Financing the EU: Today and in the Future New Challenges – Necessity of Reform Dr Dalia Grybauskaite Commissioner Financial Programming and Budget Giovanni Agnelli Foundation Torino, May 2007

New era dictates new priorities Facing challenges of the 21 st century:  Globalisation: Europe is more than ever affected by external influences – an adequate reaction is promptly needed;  Competition: growing regions will not wait for Europe - it needs to immediately accelerate its speed and dynamism;  Energy: the energy system is still vulnerable. It must become more intelligent – sufficient, independent, safe and clean;  Environment: the EU is a good achiever - but a lot more still can and needs to be done;  Terrorism, organized crime, illegal immigration: only by combating these threats can the EU ensure liberties and civil rights for its citizens;  Internal development of the EU: renewal of the political and institutional shape is necessary for Europe to keep up with the times.

Shift towards economic progress  Competitiveness for economic growth, employment+ 71 % (Programs devoted to modernisation and innovation)  Cohesion for economic growth, employment+ 21 % (Structural and Cohesion funds)  Preservation and management of natural resources- 8 % (Direct aids for agriculture; Rural development; Fisheries)  Freedom, security, justice, citizenship+ 78 % (Solidarity, health, consumer protection, culture, etc.)  The EU as a global partner+ 29 % (Programs devoted to Pre-accession, Neighbourhood, Development policies) The EU finances The EU finances TOTAL: € million

The EU budget: mirror of priorities? How the money will be spent, TOTAL: € million (at current prices)

Reform of finances is a vital necessity  The structure of the budget does not fully match declared EU needs and priorities: The composition of the budget was shaped decades ago and has not been substantially reformed; New challenges emerged, but have not yet been addressed soundly or adequately.  The budget needs more flexibility to meet changes in the dynamic world;  The own-resources system is too complex, not transparent enough;  Europe is at the stage of a larger debate on its future - finances should reflect the outcome of these discussions. The only way forward is to transform EU finances into a precise mirror of political goals and promises.

What needs to be done? I. Policies - first  To identify key future priority tasks – first of all, before talking numbers;  To define which of these priorities should become common EU policies funded at EU level and which of them should be left to the Member States. II. EU Budget expenditure – matching political goals  To build a consensus on long-term spending, ensuring adequate funding for the agreed policies;  To ensure that the structure of the EU budget reflects the newly defined political direction. III. EU Budget revenue – reflecting ambitions  To ensure that EU resources fully match political ambitions;  To agree on the method of contributing to EU funds and to implement it in practice, making the revenue system clear and transparent.

Agenda: steps towards reform I. Debate  Issues paper (mid-2007) – a basis for consultation: 1.presenting state-of-play, 2.exposing problematic aspects, 3.posing questions.  Exchange of views with all stakeholders. II. Proposal  Summary of the results of the debate, of studies, of analyses;  Conclusion and proposal – possibly optional (end-2008/2009). III. Decision  Final discussions followed by an agreement between the institutions;  A new and modern financial approach for a modern EU.

Political environment A unique exercise in a complicated political context:  Full national political schedules.  Crossover with heavy debates on Constitution/Treaty and further enlargements.  EP elections and new Commission (2009).  Continuing effects of 2004 and 2007 enlargements.  Simultaneous sectorial reflections: CAP+ Cohesion+ WTO developments.  Expiration of all legal bases by end of 2013.

How far are we ready to move?  Ambitious approach, drastic changes (a step beyond the Treaties?) : 1.New common policies for the EU? 2.New sources of revenue? 3.Some current policies and current resources not needed anymore?  Fundamental reform of the present system (within the Treaties) : 1.“Phasing-in” and “phasing-out“ approach regarding the policies; 2.“Phasing-out” of exceptions and rebates; “phasing-in” of a clear and visible basis for own resources.  Step-by-step philosophy: 1.Cosmetic update of the existing policies, but not a reform; 2.Technical improvements of the own resources system. Europe is facing a historical chance to choose its way and make a difference to its future. Possible scenarios of the final decision:

Budget reform : a unique task, a great chance  The first decisive step is taken: the EU dared to agree that its finances need fundamental reform;  The Commission undertook to pilot a wide-ranging review – we are striving for a: … fresh look at the bigger picture of Europe: what EU do we expect and what are the ways to reach it? … genuine rethinking of EU spending: does money match political declarations and promises? … ‘no taboos’ exercise: all aspects can be questioned, all habits can be put in doubt; …wide and frank dialogue: process of consultation will include EU states, EU institutions, academia, think tanks, other stakeholders, ensuring that all voices are heard and considered. Everybody who cares about Europe will have the opportunity and the responsibility to have a say in its future.