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Cost of EU Rises, Even as Countries Make Cuts

In Greece, taxes are up and so is the age of retirement. In Spain, civil servants have taken pay cuts. In Britain, spending on welfare, the military and education could be chopped by a quarter.

People demonstrate to say ''no to austerity'', in Brussels. Police threw a ring of steel around EU headquarters as tens of thousands in a sea of banners from across Europe took to the streets in a worker backlash against painful spending cuts. The protest, the biggest such march since 2001 when 80,000 people invaded the Belgian capital, was timed to coincide with an EU plan to fine governments running up deficits.
Georges Gobet | AFP | Getty Images
People demonstrate to say ''no to austerity'', in Brussels. Police threw a ring of steel around EU headquarters as tens of thousands in a sea of banners from across Europe took to the streets in a worker backlash against painful spending cuts. The protest, the biggest such march since 2001 when 80,000 people invaded the Belgian capital, was timed to coincide with an EU plan to fine governments running up deficits.

Despite mounting public protests across the Continent, an austerity drive unparalleled in modern, united Europe is building.

In Brussels, meanwhile, the bureaucracy that runs the European Union is haggling over how much to increase next year’s budget. In 2011, the European Union will pour billions more euros into the Continent’s regions for infrastructure and other projects.

Spending on justice and security is set to rise sharply, while even purely administrative costs are expected to increase by more than 4 percent. Supporters see the spending as an antidote to austerity, a way to keep a fragile economic recovery alive.

Critics say it highlights the remoteness of Brussels, where pay raises are written into law, spending priorities are decided up to seven years in advance and millions are spent on questionable efforts to spread the message of a 27-nation bloc that often seems to have little decisive to say on issues that matter to voters, like immigration.

National governments pay most of the bill, and some have lost patience. Vince Cable, the British business secretary, predicts a “backlash” against the bloc.

“When national governments, including mine, are having to make very painful cuts in public spending,” he told the European Parliament, “no one can understand why the European budget is not being subjected to the same discipline.”

The European Commission, the E.U. executive, is seeking a 5.9 percent increase in the bloc’s 2011 budget, lifting annual spending above €130 billion, or nearly $180 billion — about half the annual public spending of a midsize nation like the Netherlands.

National governments have tried to limit spending to €126.5 billion, a 2.9 percent increase.

But the European Parliament, which must approve the budget, sought to add or restore a host of measures in a mix of altruism, special interests and pork barrel politics familiar to anyone who tracks the U.S. Congress.

Earmarks sought include €300 million for dairy farmers, €9 million for the World Special Olympics Summer Games in Greece, €10 million for a school fruit plan and €8 million for beekeeping. All told, the total would be about €3.5 billion more than the governments say they can afford.

“You cannot do things in an ivory tower,” said James Elles, a British Conservative member of the European Parliament who has been on its budget committee since 1984. “People back home do observe what’s going on. They have to feel we are taking responsible decisions for 2011.”

Critics point to what they say are areas of fat — €8 million for promoting awareness of the bloc’s agricultural policy, for example. They also highlight the cost of E.U. administration, which the European Commission would like to increase by 4.5 percent, to €8.4 billion, in 2011.

While some European countries are cutting the salaries of civil servants, the national governments are strugglingto curb the pay of E.U. officials, who often earn significantly more than their counterparts in national capitals, while also paying income taxes at lower rates and receiving generous benefits.

When the governments held pay increases for E.U. officials to 1.85 percent this year — half the amount due under the system — they were promptly taken to court by the European Commission. (Most observers expect the commission to win).

Indeed, overall costs of administering the European Union are rising, exacerbated by new bodies created by the Lisbon Treaty late last year.

There is the new president of the European Council, Herman Van Rompuy of Belgium, and a new foreign policy chief, Catherine Ashton of Britain. There is also the European Parliament, which got an additional €9.4 million to exercise new powers.

To run his operation, Mr. Van Rompuy got €25 million for 2010. Ms. Ashton's new foreign service will cost €476 million in 2011, the commission says, much of it met by transferring existing staff, but with €34.5 million needed for new posts.

The other question is where to house the service, and whether to lease a new building at an estimated annual cost of €10 to €15 million. That is a tough sell when the European Union does not lack new buildings, so Ms. Ashton is now targeting one occupied by legal translators.

Salvador Garrigo Polledo, a Spanish center-right member of the European Parliament’s budget committee, concedes a perception problem.

“It’s a very small bureaucracy,” he said, “but it is very visible for the European taxpayer.”

As it has for decades, the bulk of the budget — about €110 billion this year — will go to regional or agricultural subsidies, seen by some as a counterweight to austerity.

“The E.U. budget is about investment in the very things we need to take care of in these difficult economic times,” said Goran Farm, a budget spokesman for the main center-left group in the European Parliament.

“We must fight the austerity message from ministers — especially the hard-line ideas of governments in the U.K., the Czech Republic and some Scandinavian countries.”

Many economists, though, consider agriculture subsidies an added cost to European consumers and a burden on farmers in poor countries who cannot compete on their own.

Much regional spending is mandated; infrastructure projects where contracts are already signed cannot be canceled, said Patrizio Fiorilli, a budget spokesman for the European Commission.

Jorge Núñez Ferrer, an associate research fellow at the Center for European Policy Studies, believes that the economic backdrop will concentrate minds when the bloc begins to review longer-term priorities later this year.

“Austerity will have an impact on the budget,” he said. “I think there is an understanding that you cannot just defend funding things for historical reasons or because it is politically convenient.”

Next year, for instance, E.U. officials may have their pay cut by 0.4 percent. But that modest sacrifice is unlikely to placate the protesting public.

Serge Colpin, 58, from Charleroi in the depressed south of Belgium, joined demonstrations last week in Brussels. An unemployed former soldier who said he had been seeking work for eight years, Mr. Colpin is angry at bankers, politicians — and people who work for the European Union.

“They earn too much, they are exempt from a lot of tax, they have cars, they have drivers,” he said. “And we pay.”

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