Negotiating the Medium-term Financial Perspectives for the Enlarged EU: the Future of the European Budget

Although the 2004 enlargement adds some 70 million inhabitants to the EU population, which was about 370 million before, and in spite of the very significant gap in average incomes between old and new members, the latter being much poorer, the size of the EU budget will hardly increase, by a mere 15% till the end of the current programming period, in 2006. With the opening of a new round of negotiations over the next multi-annual financial perspectives for the period 2007-2013, in a context of slow growth, competing objectives and tight financial situations in most EU15 member states, the future size and composition of the European budget are open to debate and the choices that have to be made will, to a large extent, shape the future of the common policies and of the existing instruments of financial solidarity, with likely consequences on economic growth and its distribution amongst member states. This paper presents and discusses the main proposals that have been put forward at the initial stage of this negotiation. It then extends the analysis to broader considerations about common policies, most notably the Common agricultural policy (CAP) and the structural and regional policies, and collective goods for the EU, and about the various institutional and budgetary arrangements, as well as sources of financing, that may be contemplated to implement European policies or to achieve common objectives by means of a more decentralized budgetary system. It also discusses the delicate issue of net contributions and analyzes the pros and cons of various alternative sources of financing for the EU budget, including a European tax. JEL classifications: H87, Q18