Workshop on the Future of EU-Finances in Berlin, 10th of July 2014



Workshop on the Future of EU-Finances in Berlin, 10th of July 2014
Workshop on the Future of EU-Finances
in Berlin, 10th of July 2014
Workshop on the Future of EU-Finances
Berlin, 10th of July 2014
Many thanks to…
Thomas Steffen
Friedrich Heinemann
Gregory Claeys
Thomas Westphal
Christian Kastrop
Stefan Bredohl
Albrecht Morgenstern
Jacques Le Cacheux
Regine Grienberger
Johannes Scheube
Thiess Büttner
Meik Laufer
Martin Erhardt
Stefan Lehner
Anne Glumm
Dennis Kolberg
Anne Montagnon
Klaus-Dirk Henke
Christian Traxler
Clemens Fuest
Anne S. Busse-Pietrzynski
Ekkehart Reimer
Helge Berger
Kristina van Deuverden
Christian Waldhoff
Florian Misch
Henning Fahland
Henrik Enderlein
Julia Külb
Eva-Maria Meyer
… for attending the Workshop on the Future of EU-Finances in the Federal Ministry of Finance in Berlin,
10th of July 2014
Dirk Heiner Kranen
Jördis Klügel
Thomas Schuster
Kerstin Korthals
Martti Antinnen
Karola Bretschneider
Kornelia Stock
Henrik Liß
Julia Schoenmakers
Martin Leuvering
Arina Hube
Michaela Tintelott
Clemens Wetz
Susanne Neheider
Sabine Klok
Malte Hübner
Sebastian Thomasius
Edith Peters
Petra Hinz
Kristin Rohleder
Sophie Clarens
Mark Riedemann
Alexander Puhlmann
Carl Asplund
Atalay Dabak
Johann Vasel
Katja Hanewald
Asbjorn Brink
Letter from Dr. Wolfgang Schäuble, Federal
Minister of Finance
Executive Summary
Opening Statement
Panel I: No representation without taxation? –
Strengthening the European Parliament with an
Panel II: A budget without deficit: What makes
the EU’s own resource system so
Presentation: Improving the own resource system – The Commission Proposal
Panel III: Can the EU’s own resource system be
improved? What would be the criteria?
Panel IV: Reforming the revenue side without
looking at expenditure? - Possibilities for a “Better Spending” of the EU
Summary of Workshop-Results
List of Participants
Letter from Dr. Wolfgang Schäuble, Federal Minister of Finance, to
Mr. Mario Monti, Chairman of the high-level group on own resources of October 13, 2014
Dear Mario Monti,
dear members of the high-level group on own resources,
The Federal Ministry of Finance held a workshop on the future
of the European Union’s finances in July 2014. We have summarised the participating experts’ contributions to the discussion in the workshop documentation, which is also intended to
serve as input for the work of the high-level group on own
In my view, the workshop’s most important results can be
summarised as follows:
Any attempt to grant the European Union greater
financial autonomy would be subject to strict legal constraints.
The issue of the expenditure side needs to be incorporated into the discussion on possible reform of the EU’s finances. If EU spending were to be targeted more intensively at
financing European public goods, this could create genuine
European added value.
Ultimately, it is Europe’s citizens and businesses that
have to finance the EU’s revenue. Granting the EU a higher
degree of financial autonomy would change nothing in that
respect. Any reform of the EU’s financing system must therefore pay adequate attention to taxpayers’ interests. In the existing system, it is mainly the net contributors that look after
these interests.
I wish you every success in your important work.
Yours sincerely,
Wolfgang Schäuble
The Future of EU Finances - Executive Summary
In July 2014, the Federal Ministry of Finance hosted a workshop that took an in-depth look at the future of EU finances.
Our goal was to bring together a group of experts to identify
the main advantages and disadvantages of the EU’s financing
pinpoint criteria for reforms.
The discussions showed that the EU budget’s revenue side
functions well overall, although the system could be simplified. The main potential for reform lies on the EU budget’s
expenditure side. Workshop attendees argued that incipient
efforts to modernise the EU’s spending structure must continue, in particular by ensuring that EU expenditures are
targeted towards the financing of European public goods. At
the same time, any efforts to grant EU institutions greater
financial autonomy would be subject to strict constraints
under European primary legislation and national constitutional law.
1. Introduction
On 10 July 2014, the Federal Ministry of Finance hosted a
workshop that took an in-depth look at the future of EU
finances. In four rounds of discussions, 15 experts from think
tanks, international organisations, the European Central
Bank, economic research institutes and the Ministry’s scientific advisory board reflected on the future of the European
Union’s financing system, which is known as the “own resources system”.
The decision to organise the workshop was spurred by the
appointment of a new high-level group on own resources,
which was launched by the European Parliament, the Council of the European Union and the European Commission in
February 2014. The high-level group will undertake a general
review of the EU’s financing system and propose potential
reforms by the end of 2016. Chaired by Mario Monti, it is
comprised of nine members appointed by the European
Parliament, European Commission and Council. On the basis
of a report to be issued by the high-level group, the Commission will decide whether or not to initiate new legislation to
reform the current own resources system.
The structure of the own resources system has been a subject
of heated dispute ever since the last major reform of EU
finances was carried out in 1988. At that time, the Council
introduced a supplementary source of revenue made up of
contributions by the member states based on the size of their
economy. From the very moment this new source of revenue
was adopted, the European Parliament became increasingly
vocal in its insistence that the Union needed to reduce its
dependence on the willingness of the member states to
transfer money to the EU – this could be done, for example,
by creating an EU tax.
2. Background: EU finances and the role of the own resources system
The European Union is currently financed by the member
states on the basis of what is known as the “own resources
system”. This system makes up the revenue side of the EU
budget, which provides for annual expenditure amounting to
roughly €140bn. The term “own resources” refers to funds
that the member states remit to the EU. There are three types
of own resources: traditional own resources, VAT-based own
resources, and GNI-based own resources.
Traditional own resources consist mainly of customs duties
and sugar levies, which member states levy directly on economic operators and remit to the EU. Due to the progressive
reduction of trade barriers, traditional own resources now
account for only a minor share of total own resources. In
2013 – the most recent year for which the EU has published a
financial report – traditional own resources made up ten percent of total own resources. Own resources based on Value
Added Taxes (VAT own resources) finance a similar share of
the EU budget: in 2013, they also accounted for about ten
per-cent of total own resources. Payments of VAT own resources are based on a harmonised VAT base that applies to
all member states. This harmonized VAT base is a statistical
construct, calculated exclusively for determining the VAT
own resources. The absolute amount of VAT own resources
that a member state must remit to the EU is derived by multiplying this VAT base with a specific “rate of call” (currently
0.30% for most member states). The remaining gap in the EU
budget – that is, the amount of budgeted EU spending that is
not covered by traditional own resources and VAT own resources – is financed through contributions from member
states based on their share of the European Union’s gross
national income (GNI). These contributions are referred to as
GNI own resources, and they are now the most significant
source of revenue for the European Union, accounting for
approximately 80% of total own resources.
Own resources constitute the revenue side of the EU’s annual
budget. The structure of the budget’s expenditure side – that
is, how spending is distributed among the various policy
areas – is laid down in the seven-year Multiannual Financial
Framework (MFF), which is adopted by the Council with the
consent of the European Parliament. The MFF sets ceilings
on spending in the various policy areas. To this end, it is
divided into headings and subheadings that correspond to
the European Union’s respective policy areas. These ceilings
are not to be exceeded in the process of both preparing and
executing the EU’s annual budget. Under the current financial framework, agricultural policy and structural policy
(which targets regions with below-average per capita income)
each account for over a third of EU expenditures. Research
and development accounts for roughly ten per-cent of
spending. About five per-cent of the EU budget is spent on
foreign and development policy (“EU as a global player”) and
one per-cent on justice and home affairs (“Citizenship, freedom, security and justice”). Administrative expenditures
account for roughly eight per-cent of spending (see Figure 1).
The various types of own resources, the methods for calculating them, and the shares to be paid by each member state are
laid down in the EU’s Own Resources Decision. Amendments
to the Own Resources Decision require a unanimous vote by
the member states in accordance with Article 311 of the
Treaty on the Functioning of the European Union (TFEU).
Any such amendments must subsequently be ratified by the
individual member states. The European Parliament must be
consulted in connection with any amendments to the Own
Resources Decision.
Fig. 1.: EU budget 2014, payment appropriations
bn. €
Research and Development
(Competitiveness for growth and
Cohesion Policy (Economic,
social and territorial cohesion)
Agricultural Policy (Sustainable
Growth: Natural Resources)
Home affairs (Security and
Foreign Policy (Global Europe)
GNI own resources
VAT own resources
Traditional own resources
Other revenue
Source: EU-KOM
The member states receive disbursements from the EU budget for the purpose of implementing EU policies. As a result,
EU expenditures lead to return flows of funding to the individual member states, particularly in the categories of structural policy, agricultural policy and research policy. Together
with transfers of own resources to the EU, these return flows
of funding determine whether a member state is a net contributor to or a net beneficiary of the EU budget (net positions for 2013 are shown in Figure 2). Because the net positions of member states are often felt to be unfair, the own
resources system also contains a number of rebates that serve
to reduce the own resources payments of individual member
states. This includes the rebate given to the United Kingdom,
which former Prime Minister Margaret Thatcher secured
with the demand, “I want my money back”. But the United
Kingdom is not the only member state to receive a rebate –
Germany, the Netherlands, Sweden, Denmark and Austria
receive rebates as well.
In many ways, the own resources system functions well.
However, critics often point to the administrative burdens
associated with the system, especially when it comes to calculating the rebates and the VAT base. Another major point
of criticism repeatedly raised by the European Parliament
and the European Commission is that the system allegedly
gives rise to perverse incentives among the member states.
The argument here is that the member states strive to maximise their own net returns from the EU budget when negotiating the Multiannual Financial Framework and the annual
Over the years, this behaviour has taken on a name of its
own, namely the principle of juste retour, or “just returns”.
The European Parliament and the European Commission
want to reduce their dependence on the member states, for
example by securing their own, separate source of revenue
and by strengthening their say in matters involving EU finances.
Fig. 2: Net-balances of member states with respect to EU budget 2013, in p.c. of national GNI1
net contributers
net beneficiaries
1Excluding expenditure on administration and traditional own resources
To this end, in 2011 the Commission submitted a proposal to
reform the own resources system. 1 Among other things, the
proposal called for the elimination of VAT-based own resources and recommended that member states instead remit
a portion of their VAT revenue directly to the Commission
(under a “revenue-sharing” arrangement). In addition, the
proposal suggested that part of the revenue from the planned
financial transaction tax be used to finance the EU. However,
the Commission’s recommendations meant that certain
member states would have faced additional costs and unacceptable redistributive effects. As a result, the proposal failed
to gain the approval of all member states. As part of the negotiations on the new 2014-2020 Multiannual Financial
Framework, the European Commission and European Parliament insisted on continued discussions towards the reform of the own resources system. This request was granted
by the Council in December 2013 as part of a joined agreement by the three institutions on the financial framework.
3. Workshop on the future of EU finances
In order to lend scholarly and scientific support to the work
of the high-level group, the Federal Ministry of Finance
invited various experts – including Dr Clemens Fuest, a
member of the high-level group – to a workshop in Berlin.
The workshop had three main goals:
to discuss the main advantages and disadvantages of
the current own resources system and to propose
benchmarks for reforms
to examine the legal options and limits for enhancing
the European Parliament’s role in matters involving
EU finances
to identify how the structure of the EU budget can be
changed in ways that create genuine European added
COM(2011) 510 FINAL
Appraising the own resources system; criteria for assessing
reform proposals
While workshop participants pointed out that the current
system is known to have certain flaws (which derive, in paticular, from its complexity), they also emphasised that the
system possesses a number of positive features that need to
be preserved in any reform effort. There was widespread
agreement that the financing system’s biggest problems are
situated on the expenditure side of the EU budget. As a result,
focusing exclusively on reforming the revenue side of the
budget would be unlikely to yield the desired results. At the
same time, however, the experts argued that the efficiency
and transparency of the own resources system could be enhanced quickly through one key reform on the revenue
side – eliminating VAT own resources and replacing them
with GNI own resources.
One of the own resources system’s main advantages, according to the experts, is its ability to ensure a stable and reliable
source of financing for the European Union’s expenditures.
In addition, the instrument of GNI own resources plays a
decisive role in enforcing fiscal discipline. Because higher
spending automatically leads to higher payments of GNI own
resources out of member state coffers, national governments – especially in countries that are net contributors to
the EU budget – have a powerful interest in curbing requests
for additional spending.
Another advantage of the current system highlighted by the
experts is that it gives each member state the leeway to finance its own resources payments in a way that conforms
with voter preferences. In some cases, member states have
markedly different ideas about the types of tax that should be
drawn on to finance public spending, and as long as EU own
resources are funded mainly through contributions from
national budgets, the member states retain the freedom to
decide how they want to finance their own remittances.
According to the workshop participants, this advantage
would be lost if a larger share of own resources were to be
collected through direct levies on businesses and individuals
in accordance with uniform EU-wide criteria, as is the case
with traditional own resources. A number of experts also
asserted that the rebates should be retained because they
serve to facilitate compromises in EU budget negotiations. At
most, the process of granting the rebates could be simplified.
A few experts even argued that the current system was close
to ideal for financing an entity like the European Union, for
two main reasons. First, because the bulk of EU spending is
financed through GNI own resources, member state contributions to EU finances are generally in line with their economic capacity, and this upholds the principle of equity in
financing public spending. In choosing how to finance their
GNI- and VAT-based own resources payments, member
states can take national living conditions and notions of
equity into account. Second, because the member states
already possess the necessary administrative structures, they
are able to collect and process own resources more efficiently
than the EU can, and this upholds the principle of efficiency
in public finances. Even greater efficiency could however be
achieved by eliminating VAT own resources and the administrative burdens associated with calculating them.
Another point of critique was that – due mainly to the structural funds and common agricultural policy – the bulk of the
EU budget involves spending that exclusively benefits individual member states but must be paid for by all. In the view
of workshop participants, this gives net beneficiaries an
incentive to press for higher EU spending, although this
incentive is partially offset by the role that GNI own resources play in fostering fiscal discipline. Further improvements could however be achieved if the EU budget were
geared more towards the financing of European public
goods. In their view, new reform proposals should therefore
be judged according to the criterion of whether or not EU
expenditures create genuine European added value.
Reforming the expenditure side: “Better spending” by ensuring
European added value
A greater European added value does not require a bigger
budget; it could be achieved simply by changing the composition of EU expenditures. The experts cited examples of the
types of spending that would increase European added value,
including cross-border transport infrastructure; joint border
security; joint consulates; energy and digital networks; and
research and development. The workshop participants
acknowledged the fact that the new 2014-2020 Multiannual
Financial Framework incorporates initial steps towards the
modernisation of EU spending, but they emphasised that
further progress could be achieved by targeting the EU budget more towards the spending categories mentioned above.
Nevertheless, in spending categories that require high staffing levels, it would not necessarily be the case that functions
could be performed more cost-effectively at the European
level than at the national level. This would depend on employee salary levels, according to case studies cited by workshop participants.
The experts were divided on the matter of agricultural
spending. Some argued that using the EU budget to pay for
agricultural spending creates European added value because
it prevents harmful subsidy races between member states.
Others pointed to empirical studies based on data from
countries outside the EU, which had found scant evidence of
subsidy races in the area of agricultural policy 2. In their view,
therefore, there is no longer any reason to grant agricultural
subsidies through the EU budget.
Several participants highlighted the fact that, up to now, the
EU budget has been used solely to finance the EU’s various
political tasks and to redistribute money between the member states via the structural funds and the common agricultural policy. However, the “Four Presidents’ Report”, which
BERTELSMAN STIFTUNG. The European Added Value of EU spending:
Can the EU Help its Member States to save money?
was published in 2012 3, sparked a discussion on the issue of
whether the EU budget should also take on a stabilising function.
Most of the experts at the workshop took a sceptical view of
this idea, because, for example, it was not clear what types of
downturns would trigger a compensatory response from the
EU budget – would this involve downturns that only affect
individual member states, or downturns that affect all of the
member states at once? Furthermore, would raising or lowering member states’ contributions to EU finances according to
economic conditions be sufficient to stabilise their economies, or would allocations of EU funding to the member
states also need to fluctuate accordingly (i.e. in an anticyclical manner)?
Moreover, it would be necessary to explain why such an
additional financial guarantee instrument had to be created.
The experts emphasised that individual member states could
protect themselves on their own against cyclical difficulties
by sufficiently reducing their levels of public and private
debtors. They also asserted that when other economic unions
experience downturns, foreign investors are more willing to
accept lower returns or may even partially write off their
claims, thereby easing the burdens on public finances. The
creation of the banking union is already a first step in this
direction. Finally, the workshop participants agreed that it
would have to be clarified how any such risk-sharing instrument could be set up without establishing permanent net
contributors and net beneficiaries.
No representation without taxation?
The workshop also focused on the question of whether the
European Parliament should be granted greater autonomy
over the revenue side of the EU budget. Demands to give the
European Parliament more responsibility in revenue matters
are nearly as old as the own resources system itself. Such
(2012).Towards a genuine Economic and Monetary Union.
demands are connected to the hope that the European Parliament would exercise greater fiscal discipline if the Parliament itself – and not the member states – were required to
justify to EU citizens any decisions to increase taxes or contributions. In addition, those who favour giving the European
Parliament greater autonomy in revenue matters believe that
this would enhance the institution’s legitimacy. This position
can be summarised – in a clever twist on one of the main
slogans of the American Revolution – as “no representation
without taxation”.
There was widespread agreement among the workshop participants that any efforts to grant the European Union greater financial autonomy would be subject to strict legal constraints, especially if this were to involve the introduction of
a separate EU tax. They added that any such revenue instrument could be categorised as an EU tax only if the EU held
the power to legislate the tax and to collect its revenue (but
not necessarily the power to enforce it). For this reason, national taxes that are harmonised on an EU-wide basis cannot
be called EU taxes.
The experts also emphasised that any introduction of an EU
tax would have to comply with the requirements of EU primary legislation and national constitutional law. The situation would be made even more difficult by the fact that
measures involving the own resources system must be
adopted by unanimous vote. Within these constraints, the
most that would be possible would be the introduction of
taxes designed to influence a particular behaviour under
Article 192 (2) TFEU. Such taxes, however, would require a
clear emphasis on the behaviour that is to be influenced by
the tax. As a result, they would be of limited suitability for
financing the EU budget. Beyond this, current law would
allow for further steps towards harmonisation, but this
would not result in a genuine EU tax.
Several participants explicitly pointed out that, throughout
the history of fiscal policy, the right to tax has been closely
connected with the authority to borrow. Tax yields are always subject to cyclical fluctuations. This means that, if the
European Union were to be financed solely on the basis of
taxes, during periods of economic downturn it would face
the risk of not collecting enough tax revenue to cover all of
its expenditures. As a result, these experts argued, the introduction of an EU tax would inevitably lead to a situation in
which the European Union would need to be granted the
authority to borrow. This would at least be the case if GNI
own resources were no longer available to cover any gaps in
financing – another reason to retain the instrument of GNI
own resources.
Dirk H. Kranen, Head of Division EA2, and Dr Malte Hübner,
Policy Officer in Division EA2, are specialists on EU budgetary
and financial issues at the Federal Ministry of Finance.
4. Summary and outlook
The discussions at the workshop showed that the reform of
the own resources system is a project of considerable significance, with key ramifications for the ongoing development
of the European Union. The opinions and recommendations
voiced by the experts provided an important contribution to
the reform debate. One of the workshop’s main conclusions
was that the reform debate cannot focus solely on the revenue side of the EU budget. Rather, the biggest room for improvement is on the expenditure side; here, it is essential to
build and expand on the initial steps that have already been
taken to modernise the EU’s spending structure.
Some parts of the EU’s revenue collection system work well
as they are – this is especially the case with GNI own resources. However, more transparency could be achieved with
relative ease by eliminating VAT own resources and automatically replacing them with GNI own resources, an instrument that is much more straightforward.
On the other hand, giving the European Parliament greater
autonomy in revenue matters could make it more sensitive
to the concerns of taxpayers. However, this would require the
entire EU budget to be financed on the basis of an EU tax, a
step that is subject to powerful constraints under EU primary
legislation and national constitutional law. Moreover, introducing an EU tax to finance the EU budget would also entail
granting the European Union the authority to borrow.
Opening Statement
by Dr. Thomas Steffen
State Secretary, Federal Ministry of Finance
is scheduled for 2016. On the basis of this final report, the
European Commission will decide whether it will present
new own-resources initiatives.
The own resources for the EU budget currently total €135
billion. This not only raises questions about the total volume
of these funds, but also about the share of financing provided
by individual countries. The question of whether the own
resources are justifiable is also closely connected to the question of how the funds are used. The EU budget’s expenditure
structure is therefore also on the agenda.
Good morning and welcome to our workshop on the future
of the European Union’s finances. I’d like to extend a particularly warm welcome to our guests from other EU member
states and to the chairs and panellists who will take part in
the discussions later. I am delighted that we have Professor
Clemens Fuest here as our special guest. Professor Fuest is a
member of the EU’s high-level group on own resources –
which brings us to today’s topic.
The work of the high-level group is the reason why we are
holding this workshop. The appointment of the high-level
group was the result of a joint decision by the European
Parliament, the Council and the Commission in December
2013. It was part of an overall compromise regarding the
adoption of the new multiannual financial framework.
Each of the participating institutions appointed three representatives to the group, which is chaired by Mario Monti.
According to the joint decision, the high-level group “will
undertake a general review of the own resources system
guided by the overall objectives of simplicity, transparency,
equity and democratic accountability.”
The group will present its first assessment of the own resources system before the end of this year, and its final report
Only if we succeed in making it clear in the future that the
EU budget is being used very specifically to finance European
public goods – in other words, for projects with a clear added
value for Europe – can we justify raising the necessary own
resources. Steps to modernise the expenditure structure were
successfully initiated during the negotiations on the multiannual financial framework for the 2014–2020 period. Nevertheless, there is still a need for further reforms. This workshop aims to provide input in that respect. And the people
gathered here today have the relevant professional expertise
to provide such input, as one can easily see by casting a
glance over today’s programme.
I would therefore like to thank all the facilitators and speakers, some of whom have travelled great distances to be here
today and give presentations that will provide us with a basis
for in-depth discussions. We want to consider four different
aspects of the issue of reforming the EU’s finances.
Naturally, the very first question is whether it is even necessary to reform the current system. Amid all the criticism –
whether justified or not – people often overlook the fact that
the existing system of own resources is very successful in a
number of respects. On the level of the EU, we have an example of something that is rarely found in the member
states: a balanced budget! In Germany, we are currently
working very hard towards this goal. The EU budget is, however, balanced every year.
In addition, the own resources system offers strong incentives to exercise discipline when it comes to spending. This is
because at least some of the member states have an interest
in keeping a very close eye on additional spending requests.
We at the Federal Ministry of Finance would like to have
more of these kinds of allies when the national budget negotiations are being held in Germany.
Bearing this in mind, the challenge is to improve the existing
system without forfeiting its benefits. For us to succeed in
doing so, we first need to identify the current advantages and
disadvantages, of course. One of our panel discussions focuses directly on this issue.
Second, the question arises as to which yardstick should be
applied when deciding what counts as an improvement to
the own resources system and what is a step backwards. In
other words, we need to identify criteria for evaluating what
would be a successful reform. For Germany, as the largest
contributor, fair burden-sharing is a key criteria, for example.
Economists also call this the ability-to-pay principle. Everyone should make a contribution to public spending according to their ability to pay. Another principle from the world
of finance is the benefit principle. According to this principle,
each party should contribute to public spending to the degree to which they benefit from it. An interesting question is
whether this principle is also reflected, and whether it should
be reflected, in the financing of the EU. We have also included a separate panel discussion for this question.
Third, we all know that the periodic negotiations on the
multiannual financial framework are always very arduous,
and that often a compromise can only be reached by granting
special rebates to individual member states. There is now a
whole range of special rebates that have accumulated over
time. This doesn’t exactly make the own resources system
more transparent. There are a lot of arguments in favour of
simplifying the rebate system or even eliminating rebates
altogether. I would warn against harbouring any illusions in
that regard, however. Anyone who has experienced the negotiations on the multiannual financial framework at first hand
knows that it is mainly the distribution of spending that is
seen as unfair, and not necessarily the share of revenue that
each member state has to contribute. It is imbalances on the
spending side that cause member states to demand rebates
on the revenue side. Hence we should not forget to also look
for ways to improve how the EU spends money. If we succeed in reassigning funds in such a way that a greater added
value is created for Europe, then we might also make progress on the rebate issue. Perhaps we can generate some
preliminary ideas on this topic today during the relevant
panel discussion.
Fourth, there is another important aspect, namely the legal
constraints on reforms to the own resources system. Occasionally, demands for reform of the own resources system
are linked to calls for granting the EU greater financial autonomy. This argument is actually as old as the own resources system itself. One would hope that having greater
responsibility for revenues would also lead to more responsibility in terms of spending. A concrete example of this would
be the Budget Committee of the German Bundestag, which
takes a very critical look at additional spending requests from
ministries. In this way, it supports the federal government’s
efforts to keep a tight lid on spending. During the workshop,
we will discuss how much leeway the existing legal framework offers with regard to granting the European Parliament
more responsibility over revenues. This will be the subject of
another panel discussion.
We can expect to have stimulating discussions about the
future of the EU’s finances today. As you know, the further
integration of the EU is a subject close to Minister Schäuble’s
heart. He has already held a long discussion with the head of
the high-level group, Mario Monti, about the work that has
begun. As a kind of added bonus, it might be a good idea to
approach the topic of the workshop in somewhat broader
terms so that we can discuss whether it is necessary to create
a separate budget for the euro area in order to complete the
economic and monetary union and, if so, how this could be
arranged. But all of us know that, under the Treaty on the
Functioning of the European Union, any changes to the own
resources system must be unanimously agreed by the member states. Therefore it is important that we keep the interests
of all member states in mind when we come up with proposals for reform. Hence I am particularly pleased that representatives from like-minded member states accepted our
invitation to this workshop.
I wish you all a very successful workshop and hope that the
discussions will be intensive and illuminating.
Yours sincerely,
Thomas Steffen
Panel I: No representation without taxation? Strengthening the European Parliament with an EU-tax?
With Eva-Maria Meyer (Moderator), Prof. Dr. Christian Waldhoff, Prof. Dr. Henrik Enderlein,
Prof. Dr. Ekkehart Reimer
Moderator’s Summary
This panel discussed whether granting more financial
autonomy to the European Parliament could be a means to
increase its legitimacy. Another objective of the panel was to
assess the legal scope that is available under current
European and national law for taking such a step.
Overall, there was agreement among the participants that the
question of whether the European Parliament needs to be
strengthened – and how this could be achieved – is of major
political relevance. However, there was also a consensus that
this question cannot be resolved within the framework of a
reform of the EU’s own resource system. The panelists
pointed out that granting more financial autonomy to the
European Parliament would not automatically eliminate the
democratic deficit. Rather, it is the order in which further
steps are taken that matters. The first step should be to
strengthen the European Parliament. Only thereafter should
it be assigned more competences.
Eva-Maria Meyer
Head of Directorate, German Federal Ministry of Finance
Eva-Maria Meyer is Head of Directorate in the German Federal
Ministry of Finance’s Directorate-General for European Policy.
She obtained her German law degree after studying at the
University of the Saarland in Saarbrücken. Eva-Maria Meyer has
worked at the Federal Ministry of Finance since 1991, where she
held several positions before being appointed Head of
Directorate in 2014. In between she has spent four years at the
European Commission in the European Anti-Fraud Office.
The panelists stressed that any reforms to EU finances must
respect national and European law. The judicial experts on
the panel agreed that existing legislation precludes farreaching reforms such as the introduction of a genuine EU
During the panel discussion, it became clear that historically
there has been a very close connection between the financial
autonomy of a parliament and the right to take on debt.
There was wide agreement amongst the participants that, in
the absence of the GNI own resource, funding the EU budget
on the basis of a European tax would also require granting
the European Parliament the right to issue debt.
Panel I: No representation without taxation? -
Strengthening the European Parliament with an EU-tax?
What are European taxes?
by Prof. Dr. Christian Waldhoff
Humbold University Berlin
I will consider the issue of “no representation without
taxation” mainly in connection with EU law. This is agreed
upon with my co-contributor Ekkehart Reimer. The focus
will be on the following four aspects: I will start with some
terminological clarifications. On this basis, I will then try to
conceptualise the relationship between the power to levy
taxes and the power to take on debt. In a next step, I will
discuss the issue of the European Union’s competences. I will
conclude with a discussion of the question of legitimacy.
1. What does “European tax” actually mean?
Christian Waldhoff
Humboldt University Berlin
Prof. Dr. Christian Waldhoff is the Dean of the Faculty of Law of
Humboldt-University Berlin and holds the Chair for Public Law
and the Law of Public Finance. His main research interests are
constitutional law, the law of public finance, and the law of
state-church-relations. He is a member of the Scientific
Advisory Board of the Federal Ministry of Finance.
The term “European tax” can mean different things. To me,
using the term “European tax” only makes sense if two
conditions are fulfilled: firstly, that the European Union and
its political institutions have the power to enact tax
legislation and create taxes; secondly, that the EU has the
revenue power, i.e. that it be the beneficiary of and
responsible for making use of the taxes raised.
I do not consider it necessary for the EU also to administer
the tax duties and revenue. This means that the member
states could be responsible for collecting EU taxes. Many
federal systems – e.g. Germany’s Basic Law – work with a
system where the administration of federal law is
decentralised. In Germany, the power to enact tax legislation
and create taxes is mostly vested in the federal legislature,
while, administratively, taxation is handled by the states (the
Therefore, I consider levies of the member states that are not
stipulated by harmonization legislation as European taxes in
the sense defined above. This applies, for example, to the
Commission proposal of a financial market tax. To me, EU
taxes – insofar as such taxes are even possible – are not those
elements that make up the conventional own resources
system over and above VAT own resources. This is because –
in addition to the fact that the revenue power is unclear – the
power to enact tax legislation lies predominantly with the
member states. This is because, despite the fact that the
allocation of the revenue power is not really clear in all cases,
the legislative competences attributing the tax power remain
dominantly with the member states. Examples for existing
European taxes in the sense defined above are customs and –
a more marginal case – the taxation of the EU´s own
taxation in the field of environmental policy on the basis of
Art. 192 (2) (a) TFEU.
2. Relationship between the power of taxation and the
power to take on debt (borrowing authority) – observations
from the history of public finance
I can only hint at the problematic question of what kind of
tax legislation can be enacted by means of “enhanced
cooperation”. In any case, no substantive innovations to the
EU´s system of financing are attainable via this route.
In the history of public finance, there is a link between the
borrowing authority of a community, i.e. its power to take on
debt, and the power to levy taxes. With regard to the EU, this
means the following: The granting of borrowing authority to
the EU (currently the EU does not have suchauthority) would
increase the pressure to introduce taxing rights, and vice
3. Questions of competences
Crucial to my analysis are the limitations on the powers of
the EU. The EU has only very limited powers of taxation.
Additionally, there is a requirement of unanimity for
decisions by the Council in the field of public finance. This
reflects the member states’ retention of sovereignty in this
policy field. We have to presume that changes to the
architecture of integration in the field of public finance
cannot be enacted by secondary legislation, but require
changes to the primary law. This leads to the question of how
the EU´s own resources system as laid down in Art. 311 TFEU
presently shapes the architecture of EU finances.
Taxes that are predominantly geared towards regulatory
purposes are not the subject of my considerations if they
have a legal basis in the treaties. The main example for this is
The EU´s powers to harmonise member states legislation in
the field of taxation are – without exemption – subject to the
requirement of unanimity. This means that harmonisation
cannot be a way to compel against the will of the member
states the introduction of EU taxes in the sense defined here.
4. Questions of legitimacy
There is a direct link between the issue of legitimacy and the
issue of the distribution of legal powers between the EU and
its member states. With regard to the relationship between
the EU and its member states, the question of the allocation
of competences mirrors the question of legitimacy. This
implies a specific relationship between taxation and
In this regard, the history of public finance encompasses
various concepts: Roman law and medieval times both
reconised the principle “quod omnes tangit ab omnibus
approbetur” (that which affects all is to be approved by all). In
early modernity, the estates had taxation permission rights.
Modern constitutionalism embraces the principle that
interventions in liberty and property, and thus taxation,
require a basis in democratically enacted legislation.
The democratic relevance of taxation is further illustrated in
the link between equality of taxation and democratic
equality. Both constitute distinct forms of equality. With
regard to the EU, this means that we cannot avoid entering
into the painful discussion of the democratic deficit.
Oftentimes, there is a failure to realise that concepts and
categories that originate from the context of the nation state
do not fit with the distinct kind of democratic legitimacy that
the EU relies on.
Most famously, the connection between taxation and
democracy is expressed in one of the central claims of the
American Revolutionary War in the late 18th century: “No
taxation without representation”. The historical situation
there was that taxation was not linked to the right of
democratic participation. In the context of the EU, the
question has been raised whether a reverse claim should be
put forward: “No representation without taxation“, in the
sense that the introduction of powers of taxation could force
improvements of democratic legitimacy. I do not think that
this reversal of the claim makes sense. The present system of
the EU´s public finances reflects – and quite precisely so – the
state of European integration. The dependence of the EU on
the assignment of financial means from the member states
articulates the lack of a “Kompetenz-Kompetenz”
(competence-competence). A true, substantive EU tax that
establishes an independent financial basis for the EU would
transform the present structure of European integration. We
might consider this politically desirable. But this
transformation should not be forced indirectly by means of
introducing powers of taxation.
Panel I: No representation without taxation? Strengthening the European Parliament with an EU-tax?
Constitutional Constraints and Issues of Technical Realisation
by Prof.Dr. Ekkehart Reimer
University of Heidelberg
1. Terminology
In the trias of authority to legislate, authority to administer
and revenue entitlement, an “EU tax” would be a tax where
(at least) all essential features are governed by EU law and the
revenue of which is assigned to the Union. A tax is essentially
governed by EU law if it is based either on a Regulation or on
a Directive (Art. 288 TFEU). With regard to the following
remarks on whether or not an EU tax is admissible, it is immaterial whether (and if so, to what extent) the EU as such is
responsible for administering and enforcing the rules vis-àvis the taxpayer.
2. Constitutional constraints
Principle of conferral
While the impact of domestic constitutional law on the shift
of powers to the Union varies significantly among the 28
member states, the principle of conferral (being a rule of both
EU law and most domestic constitutions) is a paramount
restriction. It requires that any exercise of public authority by
the EU needs to be covered by the Treaties. This excludes a
Kompetenz Kompetenz on part of the EU (cf. BVerfGE 89,
155, 194 – Maastricht) in general (i.e. the competence to decide on its own competences). With a view to taxation, there
is a dispute over wheter taxes and customs mentioned specifically (like customs or VAT) or at least group-wise (like environmental taxes) are admissible under the principle of conferral. With regard to other taxes including direct taxes on
income, property/wealth or estates, there is remarkable
ambiguity. It is true that Art. 311(1) TFEU (following ex-Art.
F(3) TEU = Art. 6(4) TEU in its pre-Lisbon version) entitles the
Union to “provide itself with the means necessary to attain
its objectives and carry through its policies”. As the following
sub-paragraphs show, however, this rule is embedded in a
Ekkehart Reimer
After legal studies at the Universities of Heidelberg and Munich,
Ekkehart Reimer joined the teams of Professors Klaus Vogel
and Moris Lehner at the Munich Research Center for European
and International Tax Law where he also earned his PhD. After
habilitation (again in 2005), he was appointed Director of the
Institute of Financial and Tax Law at Heidelberg, Germany's
eldest Law School, where he also holds a chair of Public Law,
European and International Tax Law. From 2009 to 2013, he
served as a part-time judge at the High Administrative Court of
framework that includes consent of national parliaments, as
provided in the respective domestic law of the member
states. With regard to Germany, the Bundesverfassungsgericht (Federal Constitutional Court) has explicitly
ruled out any action taken by the (sc. pre-Lisbon) Union to
make own financial means available to this Union by virtue
of its own (alleged) powers based on ex-Art. F(3) TEU (loc. cit.
at 194/5). In so doing, the Court requested a narrow interpretation of the afore-mentioned rule.
At first glance, the almost identical wording suggests that this
case law may equally apply to what is now Art. 311(1) TFEU.
Constitutional constraints have remained the same indeed.
To some extent, however, the situation has become less clear
after Lisbon. Primary law has changed. Today, the second
clause of Art. 311(3) TFEU assigns the power to the Council to
“establish new categories of own resources or abolish an
existing category”. Subject to the conditions and caveats
enshrined in Art. 311 TFEU itself and the entire (procedural
and substantive) framework of primary EU law, one might
well advocate that EU law does regard any new EU taxes as
admissible. If so, neither the EU law principle of conferral nor
domestic counterpart may function as a barrier for an EU tax
any longer.
Admissibility of non-tax duties
Where the EU principle of conferral has been observed, the
EU is competent to extent its powers to regulate the fees and
similar administrative duties which are designed as a quidpro-quo for a concrete benefit of an individual or an enterprise, or which are capped to the administrative costs (including moderate overhead expenditure) incurred in connection with the concrete case at issue. There might even be
some leeway to introduce group-benefit related duties, i.e. to
loosen the benefit-duty-connection. A parallel may be drawn
to the case law on domestic Sonderabgaben (special contri
butions). From a German constitutional viewpoint, any revenue derived from such fees, duties and special contributions
can be assigned to the EU if the Union is responsible for the
individual benefit and/or where EU resources have been used
on an administrative (executive) level.
Utmost limits of tax integration
By contrast, the imposition of EU taxes in the narrow sense
of the word (i.e., financial charges without any legal connection between the duty and pertaining benefits) is subject to
further constitutional constraints. In the absence of a more
concrete framework applicable here (e.g. human rights or
other individual guarantees), these constraints stem from
very fundamental rules. In its judgment on the Treaty of
Lisbon, the Bundesverfassungsgericht held the view that the
principle of democracy and the right to vote would be infringed if decisions on the quality and quantity of financial
duties were supranationalized “to a substantial extent” (“Eine
das Demokratieprinzip und das Wahlrecht zum Deutschen
Bundestag in seinem substantiellen Bestimmungsgehalt
verletzende Übertragung des Budgetrechts des Bundestages
läge vor, wenn die Festlegung über Art und Höhe der den
Bürger treffenden Abgaben in wesentlichem Umfang supranationalisiert würde”: judgment of 30 June 2009, 2 BvE 2/08
etc., para. 256 ).
Interestingly, the Court does not leave the “substantial extent” test vague and open with regard to quantitative issues.
In the subsequent sentence, it is clearly stated that the Bundestag is responsible, vis-à-vis the people, to decide on the
“sum of burdens imposed upon citizens” (“Der Deutsche
Bundestag muss dem Volk gegenüber verantwortlich über
die Summe der Belastungen der Bürger entscheiden”: loc. cit.,
para. 256). This implies that as long as there is no citizen who
is affected only by EU taxes but bears extra burdens based on
(purely) national legislation, the total burden is indeed determined by, or at least approved by, national legislators.
It reduces taxpayers’ ability to pay, thus restricts the source
of revenue assigned to the member states.
By contrast, the qualitative element in the “substantial extent” test seems to be contradictory to this marginal-burden
approach. If it is not only the amount but also the type(s) of
taxes and duties that can be validated only by consent of
national parliaments, the “substantial extent” test is indeed
not more than vague and a filter.
More technical, indirect EU taxes as well as all types of fees or
semi-fees owed and/or paid by the taxpayer will not only
reduce her general ability to pay but might affect a person in
its business and/or taxable investments. Consequently, a
deduction of the EU taxes from the domestic income tax base
becomes an issue.
Tax credits
Today as well as under any future treaty, the same constitutional constraints apply. Given their ambiguity, the 2009
standards of the Bundesverfassungsgericht are almost inoperable and provide little guidance.
From a policy perspective, one might even consider a credit
system under which taxes of the lower level (the member
states or their political subdivisions) can be credited against
the higher-level tax. Vice versa, any comprehensive netbased EU tax (e.g., on corporate income) might want to allow
domestic indirect taxes as a credit against the EU tax. Toavoid
adverse effects in general and moral hazard in particular, it
might be fair to use lump-sum amounts (“matching credits”)
rather than granting a full credit on the basis of exact (“real”)
tax payments.
Some side-issues are clearer, however. This is particularly
true for the solidity of the principle of unanimity in Art. 311
TFEU. Unlike other unanimity provisos, Art. 311 is immune
against facilitated switch-over to decision-making with qualified majority (Art. 48(7) TEU). This might already derive from
proper interpretation of the treaty rules as such. In any case,
the utmost limits of integration (supra 2.) ban any approval of
Germany’s representative in the Council, even if it were
backed by two-third majorities in both the Bundestag and
the Bundesrat.
3. Issues of Technical Realisation
Once enacted, the existence of new EU tax(es) will impact the
existing national taxes of the member states in various ways.
Limited ability to pay
In a very fundamental way, any tax payment to one authority spoils payment of the same money to a second authority.
Tax A as a deduction from the base of Tax B
Ban on equivalent national or sub-national taxes
Where a legal order assigns legislative authority and revenue
entitlement for specific types of taxes to the higher level, this
is frequently connected to, and secured by, a ban on equivalent taxes at the lower level(s). From a horizontal EU perspective, any decisions on whether a specific national, regional or
municipal tax remains admissible will lie with the ECJ. Under
its review, introducing a specific new EU tax might disallow a
relatively broad spectrum of taxes levied by the member
states or its subdivisions.
International law
4. Bibliography
A final, though not minor aspect is the application of existing
or future bilateral double tax treaties on any new EU tax.
Even where this tax, with a view to its substantive features,
falls into the scope of a tax treaty under the concepts of “income” or “capital”, it cannot be regarded as a tax imposed “on
behalf of” a Contracting State or of its political subdivisions
or local authorities (Art. 2(1) and (4) OECD MC). Therefore,
the distributive rules of any existing treaties of the member
states (inter se or with a third State) will not apply unless
otherwise agreed with the other contracting State. The same
is true for the provisions on non-discrimination, mutual
agreements, arbitration, exchange of information and administrative assistance in the collection of tax claims (Arts.
24-27 OECD MC). While any inter se relations might be settled in the new EU Tax Regulation (or Directive; supra I.), it
might become necessary to accompany the introduction of
an EU tax by bilateral (EU or every single member state)
instruments with the third States concerned.
KAßMANN, A- F. (2012). Beitragsgerechtigkeit bei der Finanzierung der Europäischen Union.
LANG, M. /PISTONE, P./SCHUCH, J./STARINGER, C. (eds.). (2008).
EU-Tax [with Country Reports]
MEERMAGEN, B. (2002). Beitrags- und Eigenmittelsystem: die
Finanzierung inter- und supranationaler Organisationen,
insbesondere der Europäischen Gemeinschaften.
OHLER, C. (1997) Die fiskalische Integration in der Europäischen Gemeinschaft.
VOGEL, K. /RODI, M. (1995) Probleme bei der Erhebung von
EG-Eigenmitteln aus rechtsvergleichender Sicht: zum Auseinanderfallen von Ertrags- und Verwaltungszuständigkeit
bei Steuern und Abgaben.
WARTHA, U. (2007). Die Reform des Finanzierungssystems
der Europäischen Union: eine eigene Steuer für die EUEbene?
Panel II: A budget without deficit: What makes the EU’s own resource system so successful?
With Christian Kastrop (Moderator), Dr. Friedrich Heinemann, Prof. Jaques Le Cacheux,
Prof. Dr. Thiess Büttner
Moderator’s Summary
This panel discussion focused on the strengths and weaknesses of the current own resources system of the European
Union. There was broad agreement among the experts on the
panel and among the other workshop participants that the
problems of the current system originate mainly from the
expenditure side of the budget.
Accordingly, the reform of the revenue side cannot be discussed independently from the expenditure side of the budget. There was a general consensus that EU expenditures
should focus more on financing European public goods.
Participants also agreed that in order to create room for
financing European public goods, the EU’s redistributive
spending could be re-assigned to the member states. With
regard to the revenue side of the budget, the assessment of
the panelists was generally positive. The panelists pointed
out that the own resources system has proven to be a reliable
and stable source of funding for the EU budget. The residual
function played by GNI own resources provides incentives
for fiscal discipline.
Proposals to reform the current system should take the criteria of fairness and ability-to-pay into account and should be
evaluated accordingly. The own resources system should
enable member states to finance their EU budget contributions in accordance with the preferences of their citizens.
Some panelists pointed out that the current own resources
system already fulfils most of these criteria. One panelist
argued critically that member states view their contributions
to the EU budget as costs that have to be compensated by
payments from the structural and cohesion funds, and this
prevents the EU from financing more European public
goods. This view was challenged by other participants who
argued that it is the cohesion and agricultural funds that
create the incentive to maximise return flows in the first
place. Generally, the participants recognised that a central
budget at the level of the European Union or the euro area
could theoretically provide the basis for a stabilisation function.
However, the majority of participants was skeptical whether
the introduction of such a stabilisation mechanism at the
central level is desirable.
Christian Kastrop
Christian Kastrop is Director of the Policy Studies Branch at the
Economics Department of the OECD. He was formerly Deputy
Director General, Economics and Strategy Department and
Director of Public Finance, Macroeconomics and Research
Directorate in the German Federal Ministry of Finance. He
studied Economics and Psychology at the University of Cologne
and Harvard University and holds a PhD. in Economics from the
University of Cologne. From 2011 to 2014 he served as a Chairman of the OECD’s Senior Budgetary Officials (SBO) network on
performance and results. From 2008 to 2010, he served as
Chairman of the Economic Policy Committee of European
Finance Ministers (ECOFIN-EPC) and Chairman of the EPCEurogroup in Brussels.
Panel II: A budget without deficit: What makes the EU’s own resource system so successful?
Strengths and weaknesses of the status quo
by Friedrich Heinemann,
Center for European Research, Mannheim
Friedrich Heinemann
ZEW Mannheim
Friedrich Heinemann is head of the department "Corporate
Taxation and Public Finance" at the Centre for European Economic Research (ZEW) in Mannheim. His research interests are
empirical public finance with a particular focus on European
integration, fiscal federalism, tax policies and reform processes.
Heinemann teaches economics at the University of Heidelberg,
is board member of the Arbeitskreis Europäische Integration
and member of the Scientific Board of the Institut für Europäische Politik (IEP), Berlin.
The assessment of the EU’s own resource system must be
based on well-defined yardsticks. Thus, in a first step this
contribution lists several requirements which an “optimum”
system should fulfill. Among others the revenue system
should foster the determination of an efficient level and
structure of the EU budget but should also be perceived as
fair. Subsequently, these yardsticks are applied to the current
own resource system which is effectively characterized by
many elements of a contribution system. It turns out that the
system has its merits for example with respect to providing a
stable source of finance, its debt constraints or in regard to
the low administrative costs of the most important source,
the GNI resource. Furthermore, the current system respects
the heterogeneity of tax preferences among the member
states since these are free to choose how to refinance their
own resource payments. One disadvantages of the current
system is that it does not successfully cope with the spending
bias towards policies with a visible impact in member countries at the expenses of European public goods. Finally, a
direction of reforms towards a better system is pointed out.
For any such reflection it is essential to pay attention to the
mutual dependence of revenue and expenditure side reforms. The reform perspective pays particular attention to
the potential of a well-tailored correction mechanism.
Panel II: A budget without deficit: What makes the EU’s own resource system so successful?
Avenues for reforming the EU budget
by Prof. Jaques Le Cacheux
UPPA and OFCE/Sciences Po
The shortcomings of the current financing of the European
Union’s budget are well known. Mostly relying on GNI-based
national contributions, this financing generates strong
incentives for reasoning in terms of “net contributions”, in
spite of the lack of a serious economic basis for calculating
them; it has led to a proliferation of rebates, to policies that
redistribute rather than supply collective goods, and to a
shrinking budget. Proposals for reforming how the EU
budget is financed have been numerous in recent years. Most
share the view that “genuine” own resources ought to
replace, at least in part, the GNI-based resource, and many
advocate the institution of a European tax. This raises the
issue of the balanced-budget rule, written in the treaties.
On this aspect, two distinct justifications for reforming the
EU budget and two avenues for reform ought to be clearly
spelled out.
On the one hand, reforming the EU budget and its financing
in order to foster a better allocation of resources to truly
European collective goods certainly requires curtailing the
GNI-based resource and creating some EU-wide tax. This
raises all kinds of difficult issues with respect to decisionmaking on the nature of the tax, its rate, etc. But it does not
entail the need for relaxing the balanced-budget rule.
However, because all serious candidates for a European tax
will, by their very nature, generate revenues that are sensitive
to business fluctuations, the way to reconcile the balancedbudget rule with the creation of a European tax is to preserve
the GNI-based contribution as a balancing resource. Of
course, tax receipts are more or less sensitive to business
fluctuations: corporate income tax receipts are highly procyclical, whereas VAT and carbon tax receipts are less so.
Another line of reasoning emphasises the macroeconomic
dimensions and stabilising dimensions of the European budg
et. It takes inspiration from traditional Keynesian tenets,
Jacques Le Cacheux
UPPA and OFCE/Sciences Po
Jacques Le Cacheux is Professor of Economics at the Université
de Pau et des Pays de l’Adour (UPPA). He also teaches
economics at Sciences Po (Paris) and the Stanford University
Program in Paris. He works on macroeconomics, taxation and
European integration issues. He has published many articles in
academic and applied, policy-oriented journals. He is the author
and co-editor of the series of Reports on the state of the
European Union (Palgrave). He has been one of the rapporteurs
of the Stiglitz-Sen-Fitoussi Commission on the measurement of
economic performance and social progress.
but with a distinct twist to be adapted to monetary unions.
The issue has been revived recently in the aftermath of the
Great Recession and the “sovereign debt crisis”, but it has a
long history, as exemplified by the MacDougall Report
(1977) 4. Because the aim would be to have an instrument that
would improve the macroeconomic stability and resilience
of the eurozone, it would imply creating a separate budget
for the eurozone. Notwithstanding the numerous
institutional difficulties, the failure of existing fiscal
stabilisation is so obvious that this path for reform is
probably worth investigating.
The theory of Optimal Currency Areas (OCA) is a helpful
framework for analysing the various dimensions of this issue.
OCA theory distinguishes between common macroeconomic
shocks that hit all member state economies in a similar way –
the 2008 banking and financial crisis is an example — and
asymmetric or idiosyncratic shocks that affect the economies
of only one or a subgroup of member states. Given the
limitations inherent in monetary policy, especially when it
comes to fighting severe recessions or deflation, having a
common budget that could be in deficit in the face of a
common negative shock would likely improve the policy mix
and hence the macroeconomic stability of the eurozone. In
theory, automatic fiscal stabilisers would suffice, provided
the size of this common budget is sufficient, and its structure
– i.e. the sources of revenue and the nature of expenditures —
is sensitive enough to business fluctuations in the currency
union as a whole.
MacDougall Report of the Study Group on the Role of Public
Finance in European Integration. Brussels.
A deficit might even not be required if a “rainy-day fund”
could be accumulated in good times, a condition which is far
from being met at present.
A common but separate budget for the eurozone would also
perform as an automatic fiscal stabiliser in another
dimension in the face of asymmetric shocks: the countries
hit negatively by the shock would benefit from net transfers
from the eurozone budget, while those enjoying positive
shocks would suffer net negative national balances. If well
designed, and provided business fluctuations are indeed
cyclical and shocks are evenly distributed, such a budget
would not have to run a deficit, and over time there would
not be any net redistribution amongst eurozone member
These two distinct rationales for having a separate budget for
the eurozone, which could take various forms with respect to
expenditure items (unemployment insurance, automatic
lump-sum transfers, etc.), would require that a significant
share of revenue is generated by tax instruments that are
sensitive to business fluctuations.
Panel II: A budget without deficit: What makes the EU’s own
resource system so successful?
Financing the European Union: Is the Current System Optimal?
by Prof. Dr. Thiess Büttner
University of Erlangen-Nürnberg
In order to outline the optimal financing scheme for the
European Union it is important to note some specific features of the EU budget. Due to the expenditure ceiling, unpredicted spending needs are precluded. With the seven year
budget period there is also a significant time horizon which
enables the EU to conduct projects extending over multiple
years. Given this institutional setting, revenue autonomy and
access to debt finance are not needed. The challenge for the
funding system is only to collect a fixed amount of resources
from EU citizens in a way that is supported by the member
Basically, there are two possible options to do so. One option
is to design a EU tax that directly raises the funds from European citizens. The other option is to rely on the member
states’ funding capacities by means of intergovernmental
1. Optimal Financing Scheme
From an economic perspective, considering the financing
options requires taking into account the principles of efficiency and equity. From an efficiency perspective, the EU
funds should be raised in a way that minimizes the deadweight loss to the European economy. From an equity perspective, the burden of financing the EU budget needs to
reflect the prosperity or economic performance of the member states.
Raising revenues directly from EU citizens might help to
improve the visibility of the EU’s use of funds. Yet the heterogeneity of the member states in terms of economic conditions and national institutions makes it extremely difficult to
design an appropriate tax instrument. One might think of
imposing a surcharge on a tax which is already implemented
by the member states, such as personal income taxes, VAT, or
Thiess Büttner
University of Erlangen-Nürnberg
Thiess Buettner holds the chair of Public Finance at the University Erlangen-Nürnberg. After obtaining a PhD in economics
from the University of Constance in 1997, Thiess Buettner
joined the ZEW in Mannheim, and was appointed head of department of Corporate Taxation and Public Finance in 2003. In
2004 he became Professor of Public Finance at LudwigMaximilians-University and headed the Public Sector department of the Ifo Institute in Munich. In 2010 he moved to the
University of Erlangen-Nürnberg. Extended research visits led
to the University of Kentucky (USA) and Oxford University (UK).
Thiess Buettner is currently vice chair of the Scientific Advisory
Council at the Federal Ministry of Finance.
other taxes. But, in any case, full harmonization would be
required to prevent obvious discrimination and differences
in the dead-weight loss. With regard to direct taxes on individuals, harmonization alone is not sufficient to ensure an
equitable tax base, since economic conditions between
member states are vastly different and would require to
adjust tax brackets according to the price level faced in the
respective member state. With regard to indirect, ad valorem
taxes such adjustments might not be necessary but, still,
enforcement would be an issue. Moreover, collecting taxes
from EU citizens would introduce uncertainty in the budget.
Depending on the tax base, in order to balance the budget,
smoothing of revenues through other funds, such as contributions from member states or debt finance, may be necessary.
Raising funds by contributions is a simpler and more effective way to meet both efficiency and equity concerns. In
order to address the latter, all that is required is a simple
allocation of the total revenue requirement among member
states using an indicator of prosperity or economic performance. In accordance with the subsidiarity principle, the task
of ensuring efficient revenue collection is assigned to individual member states, who decide on their own through
which tax instruments the required funds are collected from
their citizens. Tax smoothing takes place through the budgets
of the member states and no debt finance is required for the
EU as a result. Moreover, if contributions tend to decline
with weaker economic performance of a member state, the
funding scheme helps stabilizing the budgets of the member
states and, hence, reduces their need for debt finance.
2. EU Own Resource System
With the EU council decision from December 2013, the system of own resources of the EU will continue to rely mainly
on the GNI based contributions. This design fits well with the
optimal financing scheme outlined above. While GNI has its
limitations, it is undoubtedly a key indicator of prosperity
and economic performance. Due to the importance of macroeconomic figures such as GNI in the fiscal policy surveillance by the EU, the GNI indicator is already uniformly defined using a comprehensive set of rules. This makes it a
useful indicator for the equity concern associated with the
funding of the EU budget. Furthermore, since GNI is closely
related to tax revenues, tying contributions to GNI helps
stabilizing the budgets of the member states.
The assignment of traditional own resources to the EU budget is uncontroversial, since they are related to EU policies.
However, the VAT resource is not an obvious element of an
optimal financing scheme. Due to consumption smoothing,
aggregate consumption is arguably a less precise indicator of
economic performance. Of course, the VAT resource is associated with tax revenues rather than consumption. Therefore, the VAT resource might foster the stabilizing effect on
member states budgets. Since VAT fluctuations tend to be
closely associated with GNI, this advantage is limited, however. More importantly, there are equity concerns as compliance varies between member states. Additionally, the complex computation of a harmonized base is difficult and not
quite transparent.
The new system of own resources still contains correction
mechanisms, which are not part of an optimal funding system. An assessment of these corrections would require taking
into account the expenditures side of the budget as well.
Improving the own resource system -
The Commission Proposal
by Stefan Lehner
Director DG Budget, European Commission
Stefan Lehner
European Commission, DG Budget
Stefan Lehner is Director for Own resources and financial programming in DG Budget of the European Commission, appointed in 2006. He graduated from University of Hamburg in 1983.
He joined the European Commission in 1985, initially in DG II
(ECFIN) dealing with economic forecasting, labour market and
competition policy issues. Since 1994 he has worked on issues
related to the EU budget in various functions, both in DG Budget and DG Research. Stefan Lehner was member of Cabinet of
Commissioner Erkki Liikanen in 1994-1999 and Head of Cabinet
of Commissioner Dr. Michaele Schreyer in 2002-2004. He is a
lecturer at the Postgraduate Programme in European Studies,
In 2010/2011, when the European Commission prepared its
proposals for the financial package for the EU budget for
2014-2020, there was no hesitation to consider the reform of
the own resources system as an integral part of the package.
Contrary to earlier exercises, own resources were very much
on the agenda: The negotiations for the 2007-2013 multiannual financial frame-work had been concluded in December
2005, with many Member States registering their discontent
with the state of the own resources system - the main focus
of the criticism were the numerous rebates which had crept
into the system, rendering it incomprehensible except for a
few experts; the complexity of some of the existing own
resources was also criticized. Equally important, the EPhad
retaken the initiative with the 2007 report by Alain
Lamassoure 5, the Chairman of the Committee on Budgets.
Also the academic debate which advises the EU to focus its
budget more on EU value added expenditure had recognized
that the “juste retour” based negotiations due to lack of genuine own resources and the ubiquitous rebates were preventing any progress in this direction. Institutionally, the Lisbon
Treaty which had come into effect in 2009 – while confirming that the sovereignty with regard to own resources remained with the national Parliaments – had introduced
some language (in particular in Art. 311 TFEU: “(The Council)
… may establish new categories of own resources or abolish
an existing category”) which was perceived by some as willingness to allow the EU to evolve its own resource system.
These elements were taken up in the 2010 Commission
Budget Review preparing the ground for comprehensive
reform proposals. The substantial assessment of possible new
own resources by the Commission services – as documented
in the 2011 Own Resources Report 6 – provided the material
base for Commission’s decisions. In June 2011, as part of its
LAMASSOURE, A. (2007): Report on the future of the European union’s own resources (2006/2205(INI)). European Parliament. Brussels
EUROPEAN COMMISSION. (2011). Commission Staff Working Paper;
Financing the EU Budget: report on the Operation of the own resources
system. SEC(2011)876final/2
proposals for the 2014-2020 financial package, the Commission proposed a thorough overhaul of the financing of the
EU budget: the current own resources calculated from a
statistically harmonized VAT-base should be ended, two new
own resources should be introduced based on a to be established harmonized taxation of financial transactions (FTT)
and based on actual VAT collected on standard rated transactions, rebates would continue but much simplified by means
of lump sums, and the legal framework would be recast in a
more logical structure.
The Commission proposals having been presented as draft
legal acts allowed a very thorough technical examination by
Member states, in particular of the new VAT own resource;
while the significant simplification compared to the current
VAT-based own resource was acknowledged, most Member
states remained opposed to the principle of a new own resource or to specific aspects of the proposal. The FTT legislative proposal had to be recast in February 2013 under enhanced cooperation and has not yet been adopted, thus not
providing a base for a possible own resource. In its conclusions of February 2013 on the 2014-2020 financial package,
the European Council therefore basically confirmed the
status quo for the own resources system: on own resources, it
did not retain the proposals of the Commission, but called on
Council to continue working on them; concerning the rebates, there were only minor adjustments.
In the subsequent negotiations with the EP, own resources
remained on the agenda, due to the EP linking the issue to its
required consent for the multi-annual financial framework.
The EP had in fact identified new own resources as one of its
key negotiation objectives, together with a bigger overall
financial framework and increased flexibility. Without anyconcessions on the substance of own resources, the Council
did agree to the creation of a High Level Group on ownresources with members nominated by the three institutions,
to undertake a general review of the Own resources system.
The Group under the chairmanship of Mario Monti will
provide a first assessment by the end of 2014, and deliver its
report – after also consulting the national Parliaments – in
2016. On the basis of the results, the Commission will consider new own resources initiatives for the post-2020 negotiations
In my personal view, and notwithstanding the positions the
incoming Commission will eventually take on these issues, I
would expect own resources to remain on the political agenda of the EU in the years to come, as many of the driving
factors of 2011 remain valid. The specific Commission proposals of 2011 will be considered further by the High Level
Group together with new ideas from its members; they will
have no privileged status, but their thorough preparation and
the legislative deliberations have established a reference
point. It could have an impact whether the separate negotiations on the FTT eventually succeed; whether all or part of its
revenues could then become an own resource for the participating Member states would, however, still be a separate
discussion. Overall, it will be the report of the High Level
Group which will be the next driver of the discussion, and
the Commission, as well as Council and Parliament, are following its progress very carefully. It may finally be worth
noting that many of the issues related to EU own resources
may also emerge in the context of some kind of fiscal capacity of the Eurozone. Any actual expenditure in such a context
would need to find appropriate financing source(s) from the
Eurozone itself or the participating Member states. The European Council of December 2013 has asked its President, in
close cooperation with the President of the European Commission to report to the October 2014 European Council
“with a view to reaching an overall agreement”.
Panel III: Can the EU’s own resource system be improved?
What would be the criteria?
With Prof. Dr. Christian Traxler (Moderator), Prof. Dr. Clemens Fuest, Christian Kastrop,
Prof. Dr. Helge Berger
Moderator’s Summary
This panel set out to identify a set of criteria that should be
used to evaluate reform proposals for the own resources
system. During the discussion it emerged that any reform
proposals should also take into account the expenditure side
of the European Union’s budget.
There was a general consensus that reforms to the own
resources system should aim to improve transparency and
efficiency. Reforms should also be geared towards the
principles of equity and ability to pay.
The panelists agreed that the current own resources system
already meets most of these criteria. However, further
improvements could be achieved by financing an even larger
share of the budget through GNI-based own resources while
at the same time scaling back contributions of VAT-based
own resources.
There was also agreement that the rebates granted to some
member states are making the current system opaque and
complex. However, many experts argued convincingly that
the rebates play a crucial role in solving integration
problems. Nonetheless, the participants asserted that the
methods for calculating rebates could be made simpler and
more transparent. There was a broad consensus that focusing
the expenditure side more towards the provision of
European public goods would make it easier to reach a
compromise on the rebates. The panelists underscored that
there is substantial scope for improvements on the
expenditure side of the budget. Comparisons with other
federation-like structures typically suggest that spending at
the central level is targeted mainly towards defence, foreign
transportation systems. This is not yet the case with the
European Union, which spends a large share of its budget on
local public goods such as the Common Agricultural Policy
and the cohesion funds.
Christian Traxler
Hertie School of Governance
Christian Traxler is professor of Economics at the Hertie School
of Governance in Berlin. He studied economics at the University
of Vienna and the Carlos III University of Madrid and received
his PhD in economics from the University of Munich. Before
being appointed professor, he held positions at the Max Planck
Institute for Research on Collective Goods in Bonn, the
University of Amsterdam and the University of Marburg.
Panel III: Can the EU’s own resource system be improved?
What would be the criteria?
Appropriate criteria for a good revenue system
by Prof. Dr. Clemens Fuest
Center for European Research, Mannheim
A reform of the EU financing system needs to be based on
appropriate criteria for a good revenue system. It is helpful to
distinguish between general criteria and EU specific critieria.
The general criteria are:
Equity: Fair burden distribution among member
Efficiency: Administration costs/ econ. distortions
Sufficiency and Stability
Transparency and Simplicity
Democratic accountability and budgetary discipline.
This is complemented by the following EU specific criteria:
Subsidiarity principle and respect for fiscal sovereignty of member states
Support the focus of EU policies on areas with European added value
Limit political transactions costs (costs of finding
political compromises between member states and
among EU institutions).
Currently the GNI resource is the backbone of the EU financing system. This financing instrument has a number of advantages which include fairness, stability, low administration
cost, simplicity and transparency. It also leaves room for
heterogeneous national tax preferences and tax policies
(subsidiarity principle). In addition, the link between costs of
EU financing contributions and national tax revenues, combined with budget cap and unanimity rule for Council decisions imposes fiscal discipline.
The drawbacks of the GNI resource are that it does not use
potential for European added value on the revenue side and
it offers no solution for the current lack of support for spend-
Clemens Fuest
Center for European Research
Prof. Dr. Clemens Fuest is President and Director of Science and
Research of the Centre for European Economic Research (ZEW)
in Mannheim. As ZEW President, he is also a professor of
economics at the University of Mannheim.
ing on EU wide public goods. The latter is primarily an issue
for reforms of expenditures and, possible, reforms of the
correction mechanism.
Adding other own resources requires a sufficient degree of
tax coordination or tax base harmonisation. Here one of the
challenges is that most taxes where this harmonisation exists
are regressive (including the currently existing VAT resource).
Panel III: Can the EU’s own resource system be improved?
What would be the criteria?
The budget of the OECD
by Christian Kastrop
The appointment of the EU’s high level group on own resources initiated another round in the discussion of reforming the EU budget. To identify options for reform, it may be
helpful to learn from the organization of the budget of other
international organizations. One candidate for such a comparison is the Organization for Economic Cooperation and
Development (OECD).
The OECD budget and the content of its work program are
established every two years by the OECD’s governing body,
the Council. The budget for 2013 is EUR 353 million. A main
feature of the OECD budget is its organization in two baskets.
All member countries contribute to the outputs funded by
the first basket, which accounted for 53 % of the overall
budget in 2013. In 2013, 83 % of the expenditure in this basket was staff related. Calculation of member states contributions are based in national income. The second basket comprises ongoing work-streams or projects, which are of interest to all or a number of members or relating to special policy
sectors not covered by the first basket. In this area it is also
possible to have non-member states on board. Projects in the
second basket are funded by individually designed scales or
other arrangements agreed among participating countries.
The OECD strives to improve the efficiency of its budget. It
seeks to enhance member states value for money by doing
more with the same resources. Between October 2013 and
March 2014, the OECD Secretariat undertook a systematic
assessment of its cost structure and the way outputs are
produced across the organisation. The Project aimed to ensure that OECD Members will continue to get excellent value
and impact from the resources they provide. The Project
entailed a comprehensive ‘top down’ and ‘bottom up’ review
of the rules and regulations. Savings were for instance realised by recurrent salary moderation. In line with some flexibility in the budgetary process unused resources are immedi-
ately moved back to member countries after a council decision.
Of course, with an annual volume of only 1 % of the EU
budget and the financing system of the OECD cannot be
directly compared to that of the EU. However, the flexible
geometry of financing tasks for all members, a group of
members or even outside but likeminded countries together
with a very detailed controlling system within a modern
money for value budgeting system could also serve the EU
right now but even more when the road to a more federal
system with different layers – the core being the Eurozone –
is emerging in the future.
Christian Kastrop
Christian Kastrop is Director of the Policy Studies Branch at the
Economics Department of the OECD. He was formerly Deputy
Director General, Economics and Strategy Department and
Director of Public Finance, Macroeconomics and Research
Directorate in the German Federal Ministry of Finance. He
studied Economics and Psychology at the University of Cologne
and Harvard University and holds a PhD. in Economics from the
University of Cologne. From 2011 to 2014 he served as a Chairman of the OECD’s Senior Budgetary Officials (SBO) network on
performance and results. From 2008 to 2010, he served as
Chairman of the Economic Policy Committee of European
Finance Ministers (ECOFIN-EPC) and Chairman of the EPCEurogroup in Brussels.
Panel III: Can the EU’s own resource system be improved?
What would be the criteria?
Improving the EU's own resources
by Prof. Dr. Helge Berger*
International Monetary Fund
How to improve the European Union’s (EU) own resources?
The euro area crisis has turned what was—and to some degree still is—a fairly technical issue into a discussion that
reflects on our ideas on the longer-run direction of the European project. Should the EU budget remain limited to fulfilling a small set of historically given functions, such as the
common agricultural policy (CAP)? Or should we consider
embarking on the slow journey towards something closer to
what Richard Musgrave would have recommended as the
central budget of a group of states converging, however
slowly, towards a more federative structure?
Helge Berger
International Monetary Fund
Advisor in the IMF's European Department, was educated in
Munich, Germany, where he received his PhD. and the venia
legendi for economics. He taught at Princeton University as a
John Foster Dulles Visiting Lecturer, helped to develop the
Munich-based CESifo network as its research director, and was
a professor (tenured) for monetary economics at Free University
*This summary should not be reported as representing the views of
the IMF or it’s Executive Board. The views expressed are those of
the author and do not necessarily reflect those of the IMF.
Reform principles. To a large degree, the answer depends on
whether (or how fast) Europe will become a political union.
That said, the EU budget can do more for Europe already
today. This will require: (i) focusing the reform discussion on
the budget as a whole, not just the revenue side; (ii) continuing to broaden the revenue base towards the Gross National
Income (GNI) while moving towards tax-based revenue collection; and (iii) taking a careful look at the principles that
govern the selection of taxes allocated to the EU level. In
sum: the EU budget does not have to be large, but should be
designed right.
The expenditure side of the budget matters. Few will disagree with the Musgravian principle that the central level of
government should be providing area-wide public goods and
services. This is usually understood to include areas such as
defense, environmental protection, large-scale infrastructure, as well as area-wide macroeconomic stability. The CAP
is typically not part of this set. An added benefit of nudging
the EU budget in this direction would be that, by construction, the benefits derived from it would be equal across countries and citizens. This should help moving the discussion of
revenue sources towards efficiency and away from the current practice of country-by-country analysis of “net
contributions.” If all profit to the same degree, a broad-based
tax will be less objectionable.
The experience of others suggests spending on public
goods. Recent IMF work (Euro Area Article IV; a forthcoming
book by the Fiscal Affairs Department) suggests that spending on defense, foreign relations, federal-level justice and law
enforcement, communications and key transportation systems is often centralized, in addition to social insurance and
macroeconomic stabilization. Even in the most decentralized
of federations (e.g., Canada, Switzerland, or the U.S.), the
federal level conducts about half of general government
spending, implying a budget size of around 15-20 percent of
GDP. The EU budget remains an order-of-magnitude smaller,
even if off-budget activities (e.g. the EIB’s loan book) are
included. That said, the EU’s multi-year fiscal framework
stands out in terms of fiscal transparency.
Collecting revenue from broad-based taxes is a good idea.
Ability to pay seems to be the right principle for allocating
the cost of the EU budget, and the present practice of collecting national contributions rightly focuses on GNI shares.
However, these contributions come out of national budget
and—together with the type of spending currently conducted
through the EU budget—invite controversy around the perceived net benefits on a country-by-country basis (i.e. “rebates”). This suggests a gradual move toward broad-based
taxes—for example, an income or VAT tax allocated to the EU
Indeed, corporate and personal income taxes are usually
centralized. In many federations, these taxes fall to the feder
al government, often supplemented by regional taxes.
Among the reasons cited for this arrangement are that it
promotes market integration by ensuring a level playing field
for corporates (e.g. by ensuring that profits are calculated at
the same basis, enforcing many of the principles currently
discussed under the Commission proposal for a Common
Consolidated Corporate Tax Base) while limiting inefficient
tax competition. In addition, where regional business cycles
differ, the pooling of tax revenue in combination with the
central provision of public goods allows a measure of risksharing. Consumption taxes are also often centralized, although more for reasons of effective tax administration.
The deficit question. Federal governments usually also have
the right to issue debt, which allows the smoothing of revenue collection over time in the presence of aggregate shocks.
This contrasts with the EU budget that matches spending and
revenue in every fiscal year. In keeping with this prudent
approach, any EU-level deficit would have to be compensated for by surpluses later (e.g., with the help of a “debt
brake”).This would likely require a Treaty change. Alternatively, one could allow the building of buffers that the budget
could draw on in times of revenue shortfalls.
“Own resources” under consideration. In light of the discussion above, constraining the EU budget to non-volatile revenue sources might be counterproductive if the volatility is
regional and pooling revenue leads to a more stable aggregate tax base. Applying this to some of the proposals currently circulating, this would suggest that an EU corporate tax
should not be rejected out of hand; also because it would
help harmonizing an important tax base across the single
market. Similarly, a new VAT resource focused on final consumption, as proposed by the Commission, could be a helpful
step towards harmonizing the tax base across the EU and a
broader-based VAT later on. The argument of broadening the
taxation of value added could also speak for a Financial Activity Tax. Finally, charges on air travel, energy consumption,
or other environmental externalities, best addressed at the
EU-level, are worth discussing.
Panel IV: Reforming the revenue side without looking at
expenditure? – Possibilities for a “Better Spending” of the EU
With Dr. Rüdiger von Kleist (Moderator), Florian Misch, Dr. Steffen Osterloh, Gregory Claeys
Moderator’s Summary
This panel discussion focused on how the European Union’s
expenditure could be used to generate greater European
added value.
The participants agreed that greater European added value
can be achieved with the existing level of spending. All that is
required is a change in the composition of the European
Union’s expenditure. The size of the budget does not have to
be increased. Allocating a larger share of expenditure to
common security, cross-border infrastructure and research
and development would help to increase the European added
value generated by the EU budget. At the same time, spending on cohesion funds and the Common Agricultural Policy
could be scaled back.
There was also a consensus that the current composition of
the EU budget reflects historical compromises. It was never
intended that the budget should play a stabilisation function.
The “Four Presidents’ Report”, which was published in 2012,
started a discussion about whether this should be changed.
However, most participants were sceptical in this regard.
They questioned whether the budget would be large enough
to function as an automatic stabiliser. Moreover, the panelists
raised the question of how a stabilization function could be
introduced without turning into a permanent transfer mechanism, as was the case with Germany’s Länderfinanzausgleich
(the process of balancing out financial resources between the
federal government and the Länder, and among the Länder
Rüdiger von Kleist
Head of Division, German Federal Ministry of Finance
Rüdiger von Kleist is head of the Research Division at the German Federal Ministry of Finance’s Directorate General for Fiscal
Policy, Macroeconomic Affairs and International Financial and
Monetary Policy. He holds a PhD in Economics from the University of Freiburg and has worked at the Ministry of Finance since
1991. In between he has spent more than ten years at the IMF
and the World Bank in Washington.
Panel IV: Reforming the revenue side without looking at
expenditure? – Possibilities for a “Better Spending” of the EU
The expenditure side of the EU budget and macroeconomic stabilisation
by Dr. Steffen Osterloh*
European Central Bank
The discussion on the reform of the EU budget has for a long
time ignored a role it could play for macroeconomic stabilisation. First, it was argued that, due to its limited size of less
than one per cent of EU GDP, the EU budget cannot exert a
significant stabilizing effect. Second, in the years before the
outbreak of the financial and economic crisis, hardly anybody saw the dangers from macroeconomic shocks for the
functioning of the EMU. However, under the impression of
the divergent macroeconomic developments in the euro area
member states and the surging unemployment in some of
them, the discussion has picked up momentum in recent
years. This has led to the question whether the EU budget
should be extended in order to support the absorption of
macroeconomic shocks in member states of the monetary
The economic rationale for such a mechanism is closely
related to the theory of optimum currency areas. Since nominal exchange rate adjustments are no longer possible in a
monetary union, member states become more vulnerable to
asymmetric shocks. This is exacerbated in the absence of
other adjustment mechanisms, such as factor mobility, wage
and price flexibility, or in the absence of a joint and sufficient
resolution fund for an otherwise integrated banking union.
The academic literature considers a fiscal transfer system as
one potential remedy for asymmetric shocks. Such a transfer
system can principally take two forms. First, in a macroeconomic approach transfers could be based on fiscal positions,
or on measures of economic activity, such as GDP. Second, a
microeconomic approach would link transfers to a specific
public function which is sensitive to the economic cycle,
such as a common unemployment insurance. This discussion
was taken up in 2012 in two reports on the medium and
long-term design of EMU: “A blueprint for a
Steffen Osterloh
European Central Bank
Steffen Osterloh is Economist in the Fiscal Policies Division of
the European Central Bank (ECB). He received his PhD in economics from the University in Mannheim in 2011. Before joining
the ECB, he worked as researcher in the Research Department
"Corporate Taxation and Public Finance" of the ZEW Mannheim, as well as for the German Council of Economic Experts
(Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung), Wiesbaden.
*This summary should not be reported as representing the views of the
ECB or its Executive Board. The views expressed are those of the author
and do not necessarily reflect those of the ECB.
deep and genuine economic and monetary union” 7 by the
European Commission and “Towards a genuine Economic
and Monetary Union” 8 by the four Presidents of the European Council, European Commission, Eurogroup and European
Central Bank. The latter report of the four Presidents refers
to the rationale for such a mechanism in the context of the
EMU, called a fiscal capacity, which could “(…) improve the
absorption of country-specific economic shocks, through an
insurance system set up at the central level. This would improve the resilience of the euro area as a whole (…)”. However,
the report also stresses that certain conditions would have to
be fulfilled in order to guarantee the proper functioning of
such a fiscal capacity. Among others, it should not lead to
permanent transfers between the participating member
states, it should not undermine incentives for sound fiscal
policy, it should be cost-effective and consistent with the
principle of subsidiarity.
In a recent discussion paper, Feld and Osterloh (2013) discuss
how the options for a fiscal capacity perform with respect to
the aforementioned requirements. A first important question
is whether a fiscal capacity can be an efficient channel for the
smoothing of economic shocks. In this regard, evidence from
existing federal states gives a first indication. A broad empirical literature studies the insurance against idiosyncratic
shocks. Technically, this means that the contributions to the
consumption smoothing between regional jurisdictions are
estimated. The idea is that a full insurance against statespecific shocks would imply that its overall consumption is
EUROPEAN COMMISSION (2012). A blueprint for a deep an genuine
economic and monetary union.; Launching a European Debate.
COM(2012) 777 final. Brussels.
(2012).Towards a genuine Economic and Monetary Union.
completely decoupled from fluctuations of GDP. Overall, it is
found that even in federal systems with a significant centralisation of the tax-transfer system (such as the U.S.), the contribution of fiscal policy to risk-sharing is usually limited;
moreover, the existing fiscal equalisation schemes in Canada
and Germany only provide for a small stabilising impact and
are not suitable as risk-sharing device. In contrast, a much
stronger contribution to risk sharing at the state level is
found for through capital markets, e.g. due to the crossborder-ownership of assets. This supports the view that the
size of the Banking Union’s resolution fund must be sufficient and needs to be adjusted over time.
With respect to distributional aspects, the proponents of a
fiscal capacity for risk-sharing point out that such a mechanism would not entail redistribution over a longer period of
time, i.e. every country would sometimes be recipient and
sometimes contributor. However, this is not warranted. In a
microeconomic approach, the distributional effects would
depend on the concrete design of the system. For instance, in
the case of a common unemployment insurance, the institutional setup of the national labour markets would have a
major impact on the direction and amount of cross-country
transfers. If heterogeneities of labour market institutions
prevail, even two otherwise completely identical countries
hit by the identical shocks would end up with completely
different unemployment rates. As a result, transfers would
flow from the country with the more flexible to the country
with the more rigid labour market. The incentive effects of
such a mechanism are also problematic because such a
mechanism would reduce the incentives of national governments to pursue a policy aiming to eliminate the sources
of unemployment.
Applying a macroeconomic approach, it could be considered
to condition the transfers directly on the countries' position
over the economic cycle. Since over the economic cycle the
relative positions of the countries shift, the transfer would
flow back in the other direction at some point in time. However, this is not guaranteed due to the unreliability of realtime data of the output gap which indicates the difference
between the productive capacity of the economy and the
actual level of production. Output gap estimates are often
revised several years after their first publication. Calculations
by Feld and Osterloh (2013) show that the application of such
a mechanism based on the output gap would have created a
clear division into net payers and net recipients, even before
the crisis. Moreover, transfers would have been pro-cyclical
in many cases by benefitting countries which were actually
in a boom at a time when real-time data indicated a recession. Finally, incentive effects have to be considered. In particular, a fiscal risk-sharing system reduces the incentives for
reforms in order to reduce the vulnerability economic
shocks, as well as their likelihood. Therefore, the member
states would have lower incentives for increasing the flexibility of labour and product markets. As a result, the likelihood
of asymmetric shocks might even increase endogenously.
As demonstrated, it would be difficult to develop a system in
line with the requirements discussed in the report of the four
presidents. Moreover, it should be stressed that other shock
absorbers are available which would increase the resilience of
the EMU: For instance, automatic stabilisers on the national
level can offer self-insurance over the business cycle. Fiscal
consolidation has therefore to be seen as a priority to enable
them to operate freely. Moreover, integrated capital markets
play a significant role as shock absorber in federal states. The
banking union can thus be expected to make a contribution
towards more resilience against asymmetric shocks.
Panel IV: Reforming the revenue side without looking at
expenditure? – Possibilities for a “Better Spending” of the EU
The European Union budget: Potential Reforms of its Expenditure Side
by Gregory Claeys
The goals of this short presentation are to understand how
the European Union (EU) budget is spent exactly, to try to
assess its current usefulness and to propose some potential
reforms to improve it. The most striking point when looking
at the details of the EU budget’s expenditure side is its small
size (less than one percent of EU GDP) and the fact that the
“cohesion funds” and Common Agricultural Policy (CAP) are
still the two most important policies, representing more than
70% of the funds allocated, whereas only eight percent goes
to research, innovation, infrastructure, etc. Is this a good way
to spend the budget and what are the right criteria to judge
Gregory Claeys
Grégory Claeys, a French and Spanish citizen, joined Bruegel as
a research fellow in February 2014. His main research interests
include financial economics, international macro and finance,
and central banking. From 2006 to 2009 he worked as a
macroeconomist in the Economic Research Department of the
French bank Crédit Agricole, where he was in charge of
forecasts and analysis of economic trends in various countries.
Prior to joining Bruegel, he held various short-term positions,
including serving as a visiting researcher in the financial
research department of the Central Bank of Chile in Santiago
and as an economist in the Economic Department of the French
Embassy in Chicago. He will defend his PhD. in Economics at
the European University Institute (Florence) this fall, already
holding an M.Sc. in Economics from Paris X University and an
M.Sc. in Management from HEC (Paris). He previously taught
undergraduate macroeconomics at Sciences Po (Paris).
What do we want to achieve with the EU budget? A first way
to answer that question is to look at the goals and values of
the EU enshrined in the treaties: its policies should
contribute to peace, justice, economic and social progress, the
well-being of citizens, growth, full employment, solidarity,
European integration and mobility. These elements represent
a good starting point for deciding what the EU budget should
finance, but it is also interesting to look at the EU 2020’s more precise – objectives, which are to generate smart,
sustainable and inclusive growth in Europe. Another way to
assess the EU budget is to see if it fulfils the classical
functions of public spending as defined by Musgrave (1959):
stabilisation, allocation of resources and redistribution. The
stabilisation function is performed by the EU budget because
of its small size, and also because of the absence of flexibility
due to the allocation of funds in advance in the seven-year
Multiannual Financial Framework. The allocation of
resources is influenced by the EU budget in some sectors that
are considered to be invariant priorities of the Union
(agriculture, innovation, infrastructure, etc.). Finally,
redistribution is a clear function (as well as a goal) of the EU
budget in order to boost economic convergence between
member states’ economies via the enhancement of
productive capabilities in less-developed (or restructuring)
regions of the EU.In addition to those two sets of criteria
(goals of the EU, public spending functions), it also important
to add one more criterion: namely, to decide if such
expenditures should be made at the national or EU level. The
economic justifications for centralisation are the following:
economies of scale, externalities of European public goods,
complementarity between monetary and fiscal policy, risksharing against idiosyncratic shock at the country level, etc.
But of course, economic justifications for decentralisation
exist as well, including heterogeneity of preferences across
countries, lower implementation costs of policies, etc.
Is the current EU budget expenditure repartition justified by
goals, functions or economic justifications? Applying very
simply the criteria that we have listed above would suggest
that there is a need for more Europe in the following areas:
diplomatic services and common security (as there exist clear
economies of scale, and these areas correspond to EU goals);
energy and digital networks (which are truly European public
goods); and knowledge, innovation, research programmes,
higher education, and climate change policies (large cross
border spillovers and EU 2020 priorities). This analysis also
suggests areas where less Europe would be needed: regional
funds to richer countries, CAP given that food selfsufficiency is not a problem anymore (unlike security of
energy supply). Where does the misallocation of
expenditures come from? The example of CAP appears to be
typical as it is mainly linked to a problem of historical
dependence but also of strong lobbying. However, there
seems to be a more general political problem. Countries
support policies that maximise their receipts rather than
policies with their own merits (e.g. no one pushing for
research programme in budget negotiations because of the
difficulty of predicting net balances when no one knows
where research grants will land).
That is why potential reforms include a change in the EU
budget process. Breaking the link between revenue and
expenditure in order to avoid the “juste retour” argument
and trying to build real own resources (tax-based and not
contribution-based) will lead more easily to reforms on the
expenditure side. More generally, it would be good to see a
gradual reorientation of EU funds towards expenditures that
fulfil the criteria discussed above, in particular from local
public goods to European ones. Finally, the implementation
of a stabilisation function would appear to be justified, as it
would fulfil some goals of the EU, would be economically
justified, and is a classical function of public spending.
However, this would be a huge step for Europe and some
political consent from all member states would be necessary.
Summary of the Workshop-Results
by Thomas Westphal
Head of Directorate General, German Federal Ministry of Finance
Ladies and gentlemen,
I would like to take this opportunity to thank you all most
sincerely for your participation in this workshop on the
future of the European Union’s finances. Our guests today
included experts from think tanks, international organisations, the European Commission, the European Central Bank,
governments and research institutes. I would like to express
my special thanks to the facilitators and panellists who gave
us the benefit of their expertise.
Thomas Westphal
Head of Directorate General, Federal Ministry of Finance
Thomas Westphal is a trained banker and holds a degree in
economics. He started his career in Paris at Paribas and at the
economic research institute REXECODE. He joined the German
Federal Ministry of Economics in 1992. From 1995 to 1998 he
worked for the European Commission’s DG MARKT as a
national expert. After returning to the Federal Ministry of
Finance in Berlin he has been involved in establishing the
economic analysis team after the birth of the Eurogroup and
was the alternate member of the Economic and Financial
Committee. From 2005 to 2009, Thomas Westphal headed the
finance department of the German Permanent Representation
to the EU. He returned to the Ministry of Finance as director for
European Monetary Union in 2009. Since 2012 Thomas
Westphal is Director General for European Affairs in the Federal
Ministry of Finance.
You discussed various aspects of the EU’s own resources
system in detail during four separate panel discussions. I’m
sure I’m right in saying that rarely have so many experts on
this issue been brought together in one place. Ultimately,
however, the question of whether the own resources system
will be modified is a political decision. In this regard, we
cannot forget that, under the European treaties, this decision
must be taken unanimously by all member states.
In today’s workshop, we determined that it was the right
decision to include the expenditure side of the EU budget in
our discussions. One thing became very clear today: When
we speak about reforms on the revenue side, we can’t ignore
the expenditure side.
I would like to summarise the key findings of our discussions
as follows:
The first session took a very detailed look at various aspects
of the issue of introducing an EU tax. It became clear that it
would be very difficult to introduce a genuine EU tax under
the existing legal framework. It could, however, help to increase the legitimacy of the European Parliament. Against
this background, it is difficult to evaluate proposals that only
aim to finance part of the EU budget through a tax, as this
would only create partial legitimacy. Something that requires
further analysis is the question of whether remitting part of
national VAT revenues to the EU would already be enough to
create greater legitimacy, or whether genuine EU taxes would
the EU would already be enough to be needed to achieve this.
We also need to reflect on the question of how the European
Parliament can be made more accountable for spending.
Until now, the parliament has not needed to justify either
total spending or the specific allocation of resources to the
various policy areas.
To conclude, I would like to express my particular thanks to
the representatives of the like-minded states, who all accepted our invitation to this workshop.
Yours sincerely,
Thomas Westphal
The second panel discussion highlighted the fact that the
structure and composition of the EU budget have evolved
over time. In this regard, it was never intended for the EU
budget to have a stabilisation function. If such a function
were to be retroactively introduced, then this would imply a
fundamentally different budget. Incidentally, the idea that a
national budget should have a stabilisation function dates
back to a very Keynesian era.
The third panel discussion gave us a better understanding of
the rebates that are widespread in the EU’s current system of
financing. The participants pointed out that these rebates are
largely the result of the structure of the EU budget’s expenditure side. Hence it will not be possible to avoid them completely in the foreseeable future. The fourth panel discussion
made it clear once again that, if we want to get away from the
much-criticised “juste retour” (“just returns”) mindset, the
EU’s spending structure has to be targeted at financing European public goods. They mentioned many examples of public
goods that could be financed by the EU. Incorporating the
expenditure side into the reform discussion would increase
the chances of reaching a political agreement on the reform
of the revenue side.
Ladies and gentlemen, we plan to summarise the results of
this workshop and send them to you and to the high-level
group on own resources.
Euro-Saal, Federal Ministry of Finance
Wilhelmstraße 97
Opening Statement
Thomas Westphal, Head of Directorate General European Affairs,
Panel I: No representation without taxation? Strengthening the European Parliament with an EU-tax?
Eva-Maria Meyer, Head of Directorate, BMF
Prof. Dr. Christian Waldhoff, HU Berlin
Prof. Dr. Henrik Enderlein, Hertie School of Governance
Prof. Dr. Ekkehart Reimer, University of Heidelberg
Panel II: A budget without deficit: What makes the EU’s own
resource system so successful?
Christian Kastrop, OECD
Dr. Friedrich Heinemann, Centre for European Economic Research
Prof. Jacques Le Cacheux, OFCE, Paris
Prof. Dr. Thies Büttner, University of Erlangen-Nürnberg
Improving the own resource system – The Commission Proposal
Stefan Lehner, Director DG Budget, European Commission
Panel III: Can the EU’s own resources system be improved?
What would be the criteria?
Prof. Dr. Christian Traxler, Hertie School of Governance
Prof. Dr Clemens Fuest, Centre for European Economic Research
Christian Kastrop, OECD
Prof. Dr. Helge Berger, IMF
Panel IV: Reforming the revenue side without looking at
expenditure? – Possibilities for a “Better Spending” of the EU
Dr. Rüdiger von Kleist, Head of Division, BMF
Florian Misch, PhD, Centre for European Economic Research
Dr. Steffen Osterloh, ECB
Gregory Claeys, Bruegel
Summary of Workshop-Results
End of Workshop
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List of Participants
Carl Asplund
Swedish Ministry of Finance
Martti Anttinen
Finnish Ministry of Finance
Prof. Dr. Helge Berger
International Monetary Fund
Stefan Bredohl
German Federal Foreign Office
Karola Bretschneider
German Federal Ministry of Finance
Asbjorn Brink
Danish Ministry of Finance
Prof. Dr. Thiess Büttner
University of Erlangen-Nürnberg
Gregory Claeys
Sophie Clarens
French Ministry of Economy and Finance
Atalay Dabak
HM Treasury
Kristina van Deuverden
German Institute for Economic Research
Prof. Dr. Henrik Enderlein
Hertie School of Governance
Martin Erhardt
German Federal Ministry of Finance
Henning Fahland
German Federal Chancellery
Prof. Dr. Clemens Fuest
Centre for European Economic Research
Anne Glumm
German Federal Foreign Office
Dr. Regine Grienberger
German Federal Foreign Office
Dr. Katja Hanewald
German Federal Ministry of Finance
Dr. Friedrich Heinemann
Centre for European Economic Research
Prof. Dr. Klaus-Dirk Henke
Scientific Advisory Board, TU Berlin
Petra Hinz
German Federal Ministry of Finance
Arina Hube
German Federal Ministry of Finance
Dr. Malte Hübner
German Federal Ministry of Finance
Christian Kastrop
Sabine Klok
Dutch Ministry of Finance
Jördis Klügel
German Federal Ministry of Finance
Dennis Kolberg
German Federal Ministry of Finance
Dr. Kerstin Korthals
German Federal Ministry of Finance
Dirk Heiner Kranen
German Federal Ministry of Finance
Julia Külb
German Federal Foreign Office
Meik Laufer
German Federal Foreign Office
Prof. Jaques Le Cacheux
UPPA and OFCE/Sciences Po
Stefan Lehner
European Commission
Martin Leuvering
German Federal Ministry of Finance
Henrik Liß
German Federal Ministry of Finance
Eva-Maria Meyer
German Federal Ministry of Finance
Florian Misch
Centre for European Economic Research
Anne Montagnon
European Commission
Albrecht Morgenstern
German Federal Chancellery
Dr. Susanne Neheider
German Federal Ministry of Finance
Edith Peters
Austrian Federal Ministry of Finance
Anne S. Busse-Pietrzynski
Leuphama University Lüneburg
Alexander Puhlmann
German Federal Ministry of Finance
Prof. Dr. Ekkehart Reimer
University of Heidelberg
Mark Riedemann
German Federal Ministry of Finance
Dr. Kristin Rohleder
German Federal Ministry of Finance
Dr. Johannes Scheube
German Federal Ministry of Finance
Julia Schoenmakers
German Federal Ministry of Finance
Thomas Schuster
German Federal Ministry of Finance
Dr. Thomas Steffen
German Federal Ministry of Finance
Kornelia Stock
German Federal Ministry of Finance
Michaela Tintelott
German Federal Ministry of Finance
Prof. Dr. Christian Traxler
Hertie School of Governance
Johann Vasel
German Federal Ministry of Finance
Prof. Dr. Christian Waldhoff
Humboldt-University Berlin
Thomas Westphal
German Federal Ministry of Finance
Clemens Wetz
German Federal Ministry of Finance
Workshop on the Future of the EU-Finances Organization Team
Andrea Neu
Peggy McCormack
Torben Otte
Arina Hube
Thank you for your contribution.
Dirk. H. Kranen,
Head of Division, Federal Ministry of Finance
Dr. Malte Hübner
Federal Ministry of Finance
Coordinator of the Workshop on the Future of the EU-Finances
Federal Ministry of Finance
Wilhelmstrasse 97
10117 Berlin
Coordination of the Workshop on the Future
of EU-Finances
MR Dirk H. Kranen / Dr. Malte Hübner
Federal Ministry of Finance
Tel: +49 30 18 682 1878 /- 2290
Fax: +49 30 18 682 88 1878
E-Mail: [email protected]/
[email protected]
Laurence Chaperon
Printing and Binding
Federal Ministry of Finance
Copying department
Berlin, October 2014

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