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The benefits of EU membership: not much talked about during EU budget negotiations

The high-level group on own resources (HLGOR), chaired by Mario Monti, pictured above, former Italian Prime Minister and EU Commissioner, has challenged the ‘juste retour’ principle, pleading for a wider perspective on the costs and benefits of EU membership. Source: Council of the European Union.

Many capitals in EU Member States will agree that there are tangible benefits related to their membership of the European Union. But during budget negotiations the focus, at least in the public debate, often switches to the cost of EU membership. Marti Pilati is Policy Analyst at the European Policy Centre (EPC), working mainly on economic and regional policy issues and the EU budget. Below she discusses which aspects of EU Membership might not be given enough consideration during the negotiations on the EU’s multiannual financial framework, as well as the limitations of the ‘juste retour’ approach, and suggests possible ways to overcome this issue. (1)

By Marta Pilati, European Policy Centre

Looking beyond the zero-sum game

Countries benefit from a number of advantages from being Member States of the European Union. The most widely acknowledged direct advantage is EU funding from the common budget. This, however, represents only a minor part of the benefits that EU membership offers, but is nonetheless the only subject of discussion during the negotiations of the EU’s Multiannual Financial Framework (MFF), i.e. the seven-year EU budget. MFF negotiations are in fact dominated by a ‘juste retour’ approach, by which each country attempts to contribute as little as possible and receive as much as possible from the common budget.

This logic, which reduces EU operations to a zero-sum game — according to which, if one country ‘wins’ another one ‘loses’ — completely disregards the wider benefits that Member States enjoy thanks to their EU membership, whether economic or not. Importantly, these are benefits that cannot be replicated at national level, and only arise thanks to EU-level action. This is because they are dependent on a critical mass that is not achievable by one country alone, or because they arise from cross-border operations or network externalities.

Benefits of EU membership

The Single Market

EU economies gain from economic integration, which results in higher intra-EU trade and more competition. The Single Market is an integrated economic area that is open in a non-discriminatory way to all sectors and individuals, in contrast to any other free trade agreement. The quantification of benefits is complex and challenging, given the absence of an alternative scenario, but some studies have been able to assess the positive effects. It is estimated that the EU’s Gross Domestic Product would be 9% lower if there had been no Single Market integration,1 which on average brings approximately €840 of annual income gains per person in the EU2 (see Figure 1). Importantly, it is estimated that some Member States gain more than others, with Luxembourg, Ireland, Denmark, Belgium Austria and the Netherlands benefiting the most.

Figure 1 — Economic benefits of the Single Market

While the economic gains of the Single Market are recognised to a certain degree in public discourse — although they are sidelined during MFF negotiations — less quantifiable benefits find less acknowledgement.

Common action on cross-border issues

The EU allows Member States to address cross-border issues jointly. This avoids fragmentation of responses and improves the efficiency of international communication and action. For example, the effects of climate change and water and air pollution do not stop at borders. EU-wide standards and environmental protection legislation thus bring value to all countries. EU regulation on air pollution, for example, has been associated with a drastic reduction of pollutants in the air in the past few decades. Additionally, EU funding supports investment for climate change mitigation and adaptation, also in prospective Member States.

Other transnational threats include terrorism, trafficking and money laundering. Again, a common response is more effective than fragmentation through a variety of national policies. Although a fully harmonised system is not yet in place, the European Arrest Warrant means that warrants issued by a Member State are valid in the entire EU territory, thus preventing other Member States from impeding arrest.

Cross-border exchange of information is crucial for citizens’ protection. This applies to the field of security, with the exchange of data and expertise on cross border criminal activities assured by Europol, but also when it comes to consumer protection. The EU has a common system for food and product safety, including tracking goods and sending EU-wide alerts on health hazards (the Rapid Alert System for Food and Feed and the Rapid Alert System for Non‑Food Products).

Individual protection

Given that citizens may live and work in different Member States throughout their lives, a common set of rules is necessary to ensure that rights are harmonised across the EU. Differences across national legislation can indeed lead to the creation of grey areas where protection is not assured. This is the case for example on workers’ protection, e.g. the exportability of social security rights, safety and health requirements and rules on working hours, among others. Similarly, consumer protection rules include those on passenger rights and online purchases. Another important area is food and product protection. EU legislation has also led to the creation of minimum standards for gender equality and the equal treatment between men and women in many areas, including in social security, work entitlements, access to services and parental leave.

Source: European Commission

Critical mass in the global context

It is reasonable to argue that Member States alone would not be able to negotiate as many Free Trade Agreements (FTAs) as they are through the EU. Brexit exemplifies this issue. Third countries are more interested in accessing larger rather than smaller economic areas, allowing EU countries more power in the negotiations. The benefits in terms of exports and growth that Member States gain from international trade would thus be lower in the absence of the EU.

Similarly, the size of the EU allows it to exert significant soft power in relations with other countries. For example, it allows the introduction of environment and worker protection chapters in FTAs. The Paris Agreement is probably the most successful example of the influence that the EU can exert on other countries to achieve a common objective. Another example is the General Data Protection Regulation (GDPR) on data protection and privacy, used as a model for similar legislation outside the EU, such as Brazil, the United Kingdom, India, Japan and some US states including California and Nevada.

General principles

In addition to practical benefits, EU membership also entails and protects some fundamental principles. First, free mobility, i.e. the free choice of a location to live and work. In addition to the value that this liberty represents, free mobility contributes to the transfer and exchange of knowledge and information, which in turn enhances human capital. Second, democracy and the rule of law: many countries in the past (and today) have gone through a process of democratisation and implemented reforms strengthening democratic institutions and the respect of rights as a prerequisite for EU accession. Once Members, the state of national democracies is scrutinised at EU level, which can intervene if there are deficiencies (Article 7 of the Treaty on European Union), although flaws in the approach have become evident in cases where more than one country falls under the procedure. Lastly, after the Second World War, political cooperation and strengthened economic ties among countries in the European Communities contributed to a prolonged period of peace on the continent.

Flawed approach to MFF negotiations

All these benefits have large economic and political returns, many of which are felt in the daily lives of citizens. However, they are entirely disregarded in EU budget negotiations. The fact that some Member States have been experiencing larger gains from Single Market integration than others has had some political prominence during the negotiations of the 2021–2027 MFF in the European Council. However, apart from the political discourse, these are not accounted for in practical terms, and the negotiations consider countries as ‘net recipient’ or ‘net contributors’ based on their direct contributions to and funding received from the EU budget. All the non-quantifiable benefits mentioned above are completely ignored in the negotiations. The ‘juste retour’ approach is flawed not only because the benefits of EU membership are not considered, but also because the indicator fails to even account accurately for the benefits from the EU budget itself. These limitations include, for example, the added value and positive externalities that EU spending in one country has for other countries, e.g. environmental policies and innovation, or the value of EU spending in third countries, e.g. development, aid and trade policy, or the fact that the final recipient of EU spending in a country may be a foreign actor, e.g. a multinational company. (3)

Consequently, the ‘juste retour’ approach implies that the benefits of EU membership are not relevant, that EU spending has no added value, and that the EU budget is a zero-sum game. This approach, based on a pure accounting indicator, i.e. national net budgetary balances, leads to an EU budget structure that favours policies whose spending is easily identifiable and quantifiable for each country, and thus can be clearly communicated to voters, regardless of its added value. Funding for cross-border issues, external action and non-pre-allocated programmes is less prominent because of the difficulty of assessing, ex-ante, the beneficiaries. Policies that generate savings, or whose benefits are not quantifiable, thus tend to receive less funding. Additionally, this approach imposes a rigid structure on the EU budget, whereby most funding is allocated at the beginning of the period and there is a lack of flexibility to adjust to emerging/unexpected issues.

Possible solutions

The political salience of the ‘juste retour’ approach means that abandoning it remains extremely challenging. While there is no single bullet, a few reforms could help to move away from the net balances bias.

First, the introduction of new own resources could provide funding for the EU budget while reducing the reliance on GNI-based contributions by the Member States.

The latter indeed are easily quantifiable and attempts to reduce them hijack EU budget negotiations. New own resources, however, should be carefully designed to avoid leading Member States to calculate how much of it they would be contributing and avoid overburdening some Member States more than others.

Second, increasing the salience of policies with EU added value, even if not easily quantifiable, is crucial to changing the ‘juste retour’ mindset. Communication and awareness campaigns on the large political and economic benefits of EU membership can support greater acknowledgment of the value that is not accounted for in net balances.

Once the benefits of EU membership become more visible and accepted, governments will be keener on considering them when the EU budget is negotiated, which will probably lead to more funding for policies with higher EU added value. In the longer term, however, far-reaching, structural reforms may be needed to truly overcome the ‘juste retour’ approach. These could include a different governance structure that, together with the power of raising own resources, i.e. taxation, might also result in more democratic accountability and decision-making power at EU level.

This article was first published on the 3/2020 issue of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.

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