European Affairs Committee meeting on next EU budget, 27 June 2012
Statement by Minister of State Lucinda Creighton, T.D.
I’d like to thank the Committee for scheduling this discussion of the EU Budget’s Multiannual Financial Framework (2014 to 2020). We’ve spoken about it often here in terms of particular Council meetings, but I think it’s useful to consider the issue in some depth.
The MFF is a dossier of the real importance for the Union’s medium-term future: we must not let the current economic crisis blind us to this. Of course, many of the issues of the day are reflected in the ongoing debate on the MFF, most notably the questions of economic growth and employment. But the medium-term and longer-term planning of how the EU will use its resources must also be addressed. I am very pleased therefore that the Committee has taken a strong interest in the MFF.
[State of Negotiations]
The Commission presented its proposal for the MFF in June of last year. The General Affairs Council, which I attend, is the Council formation which has responsibility for handling the MFF. Discussion in recent months has been focussed on the “negotiating box”, the set of draft conclusions which will form an outline of the eventual agreement by the European Council. We discussed the latest draft of the negotiating box at the GAC in Luxembourg yesterday, and the Ministers for Finance also discussed the MFF at their ECOFIN Council meeting last Friday.
I expect GAC discussion of the MFF to intensify during the upcoming Cypriot Presidency, leading to a final agreement between the Commission and Member States at one of the European Council meetings later this year. While we are approaching broad agreement on much of the textual elements of the negotiating box, we have yet to discuss detailed figures, and this is where the most contentious debate will arise.
The European Parliament will play an important role in the final agreement. Formally, the Parliament’s role is that of giving its ‘consent’ to the MFF – this is not a co-decision issue. However, the Parliament has contributed substantially to the ongoing debate. Its members attend briefings before and after Councils. There are regular MFF consultations between the Presidents of the Council, the Parliament and the Commission, and MEPs also take part in informal Council meetings.
In addition, around 50 pieces of sectoral legislation falling under the MFF will need to go through the Parliament under the so-called “ordinary legislative procedure”. This process will largely take place during the Irish Presidency and will be steered by us. We are already laying the groundwork for this in our contacts with the Parliament.
The Parliament has made it clear that it is not ready to give its consent to the next MFF regulation without reform of the so-called “Own Resources” system – the rules by which the EU budget is funded. This is a matter in which the Oireachtas will eventually play a part. The revision of the Own Resources system will require ratification by national parliaments after any final deal is struck, so the Oireachtas will be directly involved.
[Outline of MFF Expenditure by heading]
Chairman, as members will be aware, the Commission’s original proposal, which we broadly supported, amounted to €1.025 billion over seven years. This is divided into five different Headings for spending.
For Heading 1 – “Smart and Inclusive Growth”, – the Commission proposed funding of almost €491 billion, about 48% of the total MFF. The heading is divided into two sub-headings.
- Heading 1a, “Competitiveness for Growth and Jobs” covers research, innovation and skills, as well as the new Connecting Europe Facility which would support investment in the Union’s transport, energy and digital networks. It amounts to €116 or 11% of the total MFF.
- Heading 1b – “Economic, social and territorial cohesion” – covers more traditional Cohesion Policy spending, and amounts to about €375 or 37% of the total MFF.
Heading 2 – “Sustainable Growth: Natural Resources” – is the most important for us, since it covers the CAP. The Commission has proposed funding of almost €383bn for this. The importance of the CAP for Ireland is of course well-known to you all, and I will return to this in greater detail later.
Heading 3 – “Security and Citizenship” – is the smallest heading. The Commission has proposed €18.5bn for this, about 2% of the total. This will cover migration and internal security programmes, including food security. We think there is real potential for the EU to add value for its citizens here.
Heading 4 – “Global Europe” – covers the Union’s action beyond its borders. The Commission has proposed €70bn for this, about 7% of the total. Most of this will go to support development cooperation, assistance to pre-accession countries, and the European Neighbourhood Policy. We think it important that the EU establish itself as a global player to better project our values, and of course we have a particular interest in development aid.
Heading 5 – “Administration” – covers the administrative expenses of the Institutions, including pension arrangements. The Commission has proposed almost €63bn in funding for this, about 6% of the total. We think that at a time when Ireland is cutting back on its administrative costs, the Union should be able to do likewise, while remaining effective.
The Commission’s proposal includes revenue measures, the so-called Own Resources, including a new VAT resource and Financial Transaction tax. We believe that the existing Gross National Income based resource provides the fairest and most effective base for funding of Budget because it reflects the economic and social position of Member States. We would have serious concerns about a Financial Transaction Tax – concerns shared by many EU partners – if the tax were not a global one.
Divisions among Member States on the MFF are on predictable lines. Roughly speaking, net Contributor countries want a reduction in the overall envelope, with many calling for a reduction of €100bn, about 10%. Many also call for significant reductions in the size of the CAP. Newer Member States oppose any cut to Cohesion funding and call for concentrating resources on the least developed regions, stressing the need for simplification and flexibility and for conditionality mechanisms to be fair and balanced.
[Irish Overall Position]
Ireland has a particular position among Member States. There are two factors which are particularly relevant to us.
Firstly, we remain a net recipient of EU funds, even though the trend is towards a neutral position towards the very end of the MFF period. The estimated figures for 2010 show that Ireland received €1.89 bn from EU Budget and contributed €1.35bn, resulting in a net position of plus €530 million or 0.3%of GDP. This does not include research receipts to private bodies, estimated at about €85m in 2010, which would bring our net position under EU Budget to in 2010 to about €630 million
Secondly, our receipts from the EU budget are overwhelmingly through the CAP. In 2010, some 86% of Ireland’s EU receipts were received under the European Agriculture Guarantee Fund and the European Agriculture Fund for Rural Development, while Structural Funds accounted for about 6% of our total receipts and Research about 4%.
Of course, like all other Member States we want a properly funded and properly functioning EU, with the right mix of priorities, fair allocation of resources and a focus on jobs and growth. But the two factors above influence our approach.
During the negotiations, Ireland will naturally, seek to maximize its allocations under all headings.
[Irish position on the CAP]
Given the budgetary figures which I have outlined, our overriding national objective will be to protect the allocation for CAP. The CAP provides the framework within which the sustainable development of a competitive and efficient agricultural sector is pursued, and also provides the resources to assist in its achievement. In this way the CAP makes a vital contribution to economic growth in Ireland and across the EU. Agriculture’s future potential in this regard is underlined by the fact that food production will have to increase substantially if growing global demand, expected to increase by 70% by 2050, is to be satisfied.
In Ireland, the CAP underpins the ongoing modernisation of the agriculture sector, which has seen the average size of farms grow from 22 hectares to 33 hectares since accession to the then EEC in 1973. In recent years the greater market orientation of the CAP, together with its increasing focus on the sustainable development of the agricultural economy, and its responsiveness to the evolving demands of consumers, has helped the sector to become more competitive and maximise its contribution to the economy.
The CAP’s support for primary agriculture provides an essential platform for the agri-food and drinks sector, which is now Ireland’s largest indigenous industry, accounting for 18% of total industrial output, employing 150,000 people in all parts of the country and generating annual output of about €24 billion. The sector makes a significant contribution to the net inflow of funds to the Irish economy, with export earnings estimated at €9 billion in 2011, up from €8 billion in 2010. It also generates a considerable multiplier effect – indeed, 70 per cent of the sector’s expenditure is on Irish goods and services.
And this is not only a national interest. At EU level, primary agriculture alone contributes 1.9% to gross value added and 5.6% to employment. The food and drinks sector is the largest manufacturing sector in the EU, representing some 9% of industrial value added and over 10% of industrial employment.
We have argued in the course of the MFF negotiations that the CAP is an instrument for the EU’s economic growth, through its support for agriculture, agri-food and the rural economy. We have also argued that Europe needs a strong consumer-focused, agricultural production base. We will continue to press these points.
[Irish position on Cohesion Spending]
I’d like to turn to the other large block of spending under the MFF – the EU Cohesion or Regional Policy. We see this as an investment policy which supports job creation, competitiveness, economic growth, improved quality of life and sustainable development. These investments support the delivery of the Europe 2020 strategy.
And we agree that Regional Policy is also the expression of the EU’s solidarity with less developed countries and regions, concentrating funds on the areas and sectors where are most needed and can make the most difference. During the period 2007-2013, the EU is investing a total of €347 billion in Europe’s regions. EU cohesion policy has been a force for change over the last ten years, making a genuine contribution to convergence and growth in the EU and directly creating over one million jobs, investing in training to improve the employability of over ten million people, co-financing the construction of over 2,000km of motorway and 4,000km of railway and setting up at least 800,000 Small and Medium-Sized Enterprises.
I would mention here that the Commission’s proposal would see Cohesion funding for Ireland for the MFF period decline substantially in comparison to the 2007-13 period, since our relative GDP per capita would exceed 90% of the EU average. We are seeking to address this by proposing a change to the reference period to reflect the recent downturn, and by giving increased weighting to youth unemployment and to real GDP decline. We have supported a greater focus of structural funds being placed on growth and jobs.
The Government’s aim in the Cohesion package negotiations currently underway is naturally to maximize Ireland’s allocation. We will be arguing strongly that Cohesion funding has had a major impact on key economic and social programmes throughout the country and that funding for 2014–2020 must be maintained to help secure Ireland’s recovery. We will also be arguing for a differentiated approach to allow Member States and regions the flexibility to select priorities according to their specific circumstances and the demands of their National Reform Programmes.
[Research and Horizon 2020]
Chairman, our position on the MFF is of course not a purely protective one. We will seek to make the most of opportunities presented in new proposals. In particular, research funding in Heading 1 provides significant opportunities.
Research and innovation are critical growth drivers. Given the relatively long lead times to reap the impacts of investments and reforms in this area, it is important to build on earlier investments to maintain impact. Implementing growth-enhancing policies and addressing societal challenges will help raise the competitiveness of the EU and its Member States, which is necessary against a background of ever fiercer global competition.
Europe cannot afford to cut its investments in research and innovation while its main competitors (such as the US, Japan, China, and South Korea) are developing ever more ambitious strategies.
The Commission’s proposal for the MFF envisages an allocation of €80 billion for the proposed Horizon 2020 research, development and innovation programme. Agreement on this substantial increase in research funding will support efforts at national level to bring about growth and jobs.
Ireland is working to ensure the alignment of our research and innovation investment with those areas of opportunity most likely to deliver jobs. Through complementary and mutually reinforcing research and innovation policies at national and EU level, we can all play our part in achieving our shared objectives for Europe 2020.
Finally, I would like to sound a note of caution about our negotiating position. Although we have common ground with some member states – such as with France and Belgium on the CAP, or with the UK and Finland on research spending, or with Sweden and the Netherlands on development spending – we are not part of a clear bloc such as the so-called Friends of Cohesion or the 1% Club. We have to tailor our negotiating stance to address this. And as we prepare to assume the Presidency of the Council, our position must reflect that role also.
These are not auspicious times for budget negotiations. The read-across to the international financial situation, and to the domestic budgetary situations within Member States, is complicating the discussions. But there is a renewed commitment by all parties to ensure that we have an MFF which supports growth and jobs, and that commitment must be in our national and collective interest.
And I’d like to stress in finishing that the MFF is a negotiation and not a normal legislative or budgetary procedure. The negotiation is not between Ireland and the EU, but between all the Member States and the institutions. The result will have to be one which all can accept – a compromise we can all live with. Of course there are different economic and fiscal approaches, and also different understandings of what constitutes good budgetary practice. But at the end of the day it will be about fairness – what each Member State considers as a fair deal for them, and a fair deal for the others around the table.
Chairman. I’m grateful for your attention. I would be very happy to take your questions and to discuss this further.