The EU budget is designed so that each country pays a fee based on its wealth (calculated in gross national income, GNI) and receives a subsidy, also based on the country’s wealth. Rich countries thus pay in more and the poor receive larger subsidies. Note: according to Abbreviationfinder, EU stands for European Union.
An EU budget must be balanced because the Union is not allowed to borrow money to cover deficits, nor is it allowed to tax citizens. There is a ceiling for how large the EU budget can be: 1.23 percent of the countries’ total GDP. So far, spending has never been so high.
The EU expenditure budget for 2018 was just over EUR 160 billion (SEK 1,640 billion), which corresponded to 0.85 per cent of the EU countries’ total GDP. As a comparison, it can be mentioned that Sweden’s expenditure budget in the same year amounted to SEK 999 billion.
EU revenue is thus taken from the member states and is of three types:
• The prosperity tax is based on each country’s gross national income and is the largest part of the membership tax (around 75 percent)
• The VAT tax is calculated on each country’s VAT base (about 11 percent)
• Duties, agricultural levies, interest income and taxes from EU employees (14%)
The money is then used for various grants and most of it goes back to the member countries. The expenses are distributed roughly as follows:
• Structural Funds (35.6 per cent)
• Agriculture (30 per cent)
• Rural development, environment and fisheries (11.5 per cent)
• Growth, research and education (9 per cent)
• Administration and salaries (5.8 per cent)
• Development aid and foreign policy (5.7 percent)
• Legal issues, asylum, citizenship (1.3 percent)
The countries that earn the most in the form of grants for EU membership are thus countries with regions where the average income is very low or who are engaged in agriculture.
A country that Sweden pays more than it gets back. In 2018, Sweden paid SEK 39.5 billion in EU fees and received SEK 12.9 billion back through various EU grants.
How large the EU budget should be and how roughly it should be distributed is determined for seven years at a time by the Heads of State and Government. These must be in full agreement because budget decisions require unanimity. It must then be approved by the European Parliament.
The current multi-annual budget runs between 2014 and 2020. An annual, more detailed, budget has been established since each autumn by the Council of Ministers and the European Parliament on a proposal from the European Commission. Should the parties not agree in time, the last year’s budget will roll on.
The seven-year budget for the years 2014–2020 was negotiated in the aftermath of Europe’s deepest financial crisis since the 1930’s. For the first time, an EU budget was cut, by about 6 percent compared with the previous period.
In total, the EU has had 960 billion euros to spend during these seven years (approximately SEK 8,460 billion) distributed according to the points above. The sum corresponds to 0.95 per cent of the member states’ total GNI (gross national income).
Appropriations for agriculture decreased slightly in the rolling budget, while support for rural development and regional policy appropriations increased slightly. The research grant increased sharply (by 30 percent from previous years).
A new feature was an investment fund for growth and jobs (EFSI). Based on small grants but EU guarantees in large amounts, the fund would launch growth projects where other actors contributed funding of up to EUR 315 billion. The conclusion in the summer of 2018 was that 898 projects had been started across Europe with a total funding of 335 billion euros, ie above the target. The EU decided to move towards a target of EUR 500 billion.
Britain’s withdrawal from the EU means that about 12 percent of the EU budget is lost. Faced with these prospects, an overwhelming majority of EU countries have declared their willingness to increase their membership fees to the EU – in order to jointly address new challenges such as defense cooperation, migration and anti-terrorism cooperation.
The founders of the European Monetary Union (EMU) had deliberately failed to create a rescue instrument for countries that mismanaged their economies. No indebted country could expect to be redeemed by the others. But when the debt crisis seemed to be spreading to the entire eurozone, (bilateral) emergency loans were still granted to the most vulnerable countries and a (European) rescue fund was set up to assist in acute payment crises.
During the crisis, the European Central Bank (ECB) became a highly active party in saving the eurozone. On its own initiative, the ECB pumped out money through cheap loans to European banks to prevent the entire economy from stalling, then went in and bought government bonds.
By April 2016, the EU as a whole had regained the same economic level as before the crisis. In a few years, Ireland, Portugal and Spain had managed to emerge from their deep slumps. But Greece remained vulnerable, partly because the country failed to implement agreed reforms, partly because the loans became so large that all income went to pay off the loans, which robbed all chances of growth. The situation led to bitter quarrels over betrayal between politicians from different countries and threats to expel Greece from EMU. Only in the summer of 2018 did Greece stand on its own two feet financially again.
Many observers were surprised that euro cooperation did not break during the crisis. The euro countries ultimately decided to stick together and shrink their national economic freedom. A banking union was created to avoid careless banks emptying a country’s treasury during a new financial crisis.
However, the question is open whether the euro countries have done enough or whether individual countries can still create problems for the partners. In the spring of 2018, Italy’s high indebtedness and weak bank solvency constituted a new cause for concern, exacerbated by a new Italian government objecting to the EU’s demands for budgetary discipline.
The refugee crisis
In the summer of 2015, large numbers of refugees began arriving in the Greek islands. By the end of the year, one million people, mostly refugees from war-torn Syria, had sought refuge there. Greece could not handle this large number of people who voluntarily began to migrate north in Europe. In the beginning they were well received, but when the currents of the people just continued, the brakes hit. Several EU countries, including Sweden, introduced border controls and began sending newly arrived migrants back south.
In September, the EU countries had voted to distribute the many refugees among themselves. But the Union’s Eastern Member States, which have been voted down, refused to comply with the decision. In the paralysis of action that arose, the European Commission presented a new proposal that mass migration should automatically lead to a redistribution when a country has received 150 percent of a “normal” migrant intake. The country that then does not receive its fair share will pay the other SEK 2.5 million per refugee. The proposal immediately encountered opposition and was not a further decision in early 2019.