When is money not "real money"? Let's ask the European Commission...

There is a select group of masochists out there (us included) who devote their time to studying the inner workings of the EU budget. Its a very dry and technical process but at the end of the day the numbers matter - the UK's gross annual contribution (post rebate) this year is around €14.7bn, which easily exceeds the £7bn in fresh tax cuts David Cameron pledged at the Tory party conference yesterday.

Today, Commission President Barroso urged member states to sign off on a €4.7bn 'top up' to this year's budget, an issue we covered back in June. What struck us however was some of the language in a separate Q&A put out by the Commission, which contains gems like:

"The EU budget consists of commitment appropriations and payment appropriations. Broadly speaking, commitments are usually higher than payment appropriations and do not constitute "real money"; they could be compared to the amount mentioned in a contract any household or private company commits itself to pay at the completion of any given work. Payments, on the other hand, are "real money"; they are what the EU budget has to pay, again, just like any household or private company has to pay the builders once any contracted work is completed."

However, it is highly disingenuous to describe new spending commitments in the budget as not "real money" given that they are inextricably linked with payments: as the Commission itself is fond of saying, today's commitments are tomorrow's payments while today's payments are yesterday's commitments. 

It might however explain why the Commission is so frivolous when it comes to making new spending promises before then pressuring national governments to stump up extra cash i.e. "real money" to make up the difference.

'Erm...Brussels we have a problem' (Or "If EU did satellites..." Part III)

This week has seen the latest farcical episode in the EU's foray into space. The independent European Space Agency (ESA), which is based in Paris and is building the so-called Galileo satellite navigation system for the EU, was left with egg on its face after the two latest satellites for the system were launched into the 'wrong' orbit. In total, the project has now launched six satellites - two are in the wrong orbit and one, it emerged previously this year, isn't working.

Bad in its own right, but forgivable. We're dealing with some pretty advanced technology after all. Except, as we have chronicled before, this project has been absolutely bedeviled by unfortunate incidents, delays, infighting, poor planning and all sorts of other problems.

To re-cap:

Massive cost-overruns: The cost of completing the project and running it for 20 years (including maintenance) was under the original estimates (from 2000) €7.7 billion, of which only €2.6 billion was to be borne by taxpayers and the rest by private investors. In 2007, following the collapse of the private-public partnership, this cost had risen to € 11.8 billion, all of which was to be borne by taxpayers. In the autumn 2010, leaked information suggested that the cost had risen to a staggering €22.2 billion – again with the entire bill footed by taxpayers. But, it didn't end there…

The Commission all over the place on numbers: In 2010, Industry Commissioner Antonio Tajani denied new cost over-runs, saying “I don't know where these figures come from.” He insisted that the deployment budget (which is only part of the cost) remained at €3.4 billion (not €5 billion as the leaked info suggested). Only a few months later, in January 2011, however, Mr. Tajani and the Commission admitted that Galileo needed not just another €1.5-1.7 billion as was thought in 2010, but an extra €1.9 billion of taxpayers’ cash to cover the booming deployment cost – taking the deployment cost above €5 billion. At the same time, the Commission put the annual operation cost at €800 million (not €750 million as assumed in the 2010 estimate). This means that even €22.2 billion for deployments and running cost was an under-estimate.

Tajani has since announced what he calls “savings” of some €500 million on the huge cost overrun, but frankly, at this point we simply don’t trust any of the numbers coming out of the Commission on this one.

Taxpayers getting hammered: The cost for taxpayers for deployment plus 20 years’ worth of running cost may well have increased by some 750% - from €2.6 billion to somewhere in the region of €20 billion+. Shocking.

Delays: Originally Galileo was to be finished by 2008 – a date that was subsequently pushed back several times due to a series of delays, disruptions and other embarrassments. Between July 2005 and December 2005, the project came to a complete halt as member states and the private investors argued. According to the European Court of Auditors, these six months of doing absolutely nothing added an extra €103 million to the cost of the project. Encouragingly, the project managed to make up some time and the satellites were launched this year. However, with only three of the four previously launched working and this latest setback, the performance of this project leaves a lot to be desired to say the least.

Public-private partnership flawed from the very start: As the European Court of Auditors concluded in a damning investigation, the original public-private partnership proposal was “unrealistic” and “inadequately prepared and conceived.” Symptomatically, the private investors withdrew due to fears over the cost of the project spiralling “out of control” and that they wouldn't outweigh the benefits.

The original estimated benefits delusional: In 2006, the Commission estimated the market for Galileo as potentially consisting of 3 billion receivers and revenues of some €275 billion per year by 2020 worldwide – in addition to potentially leading to the creation of more than 150,000 high qualified jobs in Europe alone. The European Space Agency and others have estimated 3.6 billion users by 2020. These are such delusional assessments that it’s hard to know where to start. Indeed, a 2010 report from the German government admitted that "All in all, it is assumed, based on the currently available estimates, that the operating costs will exceed direct revenues, even in the long term.” And according to American diplomatic cables, released by WikiLeaks, Berry Smutny, the CEO of OHB Technology, a company that has a £475 million contract to build 14 Galileo satellites, is claimed to have said: “I think Galileo is a stupid idea that primarily serves French interests.”

The Indian, Chinese, Russian, Japanese, American markets already crowded: One of the reasons why the idea of “3 billion users” is so ridiculous is that all major players already have, or are in the process of acquiring, their own satellite navigation systems. The newly-redeveloped Russian “GLONASS” system has already been launched, and the Chinese are developing their own Compass/Beidou system (not a global endeavour, but set to deprive Galileo of revenue in China). India’s equivalent technology, IRNSS, will be operational within the next two years. Japan has one too and the US is soon to boast a new generation GPS System (though to be fair, that too seems to be delayed) – GPS being what most people happily use in Europe anyway. Where in the world is Galileo going to get its 3 billion users? Is there a better of example of how the EU is falling behind in the 'global race'?

The Chinese have nicked the frequency: In 2003, China agreed to invest €230 million in the project but pulled out after disagreements. Lo and behold, the Europeans noted that the Chinese government was a little too interested in the security related aspects of the project, and got cold feet. But only after Beijing got its hands on some very useful information. So while Galileo was falling behind schedule, the Chinese were developing Compass/Beidou. Chinese officials told the International Telecommunications Union, the United Nations agency that allocates radio spectrum frequencies for satellite use, that China plans to transmit signals on the wavelength that the EU wants to use for Galileo. In other words, the EU is now in the absurd position of having to ask China's permission to run its secure 'encrypted' signal on Chinese frequencies.

All in all, Galileo has had a sorry history right from the very start. And we suspect we haven't heard the end of it yet...

Every little helps: The reintroduction of EU civil servants' "special levy" is small step in right direction

The reintroduction of the EU's special levy tax is good news

In all the discussion of the EU budget for 2014 - 2020 there is one small item that has been overlooked - the welcome reintroduction of the special tax levy on EU officials' pay. In 2012 this was set at a rate of 5.5% on post taxed income but this lapsed in 2013. It will now reappear in 2014 as a part of measures that are hoped will keep the costs of the EU's bureaucracy under control.

 

The European Council Conclusions here say that "the new solidarity levy will be reintroduced at a level of 6% as part of the reform of the salary method. These measures will have a significant impact on the cost for pensions in the mid- and long-term."

This is welcome news, although, even with the reintroduction of the tax, EU civil servants will still pay far less tax than the EU citizens they serve. Let us hope that MEPs do not seek to show their own type of solidarity by attempting to remove it. Over to you Mr Schulz.

Should we feel sorry for underpaid EU civil servants?

A tale of woe? 

The European Parliament has published a helpful graphic to explain the terrible conditions that EU civil servants have to endure. EU civil servants have to work 37.5 hours a week (i.e 9 - 5:30 with a merger hour for lunch) and retire at the age of 65 on a potential 70% of their final salary.

Not all EU civil servants are overpaid, some (for instance some contractors) are not, and many work hard but there are some interesting omissions in this particular public information advert, such as:

Number 1) An average EU yearly salary is approx £67,693 (€78,503).

Number 2) An average EU yearly salary is approx £78,524.23 (€91,064) if you claim the tax free 16% expatriate allowance (an estimated 70% of EU staff do this).

Number 3) EU officials pay tax at their own specially low rate. On an average EU salary + expat allowance of around £78,524.23 you would pay only £12,610.40 in EU tax (16.06% in total). Whereas in the UK you would pay £26,201.54 in tax (i.e. 33.36%).

And this is before going into the arcane details of travel expenses, household allowances and free school fees....we will leave it up to you as to whether these area really such bad working conditions.

Detail - Number of EU officials: 

Detail - EU tax:

If an EU official has a monthly salary €6,938.38 [€83,260.56 per year] – he / she would pay EU tax of €1,292.53 per month [or €15,510.40 per year], the same as an annual UK salary of £67,693.3 and paying only £12,610.40 in tax (a marginal rate of 45% but an actual rate of only 18.6%).
 

However in the UK tax system an annual salary of £67,693.3 would set you back £21,652.55 in tax and National Insurance (i.e an actual rate of 32% and a marginal rate (inc NI) of 42%).

Many EU officials however claim a tax free expatriate allowance. If you add the 16% these EU officials can claim for not living in their own state then have an effective EU ‘salary’ of £78,524.23 with still only £12,610.40 paid in tax (16.06% in total). Whereas in the UK you would pay 26,201.54 in tax + NI on a salary of £78,524.23 (i.e. 33.36%).

In this case a tax saving of £13,591.54.

Deja vu anyone? EU auditors refuse to sign off EU spending for 18th year running

This morning, the EU’s Court of Auditors published its report on the EU’s 2011 accounts. Although the auditors concluded that the Commission’s accounts are reliable, they also found that the actual spending was “affected by material error”, and for the 18th year in a row they refused to sign off on it.

Here are the key points:

Total spending in 2011 was €127.2bn, of which 3.9% - or €4.96bn - was “affected by material error”. In 2010, the corresponding figures were 3.7% and €5.38bn, meaning an increase of €580m in the amount of erroneous spending.

Breaking down the budget into policy headings, we see that only the areas of External relations, aid and enlargement and administrative spending were deemed to be “free from material error”, i.e. an error rate of below 2%. For the other policy areas:

Agriculture: market and direct support
Total Spending = €43.8bn
Estimated error rate = 2.9%
Erroneous Spending = €1.27bn

Rural development, environment, fisheries and health
Total Spending = €13.3bn
Estimated error rate = 7.7%
Erroneous Spending = €1.02bn

Regional policy, energy and transport
Total Spending = €33.4bn
Estimated error rate = 6%
Erroneous Spending = €2bn

Employment and social affairs
Total Spending = €10.2bn
Estimated error rate = 2.2%
Erroneous Spending = €0.22bn

Research and other internal policies
Total Spending = €10.6bn
Estimated error rate = 3%
Erroneous Spending = €0.32bn

The Court also found that controls over 86% of the EU budget were only "partially effective".

The Court also highlighted a few practical examples of how such errors were made. Here are a few examples from the report:

• A farmer was granted a special premium for 150 sheep. The Court found that the beneficiary did not have any sheep. The corresponding payment was therefore irregular.
• In two Member States Italy (Lombardia) and Spain (Galicia), the Court found cases where ‘permanent pasture’ reference parcels were recorded as being 100% eligible despite the fact that they are fully or partially covered with dense forest or other ineligible features.
• European Social Fund - one of the so-called structural funds - gave money to a commercial association, as support for its activities, which included advising small and medium-sized enterprises (SMEs). The costs of several staff members of the association were charged to the ESF project, although evidence supporting the charging of their time to the project could not be provided. The Court considers that the project staff costs have been overcharged by 60%.
• A beneficiary from the EU's research funding pot declared overheads amounting to €366,891 and included the indirect costs of all its departments while only considering the research personnel as an allocation key when charging these costs to research projects. This resulted in non-related costs being charged, leading to an over-claim of €180,670.

Vitor Caldeira, the ECA's chairman, is quoted in the Telegraph as saying that auditors had "found too many cases of EU money not hitting the target or being used sub-optimally", an argument we have also made repeatedly, not least in recent reports on the EU’s largest spending areas – Regional and Agricultural policy. Caldeira concluded that: 

“With Europe's public finances under severe pressure, there remains scope to spend EU money more efficiently and in a better targeted manner. Member states must agree on better rules for how EU money is spent, and member states and the commission must enforce them properly. In this way, the EU budget could be used more efficiently and effectively to deliver greater added value for citizens." 

We couldn't have put it better ourselves. Brussels needs to get its own house in order (albeit many of the faults lie with national managing authorities) rather than demanding ever more money from European taxpayers.

Why Sicily shows Italy still has a lot to do...

As if Mario Monti didn't already have more than enough to work on this summer, another urgent item has taken the top spot on his agenda. The regional administration in Sicily (whose building, the beautiful Palazzo Normanni in Palermo, is pictured) is at serious risk of default. Its debt stood at a record €5.3 billion at the end of last year. The governor, Raffaele Lombardo, had already suggested that he would step down at the end of July. However, Monti felt the need to send him a letter yesterday, urging him to confirm his intention to quit. Given the shambolic state of affairs in Sicily we will overlook the fact that this essentially involves a technocrat calling on an elected politician to quit - far from ideal, but it's clear that Lombardo has to move on.

According to the Italian press, Monti and Lombardo are planning to meet next Tuesday, with the Italian government ready to send an administrator to take control of the region from the moment the Sicilian governor resigns. This statement made by Sicily's regional councillor for infrastructures, Andrea Vecchio, gives an idea of the gravity of the situation. He said yesterday,

Is Sicily on the verge of bankruptcy? I think so. I'm afraid we will soon no longer be able to pay the employees' salaries.

Politically, the situation is obviously serious, but not particularly controversial. Regional autonomy in Italy is not the same thing as, for instance, in Spain. The right for the central government to step in and grab the helm if regional administrations go off course is enshrined in the Italian constitution. However, the unbelievable list of waste and mismanagement examples which led Sicily so close to default (some of which featured in our 50 examples of EU waste, 2010 edition) offers a clear explanation of why Italy still has a lot to do to find its way out of the woods of the eurozone crisis.

Courtesy of Italian journalist Sergio Rizzo - co-author with Gian Antonio Stella of the bestseller 'La casta' ('The caste' in Italian) - here are some interesting and concerning examples:

- At the end of 2011, the Presidency of the Sicilian region employed a total of 1,385 people - i.e. more than the UK's Cabinet Office, which had 1,337 employees;

- According to the Italian Court of Auditors, the entire regional administration in Sicily employs 17,995 people. Last year, while Berlusconi's government was piling up austerity packages, 4,857 of these employees, previously on a temporary contract, were put on a permanent one;

- In 2011, these employees cost the region over €760 million just for their salaries and allowances - 45.7% more than in 2001. If social security charges are taken into account, the cost rises to almost €1.1 billion;

- Sicily's regional administration employs the same number of directors as 15 other Italian regions put together. This means that in the island's administration there is on average a director for every nine employees (the average in the Presidency office is one for every five or six).

Italian daily La Stampa offers a couple more colourful (but equally worrying) examples:

- The allowances of the 90 members of Sicily's regional assembly include €5,000 for 'funerary expenses';

- Back in 1984, Sicily decided to buy two killer whales (yes, you read it right) from Iceland, at a cost to the taxpayer of over 200 million of Italian lire - i.e. over €100,000. They were supposed to be admired by tourists visiting a water park in Sciacca, in the province of Agrigento - on the south-western coast of the island. A real shame that the park was never finished and the killer whales had to spend the rest of their lives in a swimming pool, at a cost of 6 million of Italian lire - i.e. over €3,000 - a month.

It looks like Super Mario will definitely have to live up to his moniker on this one... 

Commission's efforts to reform EU budget actually make things worse

As you may be aware, the Commission last year tabled its proposal for how the EU's budget should look like over the next long-term budget period (set to run between 2014 and 2020). With the exception of some modestly positive elements - such as a "performance reserve" for regional funding (albeit very small) to provide incentives for regions to actually deliver results and a bit more cash on R&D - the Commission's proposal is in many ways making an already irrational, wasteful and unresponsive budget even worse.

For example, through the "greening" of the so-called Pillar I of the CAP (involving 7% of farmland to be set aside to provide ‘ecological focus areas’, a requirement to rotate crops and some other elements, more here), the Commission has opted for an almighty fudge that further undermines effective production while not delivering any significant green benefits in return. Also, despite one of the claimed objectives of the Commission's proposal being to "simplify" the budget, the exact opposite has happened. And remember, direct CAP subsidies under Pillar I are already rather bizarre things. As they're based on land ownership or historical entitlement, these are subsidies to a random group of people rather than directed at any specific outcome. This is of course what the Commission is trying to correct through the "greening" proposals, but, alas, it has failed miserably.

This was yesterday echoed by the EU's own Court of Auditors, which noted in an evaluation of the proposal,

"The Court considers that the legislative framework of this policy remains too complex. For example, six distinct layers of rules govern rural development expenditure. With respect to cross compliance, the Court considers that, in spite of the proposed reorganisation, the complexity of this policy continues to make it difficult for paying agencies and beneficiaries to administer.

In spite of the claim that it focuses on results, the policy remains fundamentally focussed on spending and controlling expenditure and therefore oriented more towards compliance than performance."

Pretty damning.

Another example of how the Commission's new proposal is making matters worse is the new 'intermediate' funding category proposed for distributing the EU's structural funds, for regions with a GDP between 75% and 90% of the EU average. Without reiterating all the flaws of the structural funds, this proposal would actually be a blow to focussing the funds on the genuinely poor regions, where they can have the largest comparative impact (see p. 17-18 here for a more detailed discussion). As the Swedish Europe Minister Birgitta Ohlsson has pointed out, this will mean that potentially more cash will go to the EU's richest countries, which will continue to send each other money via Brussels. "We're totally against introducing this category", Ohlsson has said. We certainly agree.

Incidentally, EU Budgetary Commissioner Janusz Lewandowski announced on Monday that there was a €1.49bn surplus left over from last year’s EU budget, which will be credited against member states’ planned contributions for next year’s budget. In other words, despite the "go for broke" nature of the EU budget (if you know of that board game - you need to spend your money as quickly as possible in order to win), member states still don't manage to fully spend all their allocated funds. And yet, next week, the Commission is expected to propose a 5% increase to the EU's 2013 budget. This links to the lack of absorption critera and performance controls in the EU budget, although its a long discussion that is worth saving for another entry.

What's clear is that there's something fundamentally wrong with the EU budget. Come to think of it, it's actually quite fascinating that this anomaly is allowed continue to exist at the heart of Europe.

PS. If you want to know how to make sense out of the CAP and the structural funds - making them help rather than hinder jobs, growth and the environment in Europe - check out our recent reports on the topic, here and here.

The folly of EU structural funds illustrated

Here are a couple of illustrative examples of why the EU's structural funds so badly and desperately need reform. The list seemingly never runs dry.

First, the Sunday Telegraph had a feature on Madeira’s economy, claiming that grants from the EU structural funds – which require match funding from local governments or business – have contributed to the local Madeiran administration now owing over €6 billion, nearly double the per capita public debt of mainland Portugal. Much of the EU cash has been spent on infrastructure (not least via the Cohesion Fund, which is earmarked for that purpose) for which there is no demand. As German Chancellor Angela Merkel put it, "There are many beautiful tunnels and highways [in Madeira]. But this did not contribute to competitiveness."

Meanwhile, the European Commission and Swedish local authorities have earmarked nearly £10m to subsidise Facebook – a company currently valued at around $100bn (£63bn) – under plans to build giant server halls in Lulea in Northern Sweden. You'd be aware that Sweden is one of the richest countries in Europe.

Now, the European Commission always has two standard responses to examples like these:

• They've been taken out of context - and then gives a series of stats of how many jobs and how much growth the structural funds allegedly have created.

• It's up to the local authorities in member states to select the projects anyway, the Commission merely facilitates the cash.

But these examples are very much symptomatic of the wider problems and flaws inherent in the structural funds (SF). As we set out in our recent report on the topic:

1) Conflicting aims: are the structural funds meant to be channelled to areas where the absolute return of capital is the greatest or where they can foster the greatest convergence between poorer and richer regions (a key stated aim of the funds)? The €10mn in EU funds earmarked for Facebook - a thriving company - surely could have come from private capital. It's probably a decent investment. So in fact, the €10mn could have served to ‘crowd out’ private investment that otherwise could have take place in Lulea, while channelling funds away from poorer regions where they can have the most comparative impact. The result is the opposite of convergence.

2) Opportunity costs: Related to this, both the Facebook and the Madeira examples illustrate the huge opportunity costs that the SF involve - spending diverted from other, more
comparatively productive economic opportunities. In the Facebook case, the funds duplicate economic activities in relatively wealthy states that would have taken place anyway, and in the Madeira case, they're spent on outright damaging projects (i.e. needless infrastructure projects that run up debt).

3) Pro-cyclical and unresponsive to changing needs: The Madeira case shows that the SF tend to be pro-cyclical as they can be sucked into areas of the economy where unsustainable growth or serious leveraging is taking place, with few ways of making adjustments (this was also the case in Spain for example). Remember, the funds are negotiated on a seven year basis, and come with fixed spending criteria (with some discretion to alter spending on a yearly basis). Co-financing also makes the funds pro-cyclical. Not wanting to forgo the potential opportunities presented by taking up structural funding, governments and local authorities feel obliged to spend the money on co-financing, even if this means running up massive debts. Again, hello Madeira.

4) No link between performance and spending: the absence of strong conditionality
and performance criteria in the allocation of funds meant that Madeira continued to receive funding despite the absence of results from the billions in funding that it has received. This also means that the focus is on getting money out of the door rather than spending the cash wisely.

And this is even before we get into the irrational distribution patterns of the funds, the added administrative costs, the absence of absorption criteria, the problem with accountability (falling in between member states and the Commission) and the fact that the Commission's models for evaluating the funds are hopelessly inadequate.

Do read our report for the full picture.

This policy simply has to undergo root-and-branch reform, starting by limiting funding to the poorest countries only, where it can have the greatest comparative impact.

What a ski slope 'in the world's flattest country' says about EU funding

Fresh from giving Denmark some credit for prudent use of taxpayers' cash, here's a less flattering story:

Over at Open Europe we have issued periodic briefings on projects of dubious value which have wasted EU funds – in our 2008 report on ‘100 Examples of EU Fraud and Waste’, we picked out the particularly bizarre example of a ski slope constructed on a flat Danish island where snow rarely falls. By Scandinavian standards, the island is renowned for its mild climate, and there are no high hills.

In 2006, the ski slope was given around €100,000, from the European Agricultural Fund which can provide financial support for various activities in rural areas (many have little to do with agriculture, incidentally). Following our list and reports in international media, Agriculture Minister Eva Kjer Hansen, whose ministry handled the grant, said in 2009 the "criteria for getting [EU] subsidies are not rigorous enough" and said that she would "tighten the screw". Then EU Agriculture Commissioner Mariann Fischer-Boel also promised more stringent tests.

Fast forward 2012 and where are we at? Have the EU funds been paid back since they failed to create any new jobs? There has been a radical overhaul of spending criteria? Not quite.

Die Welt last week reported that the organisation "Bornholm's Friends of Skiing" (Bornholm's Skivenner) is to receive a further €33,000 EU grant for the “expansion of the ski lifts”, leading to another round of protests and disbelief.

On average, the ski slope stays open three weeks a year, according to Swedish Television, though last winter - which saw exceptional snow fall - the slope managed to stay open between the end of December and March (hats off). It had a rocky start, however. According to some reports, in its first year of operation, the ski-slope was only open for one and a half days, and nine the year after. During a normal Bornholm winter, snow cannons are of little help, because the snow only remains if the temperature is at minus two degrees on at least two consecutive days.

Hans Jørgen Jensen, the head of "Bornholm's Friends of Skiing", calls the the project a "giant success" (en kæmpe succes), though admitting that "the ski slope isn't a commercial project but I don't have bad conscience. It's about quality of life and is focused on the young."

Now skiing is fun, and it may be that the slope has proven popular with the locals, but few would argue that this constitutes a good use of taxpayers' money. Fundamentally, at the last time of counting, the island registered a GDP per capita of €31,000 - significantly above the EU average of €24,900, posing the question of whether it really needed development geared funding in the first place.

And as German MEP Inge Grässle told Danish daily Politiken:

"it's pointless to give EU money to a ski slope in a place like Bornholm where extraordinary climate conditions are needed in order for the money to generate any type of value. [EU subsidies for downhill skiing] in "one of the world's flattest countries need to come to end."

No kiddin'. So whose responsibility is it for paying out the grant? As is symptomatic of EU-funding, accountability appears to fall into a black hole somewhere between member states and the European Commission.

EU Agriculture and Rural Development Commissioner Dacian Ciolos’s response to the grant is already a classic:

“This is fully in accordance with Article 56 of the Implementing Regulation 1698/2005, which provides support for recreational activities in rural areas…The individual projects are evaluated by the national authorities, because they know the local situation best.”

Ah, it's consistent with Article 56 of the Implementing Regulation 1698/2005. All must be well then. (And they wonder why the citizens find it increasingly difficult to both understand and support the EU).

The current Danish government (which took office last year) blames its predecessors, with Agriculture Minister Carsten Hansen pointing out that it was the previous centre-right government which signed off the grant for the skiing lift. He promises that "The whole administration of the subsidies will be streamlined" (sounds familiar).

Former Agriculture Minister Eva Kjer Hansen who was in charge when the grant was paid out despite pledging to "tighten the screws" is now an MP and member of the Danish Parliament's EU Scrutiny Committee. She defends herself, saying:

"My responsibility was to look at the rules in Denmark [as opposed to EU-level rules?]. And much was done to ensure that the the impact [of the projects] were more concrete and that the more thought-through projects were the ones receiving the money."

She adds,

"It's doubtful whether we get the most out of the subsidies. Therefore we always have this discussion about whether the projects are justified. Or if the money has been handed out merely because there was EU subsidies there which simply had to be used for this or that silly project."

Not exactly a ringing endorsement of the idea of having the EU involved in rural and regional development funding in the first place.

So if I think that taxpayers' cash shouldn't be spent on a 'development' project involving a ski slope on a mostly flat and largely snow-free island with a GDP of 24% above the EU average - who should I talk to?

Note to EU: This is how austerity works

Ireland’s economic troubles are well documented, but at least the government has demonstrated its willingness to get to grips with its own budget deficit by taking some unpopular decisions, this time not with the electorate however, but with its own ministers. The Irish Independent reports that Taoiseach Enda Kenny vetoed his Justice Minister Alan Shatter’s request to use the government jet to fly to an informal EU justice and home affairs council meeting in Poland back in July.

It is reported that the trip would have cost around €20,000, but by flying with commercial airlines (SaS outbound, Ryanair for the return trip), Minister Shatter and his delegation notched up costs of around €3,000, thereby saving Irish (and European) taxpayers around €17,000. We appreciate that this might not seem like a lot in the context of the multi-billion euro bailouts, but it is arguably a lack of such prudence at all levels of government spending that precipitated the debt crisis that followed on the heels of the banking crisis in the first place.

Given that the EU is currently engaged in negotiating both next year’s EU budget and its Multiannual Financial Framework – long term budget – for the period 2014 – 2020, perhaps could serve as an unlikely but important precedent...

Eurocrat unions on the warpath...again

This in from PA:

A union for eurocrats is on the warpath over plans for a 40-hour week -
claiming the move would hit the balance between work and home life.

Some of the best-paid civil servants in the world are being asked to
agree to work another two and a half hours a week as a cost-saving
measure in the midst of mounting pressure from national governments to
cut the EU administrative budget.

Number-crunchers in Brussels say putting in the modest extra hours will
save EU taxpayers one billion euros a year (GBP870 million).

But one of the staff unions representing workers with pay and conditions
which are the envy of national civil servants across Europe is refusing
to negotiate on the increase.

All civil servants in the main EU institutions - European Commission,
European Parliament and EU Council of Ministers - enjoy the same scale
of pay and perks.

And many senior staff work long hours, despite the official norm of 37
and a half hours per week.

Now the Equipe d'Union Syndicale, the European Parliament's joint trade
union, has sent round a message rejecting the call for longer hours.

A group of union officials put their names to a letter declaring: "The
unions and staff associations replied to this proposal with a
categorical 'Niet!'"

They say working a 40-hour week would have a "very negative impact on
reconciliation of working and home life".

The statement adds: "The attractiveness of the European civil service
would deteriorate."

European Parliament staff already have Fridays off in the weeks when
European Parliament plenary sessions are held.

And most staff finish at lunchtime on Fridays the rest of the time.

But some insisted today that staff put in long hours, far in excess of
the official 37 and a half hour week.

On the other hand they can operate a flexi-time system, balancing short
days by working longer hours another day.

And they enjoy time off in lieu for hours over 37 and a half per week -
even in senior management positions.

But Conservative leader in the European Parliament Martin Callanan
insisted today that those fighting the change should "get real", in the
midst of the economic cutbacks being suffered across Europe.

"Public sector staff the world over are facing cutbacks and wage
freezes," he said.

"But here in Brussels they seem to think they live in an economic
microclimate where money grows on trees and the world owes them a very
comfortable living."

He added: "The Brussels pen-pushers, just like many of the politicians
here, just don't seem to get it when it comes to the economy. Austerity
measures are being taken everywhere, but somehow they think the EU is
immune.

"They need to get real and start to talk to us about how they can help
Europe out of this crisis."

It would have been absolutely hilarious had it not for the fact that the is EU facing its worst crisis to date, with falling living standards and redundancies now a fact of life for people across Europe.

As we've noted before, it's almost as if these people go out of the way to be unpopular with ordinary citizens.

Why the red face?

Fresh from having given the Commission credit for a sensible proposal, it's a bit surprising (well, not really) to see that some Commission Communication-types continue to do their best to completely wreck the image of the EU institutions.

So yet again, here we go! Following last week's Commission proposal for the EU budget, things are truly starting to hot up when it comes to the Brussels purse strings. The proposed increase has prompted some strong reactions from national capitals and therefore left the Commission rather isolated.

It is perhaps no surprise then to see the hugely defensive statement it has put out today in response to one of the fairly basic findings in our briefing on the EU budget, published last week. We stated that,

"Of the 23,928 permanent and temporary EU officials employed by the European Commission, approximately 10,240 earn over €80,000 (£71,500) gross. In comparison, of the UK’s 527,490 civil servants, only 5,490 earn over (£70,000) gross."

The Commission's opening response is simply, "We regard Open Europe's report as dishonest, manipulative and riddled with basic errors." This is pretty strong and colourful language - and we're used to being on the sharp end of Commission press briefings (and funnily enough, we always seem to end up with the last word).

The spokesperson then goes on to say:

"First, they compare all civil servants at all levels in the UK with just officials and temporary agents in the Commission. No mention of Contract Agents, who are generally the lowest paid category of staff. There are literally thousands of these (around 6,000 in the Commission, 10,000 across all EU institutions). One can only speculate why Open Europe chose to exclude them from their 'comparison'."

We're very clear that we have only included permanent and temporary officials in the numbers we cite. We have compared the actual numbers: the point being that in the entire UK civil service there are only 5,490 people earning over £70,000, while of the permanent and temporary officials in the Commission more than 10,000 people are earning over £71,000.

The question is, is this justified? We would guess that most taxpayers would think not.

If we had compared the percentages of high-earners in the Commission and UK civil service then we could see the Commission's cause for grievance - but the figures show that, while the UK civil service org chart looks like a pyramid (as most organisations' do), the Commission is a rolling treadmill where officials seem to simply progress on to the next level, with the extra pay and perks this entails.

The Commission's other major bone of contention is that "the share of administration costs in the EU's budget is not rising from 5.7 per cent to 6.1 per cent."

We have simply used the figures provided by the Commission for this: for the 2007-13 budget the current admin costs are €55.9bn from a total €975.8bn (in current prices) = 5.7% , whereas under the proposed 2014-2020 EU budget admin costs would be €62.6bn from a total of €1,025bn (in 2011 prices) = 6.1%. What else is there to say? Why the red face and the slander? (clue: over-reactions like this are usually a sign of somebody losing the argument).

The Commission keeps desperately trying to claim it is "not out of touch" with the people of Europe but its inability to even accept the basic terms of argument make it impossible to have a rational debate about the serious issues.

No wonder people are turning off and tuning out to the "European Project" in droves.

MEPs: always pragmatic, sensible, and firmly in touch with the real world

MEPs on the "Policy Challenges Committee" have agreed on their proposals for the next multi-annual EU budget period, to run from 2014-2020. When it comes to EU budget negotiations, this is the big one - these talks will set the overall "envelope" for each annual budget within the period.

Crucially, every national government has a veto. With negotiations expected to last around 18 months, expect plenty of horse-trading among European capitals, in addition to the various demands of the European Commission and Parliament. The context, remember, is the UK, France, Germany and others' call last year for "restraint" and the EU budget to rise no faster than inflation between 2014 and 2020.

So these looming negotiations are where reform-minded EU politicans and governments have the chance to dig in and get something done - hopefully achieving a far better and prudent deal for taxpayers in these times of austerity.

But, in what has happened too often now to come as a surprise, MEPs seem intent on pushing as many 'hot buttons' as they can. Their proposal includes:

- a 5% increase in funding. This doesn't sound much like "restraint".

- an end to all "rebates, exceptions and correction mechanisms". Yes, that would mean the UK's rebate, worth billions over a seven year period.

- a "system of real own resources". Also known as a new direct EU tax.

- no reform of the EU's wasteful farm subsidy regime nor the practice of recycling "cohesion" money amongst some of the richest countries on the world (also known as the structural funds).

Good to see everyone's starting on the same page then.

"For 500 million Europeans in times of austerity"

...That was how EU Budget Commissioner Janusz Lewandowski presented his 2012 EU budget proposal, tabled today.

With such a heading it must include lots of belt tightening, better targeting and some relief for those European governments whose budget is already incredibly strained, right?

Unfortunately, not.

To the surprise of no one, the proposal includes increasing the budget by 4.9% (€6.2bn), around 2% more than average inflation in the EU. I don't know about you, but we wouldn't usually describe that as austerity.

Needles to say, given that all EU members are trying to cut spending, increase taxes and impose varying austerity levels onto taxpayers, we have a feeling that Lewandowski's proposal won't be met by cheers in many countries. Below we have a breakdown of what we estimate each country’s increased contributions to the EU budget will be under the proposal - based on the projected national share of contributions for 2011, as forecast by the Commission (it's a moving target since you're never be quite sure what the actual contributions are until the money is paid out.)

We're looking at a €769m (£680m) increase for the UK. This is dwarfed by the €1.2bn that is added to Germany's EU bill for next year under the proposal (quite apart from the €100bn+ in loan guarantees that the country's taxpayers are already liable for through the bail-out packages). The French, who are beginning to realise that they are now net contributors to the EU budget, are on the hook for an extra €1bn - not exactly pocket change. The Netherlands, whose Government is now asking uncomfortable questions about the EU's external aid (partly as a result of our recent report on the topic) are on the hook for another €309 million. For all the contributions see table below (click to enlarge - these figures are gross contribution, meaning that in reality some countries might actually get more cash back than what they pay in, for example Spain).

Comically the Commission's press release outlines the fact that "bills must be paid", alluding to the fact that the Commission has committed to various projects which still are running. This argument is weak. Although it's true that the EU budget can't run a deficit, meaning less room for manoeuvre compared to national budgets, there's no reason whatsoever why the Commisison, MEPs and member states can't come together to prioritise and re-shuffle, since funds are clearly getting tighter. Just as national governments are forced to prioritise. As we note in our response to the proposal, there's plenty of fat to cut in the EU budget, from the 50 or so EU quangos, to paying non-farmers not to farm, to recycling 'cohesion' funds between some of Europe's richest regions. And, seriously, does Europe really need projects like these...(click link for examples)

We're sorry, Mr. Lewandowski , this proposal is neither for "500 million Europeans" nor for "times of austerity". In fact, it's quite the opposite.

"Knife-attack" on two seat parliament

Libya is burning on the EU's doorstep.

The dangers of the sovereign debt crisis still loom large over the eurozone - Portugal is likely to need a bail-out soon.

EU member states are working out how best to help Japan deal with the aftermath of the worst earthquake in the country's history.

Meanwhile, trust in the EU is at an all time low in many countries across Europe.

Mundane issues such as these should not, of course, distract from the really important issue - maintaining MEPs' €180 million/20,000 CO2 a year Strasbourg seat (in addition to their ordinary seat in Brussels and their secretariat in Luxembourg).

At least, that's how France sees it. The French government has said it will challenge the decision at the ECJ, taken by a majority of MEPs to scrap one - we repeat just one - of Strasbourg's annual sessions (the EP holds two plenary sessions in the autumn to compensate for MEPs' extended holiday season.)

The French Europe Minister Laurent Wauquiez explains why:

"The parliament building in Strasbourg is the symbol of a Europe closer to citizens, a Europe that is proud of its symbols. The government will not accept the knife-attack on the contract which is in the treaties."

Well of course. Now it all makes sense.

EU green fatigue

An increasing number of countries in Europe are beginning to suffer from what can best be described as 'green fatigue'. In fact, the mood has changed radically since March 2007 when EU leaders agreed to their ambitious green targets.

This is particularly obvious in Germany, Europe's industrial powerhouse and paymaster.

Over recent days, the EU's directive on biofuels (soon to be overtaken by the Renewables Directive) has been absolutely hammered in the German press. As it stands, the Directive requires gas stations to sell fuel with 10 percent ethanol content - which has triggered boycotts, due to drivers’ fears that the new fuel will harm their vehicles.

Der Spiegel notes:

"All EU countries were supposed to have introduced E10 by the end of 2010, but only France and Germany have complied. And problems have not been limited to Germany. Because of slight differences in the E10 biofuels used in France, the ADAC, Germany's largest automobile association, is recommending that German drivers avoid E10 fuels should they cross the border into France."

In a comment, Handelsblatt criticises the Directive, arguing that due to rising food prices and environmental concerns "In 2008, EU Energy Ministers opposed extending the share of biofuels to beyond 10 percent". But, it notes:

“That isn't the end of the story however...Stable or falling prices for farm products, about which the agricultural lobby - led by France - is complaining, will be a thing of the past. The ones who need to pay, are consumers. In Europe, but especially in developing countries."

It concludes: "to burn food in order to obtain fuel is just a crazy idea."

We've warned against the EU's biofuel policies on several occasions, for example in January 2008, when we wrote that allocating more resources to biofuels would be a serious mistake:

"Biofuels are only likely to achieve between 0.9% and 1.1 % reductions in total EU emissions. This is a serious misallocation of resources. If the huge expense of achieving the miniscule reduction in greenhouse gases through biofuels were to be redirected towards reforestation projects, almost 28% of the EU’s total emissions would be saved. Even if it were to be redirected towards (relatively cost inefficient) renewables (at current costs), these funds would deliver a 2 – 5% reduction."

Meanwhile, the European Commission has just announced that EU climate policy will cost €270 billion annually, over the next 40 years. This is a massive amount. But the Commission is still intent on raising the EU's targets from the current levels of 20%.

FAZ comments:

"The ability of European industry to compete internationally will be undermined as a result of unilateral climate change targets. Energy-intensive production, for example of metals, is merely being transferred to third countries (...) without improvements to the world's climate. The Commission doesn't ask itself these fundamental questions."

To be fair, Germany's Commissioner in charge of the energy brief, Günther Oettinger, has been very critical of his own institution's attempt at raising CO2 targets. "I believe 20 percent is the right, middle way," he said, warning that if the EU would go it alone, "than we not only lose jobs, taxes and social contributions. We will also have no reduction of CO2 levels."

He seems to have lost, though, as the Commission has just announced that it will be pushing for a 25% target, up from 20% compared to 1990 levels.

Still, opposition to the EU's green agenda - agreed at a time when Europe's economy was booming and the EU was looking for a new role for itself (the 'world peace' theme was getting a bit dated) - is clearly growing.

The EU's fisheries policy gets battered

If there ever was a competition for the worst EU policy, the Common Fisheries Policy would probably end up on top. The policy simply has to go.

So it's encouraging that the EU’s Fisheries Commissioner Maria Damanaki yesterday did the right thing and called for an end to the CFP-mandated practice of throwing back dead fish overboard if fishermen's quotas have been exceeded:

"I consider discarding of fish unethical, a waste of natural resources and a waste of fishermen's effort. But I would like to go further – since our stocks are declining, these figures are not justifiable anymore. If we continue with our policy, then we will soon face a situation where the production capacity of marine ecosystems is at risk”.

This is of course hardly a revelation; groups from across society and the political spectrum have been warning about the economic, social and environmental catastrophe that is the CFP for a long time.

To give only a couple of examples of what Europe's fishing industry has come to under the CFP :

· 80% of Europe’s fisheries are considered to be overexploited or in danger of collapse

· 1.3 million tonnes of seafood are thrown back every year in the North Atlantic alone, including two out of every three haddock caught to the west of Scotland

· The value of fish that thrown back every year by the Scottish fishing fleet alone was estimated at £40m, resulting in higher prices for consumers.

Momentum against the CFP is building, and the recent “Fish Fight” campaign fronted by TV chef Hugh Fearnley-Whittingstall has brought the issue to a much wider audience, helping to put pressure on the EU for reform. While Damanaki’s pledge is good news, this time it must be followed by concrete action. After all one her predecessors, Joe Borg, called the discards policy “morally wrong” and pledged root-and-branch reform back in 2007, but to no avail.

The common sense void in which the CFP exists is a big reason why hostility to the EU is growing, exemplifying Brussels’ painful inability to reform its policies as the circumstances around it changes (on this one, it's not the Commission's fault as a handful member states, most importantly Spain, continue to block reform). It is so detested that it even managed to unite such diverse groups as climate change sceptic Conservative MPs and Greenpeace activists.

Although dumping the discards policy will not solve all Europe’s fishing problems, it's certainly the right place to start.

Mean journalists ganging up on Brussels

An internal commission newsletter reveals what European Commission President José Manuel Barroso thinks about criticism of the pay and perks enjoyed by EU staff.

In what is seen as a direct response to revelations that 2,000 EU officials, earning between €124,000 and €185,000 a year, were also entitled to three months off work on full pay last year, Presidente Barroso said:

"The European civil service is often attacked for its apparent 'privileges' when this is not the case and I am always defending this."

Adding that he "cannot accept populism against the European civil service", while paying tribute to EU officials, describing them as a "great asset to Europe".

Sure, EU officials can do a good job but please! Not a week goes by without media across Europe lamenting the various excessive ways in which EU officials are compensated for their work. In Barroso's world, one is led to believe, this is just a case of mean journalists ganging up on Brussels (despite the Commission spending around €8 million a year on entertaining, training and 'informing' journalists. What has the world come to when you can't even buy some decent coverage?)

Only today, Danish newspaper Politiken reported that on average, salaries across Europe have fallen by 5% since 2008, while for EU officials they have increased by 4% during the same time period. One in five EU officials has an annual salary of around €135,000, or more - which seems high even to us. Between 1,100 and 1,600 make more than the Danish PM.

It would be strange if media did not report on this.

Barroso should take a stroll down the hallway in the Berlaymont building and have a chat with his colleague, Budget Commissioner Janusz Lewandowski, who understands the need to cut at least some of the EU institutions' expenditure.

Progress?

UK Chancellor George Osborne yesterday refused to sign off the EU budget for 2009 in a routine vote in Brussels. This was a purely symbolic - but still important - gesture to protest wasteful spending in the EU. A spokesperson for the Treasury said that

The Chancellor has put Europe on notice that we can't afford not to put Europe's house in order.

The UK government is talking up EU budget reform, which can come back and bite them if they fail to deliver (remember the budget freeze promised by Cameron, which sort of back-fired?), but is also showing political will to get something done. That's a good sign.

Osborne was joined by Sweden and the Netherlands in abstaining in the vote. The reason for the Dutch absention was, as the country's Finance Ministry bluntly put it, that "€2 billion has disappeared" from the EU budget, which strikes us as a pretty valid reason.

Last year only the Netherlands abstained from the budget vote, meaning that we're looking at progress this year.

With this rate, all member states will refuse to sign off the annual budget by 2022 or 2016 (depending on how optimistically you count).

We're not exactly holding our breath though.

A Royal Extravagance

Spot the odd one out…

• Buckingham Palace in London
  
• Palacio Real de Madrid, Spain
• Stockholms slott, Sweden, and
• The Louise Weiss building in Strasbourg, France.

We’re guessing that most people will not ever have heard of the last one. It’s in fact, the infamous seat of the European Parliament in Strasbourg – better known as the reason for the European Parliament’s utterly ridiculous ‘travelling circus’.

The European Parliament's 216-mile monthly trek to Strasbourg beggars belief. But no matter how many citizens, MEPs or even EU officials complain, the out-of-touch people at the very top refuse to bow their heads to listen.

In an interview with Euractiv, European Parliament President Jerzy Buzek got the chance to explain why he defends the Strasbourg seat.

Strasbourg is a symbolic place. Symbols are important

€200 million a year is an expensive symbol, but Buzek sticks to his guns:

We can also ask whether for some member states it is right to keep a monarchy. But for these countries that has an historical meaning and it is still an important part of public life and interest

Right...Perhaps that explains the European Parliament’s, at times, interesting take on democracy (i.e. voting to ignore the outcome of the Irish referendum on the Lisbon Treaty). He continues,

So, why would we eliminate Strasbourg? It is the very symbolic place of the European Union. It is indeed very important as it represents the essence of our main value: solidarity

Apart from the bizarre parallel that Buzek is trying to draw between Europe's monarchies and the two-seat European Parliament, what kind of 'solidarity' is he talking about? And with who exactly? Scrapping Strasbourg would save over €200 million a year and 20,268 tonnes of CO2 emissions, so he certainly can't be referring to solidarity with taxpayers or the environment (but who cares, eh?)

What's next, horse drawn carriages for Buzek and his mates and a regal eurocrat wedding?