans to toughen penalties to those countries who have excessive deficits, starting with a fund reduction and ending with the loss of vote in european matters. In May 2010 the stability policy was reviewed, and the decision for tougher penalties was taken, though, they are rather financial or non-financial sanctions. Also,they are planning to introduce a tax credit for bankruptcy. This sanction was proposed by Germany, who with France were always under the 3% GDP, and nowadays its application will try to help Spain and Portugal escape from the Greece catastrophe.