The Happiest Days of Your Life

As was generally predicted, last Friday’s EU budget deal for the period 2014-2020 has been generous to Poland which remains the main beneficiary of EU (that is, taxpayers elsewhere) largesse. Poland secured some Euro 106 billion prompting the Polish Prime Minister to describe the result on one of the happiest days of his life. Indeed, against an EU budget which was some Euro 38 billion less than last time, Poland managed to obtain Euro 4 billion more.

And the euphoria continued elsewhere in government. The Polish Foreign Minister, Radoslaw Sikorski, wrote on Twitter: “Congratulations. This is a historic moment.”, while
the Polish President called the budget a success for Poland saying that with this huge amount of money not only their children and grandchildren, but Poles themselves had the chance to see the moment when Poland is a better and more prosperous country. Amidst this euphoria, the EU budget Commissioner, himself Polish, sounded a note of caution. While a budget which saw only Poland and Slovakia receive increased funds may well be a good deal for Poland, it is not really a good deal for Europe, and it seems likely that there will be some tough negotiations in the European Parliament when the new budget is subjected to ratification.

Meanwhile, back in the United Kingdom, David Cameron claimed some success in that, with support from Germany and the Netherlands, the EU budget was, for the first time, reduced albeit by a rather feeble amount and with the further unfortunate irony that the UK’s contribution will actually rise. No wonder, therefore, that Radoslaw Sikorski should be so concerned about the possible withdrawal from the EU by the UK “selfishly” as he expressed it. It is odd, you might think (and as I have argued elsewhere – please see Europa Europa, Sweet and Sour, The Fortune Teller) that the UK with its exemplary record as an EU member (adoption of the acquis communauitaire, opening of markets, welcoming of Poles in 2004 when few others did, and so on) should always be castigated as a bad EU member when it makes sensible points while Poland is somehow to be applauded when it fights for what it perceives to be its national interest. Of course, we cannot blame others for the pusillanimous dishonesty of successive British governments (please see Executive Decision).

But be that as it may, this latest edition of the septennial budget squabbling misses the main point: the EU cannot continue it its current form. On the one hand, the International Monetary Fund, has revised its estimates for global gross domestic product and trade growth downwards and the EU 17 will remain the least dynamic region in the world economy. On the other, the EU with its emphasis on expenditure and debt elements of fiscal policy is failing to face up to the realities of what is required for a successful monetary union, the likely sole medium to long term raison d’etre for the EU.

The German finance minister has been reported as prescribing a common EU fiscal policy to complement monetary union – a logical and necessary step – but, of course, taxing and spending, as Professor Bogdanor (tutor in his Brasenose, Oxford days to one David Cameron, but not to me as I read law there) pointed out in a letter to the Financial Times yesterday, form the essence of democratic decision making. As I have written before (please see above) such democratic process is missing in the EU and if a common EU fiscal policy is both to be adopted and to enjoy the necessary support, EU institutions must become directly accountable to EU voters so that voters may feel a loyalty to the whole union as well as one of its constituent member states, much as is the case in the United States. This would require the EU to be re-cast as a proper federal entity – rather than the current “EUSSR” run by an unelected, unaccountable politburo type EU Commission. Unfortunately, despite the siren calls for more Europe as the answer to every problem from currency difficulties to unexpected horsemeat in beef burgers, a properly constituted EU does not seem to be on offer.

And a proper fiscal union would also deal with the absurdity – also mentioned by David Cameron, of funds moving from member states to the EU only to be re-distributed by the EU back to the same member states by way of the EU structural fund programmes. Much better for member states themselves to distribute funds where needed without the extra layers of bureaucracy, inefficiency and corruption inherent in the current process. This would also tie in expenditure more closely to tax revenue. It is one of the ironies of the current system that those newer member states of the EU – such as Poland – have generally low rates of corporation tax to attract inward investment, which makes them dependent on imported capital to fund modernisation, including money from EU structural funds, which structural funds are in turn in effect largely funded by those member states whose tax bases have been reduced by corporations moving profits from them (the countries where profits are largely actually generated) to these lower tax member states. Again, if the EU is serious about a single market and closer union and saving the Euro then, within the EU, the case for tax harmonisation is very strong indeed.

As it stands, last Friday may well turn out to have been one of the happiest days of the life of the Polish prime minister because it is clear that without serious changes the EU cupboard will be much barer in seven years’ time.

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