Dutch Cabinet Chief European Court of Auditors: “EU should become financially independent from its member states”. I think he is right…

The year 2014 is a year in which the economic crisis already lasts for more than half a decade. Many middle and lower-class people in the European Union go through severe economic hardship, due to lower wages, lower unemployment benefits and other personal subsidies, strongly elevated tax-levels, ubiquitous mass lay-offs and structurally high unemployment.

The large banks on the other hand, as well as the investors and speculators at the stock exchanges, see their profits multiply. This is caused by the ample availability of virtually free funding money from the central banks and – as a side-effect – the soaring stock prices, as a consequence of the extremely low interest rates and the generous lending capacity of the European Central Bank.

Consequently, a division emerges within the society: between the lower and middle class experiencing hard, economic times and the upper classes, having nothing to worry about in the world. This increasing division in society leads to an atmosphere of anger, mounting nationalism of a nasty kind, envy and despair among the lowest classes. This is an atmosphere, in which people start looking for someone or something to blame.

Almost everybody’s favorite scapegoat at this very moment is the European Union – as an utterly bureaucratic, technocratic and undemocratic institution, which is even  “disconnected from reality” to the eyes of many people.

Especially during the last month, when the EU dared to ask for additional contributions from the United Kingdom, Italy and The Netherlands – based on their better than anticipated economic growth figures –  the qualifications varied from ‘bad timing’ to reactions like ‘who are this bunch of darn idiots. Are they from outer space?’

The leading politicians of The Netherlands and the United Kingdom did their share of jawboning and spinning against this decision of the European Union, but– like I already predicted in the aforementioned article – paid their dues after all (… admitting this really softly to those who did listen)

Few commentators in the leading – often increasingly populist and nationalist – newspapers had the guts to acknowledge that the EU was fully entitled to ask this money. And even fewer newspapers acknowledge that the EU is not a ’slot machine, which pays out more price money to all its member-states than these countries have thrown in originally’. Europe is a simple zero sum game: if one country claims more money than it has paid in contributions, other countries have to pay extra contributions for that country, whether they like it or not.

From an older article of mine:

Every politician – and as a matter of fact every European citizen – should ask himself in what kind of Europe he wants himself and his children to live.

Does he want to live in a “Europe-as-a-slot machine”? A Europe, where solidarity means that one claims as much European subsidies and structure funds as he can, in order to make Europe profitable for him and his country?! Or does he want to live in a narrowminded “Europe-as-an-economic-market”, where the benefits of the union stop at the lock of his national treasure chest?!

Does he perhaps want to live in a Europe where all borders are closed again and where everybody is retreating behind their white picket fences?! A Europe of mistrust, anger and envy against the people with whom we share our lives and our European continent?!

Or does he wants to live in a Europe, in which 28 (or more) countries live together in relative peace, cooperation and prosperity. An increasingly democratic Europe in which countries help each other and in which problems are solved: very slowly, but surely. And a Europe with sensible leaders of whom people can be reasonably proud, because they represent us all quite good.

This weekend, the Cabinet Chief of the European Court of Auditors, Gaston Moonen, has written an excellent Op-Ed in the Volkskrant about this very topic.

In this article, he argues that the European Union must have the ability to collect its own funding, in order to become financially independent and treat its member states in a more balanced way. This is something that I fully agree with.

Here are the pertinent snips of this must-read article:

EU must become financially independent from its member states

Discussions about EU funding became a regular phenomenon in the Brussels-based political circus. Every year Brussels lacks a part of its funding and the payment obligations mount, without the necessary funds being in place.

How serious this problem has become in the meantime, becomes clear from the latest annual report that the European Court of Auditors published.

As a matter of fact, the EU does have a deficit, which is disguised behind the name ‘Reste à Liquider’ (i.e. ‘outstanding amount’), even though the EU is not allowed to have a deficit in its annual budget after all. In other words: the EU is not allowed to spend more money than it earns. And borrowing on the capital markets, on behalf of its own budget, is a no-go area for the EU.

Yet, future obligations must be made by the EU, and for these obligations sufficient funding is not available nowadays. In the longer run, this leads to forwarding current financial obligations to the future, thus only increasing the void between financial obligations and funding. At the end of 2013, this ‘reste à liquider’ amount on the EU balance sheet mounted to €322 billion; more than twice the amount of the annual EU-budget.

On top of that, the EU-budget acts also as a warrant for some EU lending programs, established to fight the crisis (consolidated these warrants amount to nearly €60 billion).

The EU Court of Auditors is worried, by the mounting risk that the EU could not meet its future obligations. Besides that, postponement of payment obligations could lead to reputational damage and it could have consequences for the effectivity of EU funded projects.

In the eve of each EU multi year program, all the member states fight fierce battles in order to collect as much money as possible for their own projects. Subsequently, when the member states’ annual EU bill is due during the settlement of the EU budgets, many member states try on the other hand to set these EU budgets as low as possible, in order to minimize their national EU payments.

This results in: mounting future obligations, as well as distrust and disappointment among EU citizens, regarding this troublesome decision-making, in which discussions about the net-receipts from the EU or payer’s positions rule. Multi-year after-taxes instated by the European Commission, which are based on agreements made by the member states, put oil upon the flames.

The core problem is the financing of the EU. As long as member states have to pay the large majority of the EU money from their own budgets, the annual catfight about ‘who has to pay what’ won’t change. And it might even worsen, in times of economic crisis. In the future, the financing of the EU should come from sources, which are independent from the budgets of the 28 member states.

In the remainder of the article, Moonen argues that the European Council (the most important institution within the EU, having the government leaders as members) has torpedoed such plans to establish independent sources of EU funding, for the simple reason of ‘being not ready for it yet’.

That makes sense in these increasingly nationalist times, in which the European Union is blamed for much that is wrong in Europe, but it is a shame indeed.

I do believe that a more independent EU, with fully independent funding, could be a catalyst for more sensible and less ‘envious' spending of EU money (see first red and bold paragraph). The scarce EU money should be put to work where it is needed most and not for building bridges to nowhere, which are developed for the simple reason that individual member states don’t want other countries to get ‘their’ share of the EU money (see third red and bold paragraph).

Making the EU funding independent from the member states, could put an end to the EU being the ‘slot machine for the European countries’. And perhaps it could even put an end to the squanderous removals from Brussels to Strassbourg and vice versa.

Exactly this habit within the EU, in combination with the continuing stories about Members of European Parliament, who sign their presence forms in order to earn their presence fees and leave immediately afterwards, give the European Union such a bad name among many hardworking and law-obiding citizens (see second red and bold paragraph).

When the European Union would not be so dependent on France, Germany, the United Kingdom and Italy for its contributions, it could become easier for the European Commission to ignore the French, German, British and Italian egoes, if necessary. In my opinion, this would make the EU more the union for all European citizens; not only for the ones from the largest countries.

Yet, it will be a longshot to establish such independent funding. Many citizens and many government leaders within the European Union feel that their interests are served best, by a European Union which is tightly at the leash of the European Council. EU contributions coming out of the national budgets, while being scrutinized by the European Council, form such a tight leash. 

In my humble opinion this is a grave mistake, but nevertheless one that we have to live with. Yet, I am glad that Casper Moonen took the time to express his – currently not very popular, but yet very important – point of view.