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International business management > week six - budget of the EU > Flashcards

week six - budget of the EU Flashcards

1
Q

what is the purpose of the public budget

A
  • to fix market failure: public goods, protecting competition
  • redistribution of resources
  • stabilise the business cycle
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2
Q

general characteristics of the budget

A
  • main instruments of economic policy
  • EU budget is small in relative terms
  • the budgets evolution is an essential tool to study integration
  • budget authority is shared by the council of the EU and the european parliament, not forgetting the commission and the european council
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3
Q

what are the eight basic budgetary principles

A
  • unity: all revenue and spending items should be shown in the budget
  • annual: all budgets refer to an annual year
  • equilibrium: revenue = spending, i.e. deficit = 0
    (the budget cannot act counter-cyclically)
  • unit of account: euro
  • universality: revenuews are not assigned to specific expenditures
  • specification: each expenditure must have a purpose
  • good financial management: efficiency and efficacy
  • transparency: providing accountability
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4
Q

four phases of the budgetary process

A
  • elaboration: commission drafts a budget
  • approval: council revises, parliament suggests changes, council takes those into account, parliament rejects or approves
  • implementation: commission and national/regional governments
  • control: external (parliament and european court of auditors) and internal
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5
Q

what are the four historical phases of the EU revenue

A

1) 1958-1970: quotas (contributions by member states
2) 1970-1988: creation of a system of own resources and revenue problems
3) 1988-2020: own resources reform (GNI)
4) 2020-: COVID, eurobonds and NextGen funds

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6
Q

details of phase one regarding the EU revenue

A
  • since the treaty of rome
  • system of quotas: contributions by member states depending on each country’s level of development
  • budgets decision process: dominance of council of the eu and parliament has consulting role
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7
Q

details of phase two regarding the EU revenue

A
  • since 1975, parliament and council share decision making authority
  • system of own resources (ORs) are introduced, union becomes financially autonomous to member states, funding is separated from member states
  • ORs have a maximum
  • harmonisation of taxes is limited (no common taxes, but some tax base and VAT harmonisation)
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8
Q

define traditional own resources

A

the ones created with the customs union

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9
Q

what are customs duties

A

tariffs levied from outside the EU under common external tariff

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10
Q

what are agricultural duties

A

import duties charged on agricultural products imported from non-members

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11
Q

how were traditional own resources collected from 1970-1988

A
  • customs duties
  • agricultural duties
  • levies on sugar products
  • own resource VAT (from 1979)
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12
Q

what type of tax is a VAT

A

regressive - average tax burden decreases with income

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13
Q

what were the other resources between 1970-1988 that were not own resources (ORs)

A
  • budget surplus from previous year
  • correction mechanisms: to fix budget unbalances between state members
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14
Q

what is the british exception and when was it

A
  • 1984, known as the UK rebate
  • correction mechanism that reduces UK’s contributions to the budget (reimbursement of 66% difference between what the UK pays and what it receives back from the EU)
  • cost of rebate is shared between member states
  • however since 2002, some countries have only been paying 1/4 of what they should according to their GNI
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15
Q

what happened in the 1980s

A
  • financial crisis caused by the oil crisis
  • traditional own resources lost relevance, reduction of tariff collection because of increase in free trade
  • third enlargement: Spain and Portugal became net receivers
  • political discrepancies between council and european parliament
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16
Q

details of phase three regarding the EU revenue

A
  • single european act (reform of financial system)
  • relevance of TORs continues decreasing
  • since 1988, new OR: % of GDP, subsitutes VAT as the new balancing resource
  • new correction mechanisms
  • reform of 1988: multiannual financial frameworks (MFFs), lasted five years
  • Maastricht treaty in 1992
  • lisbon treaty in 2007
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17
Q

what did the multiannual financial framework entail

A
  • EU priorities and budgetary classification
  • budgetary discipline
  • less political conflicts
  • five years
18
Q

what did the Maastricht treaty entail

A
  • decrease in VAT relevance
  • creation of Cohesion funds
  • redefinition of budgetary ceiling
19
Q

what is CE vs NCE

A
  • compulsory expenditure: necessary expenditure so that the EU fulfills its commitments (EU council)
  • non-compulsory expenditure: remaining expenditure (parliament)
20
Q

what did the lisbon treaty entail

A
  • MFF adopts a legislative form
  • procedure is simplified and there is no distinction between CE and NCE
21
Q

by 2007 why had the EU not taken sufficient steps towards fiscal federalism

A

the budget resources are transfers from member states rather than a European tax

22
Q

characteristics of the GNI resource

A
  • most important of the EU
  • distributions of benefits and costs of the budget are not evenly distributed
23
Q

what was the conclusion of the the Monti group report and when was it published

A

2017, the budget must be financed through a more transparent, simpler, democratic way

24
Q

what were the proposals to modify spending and resources in the Monti group report

A
  • simplify own resources based on VAT
  • new own resources (around 12% of all income)
  • to reduce the corrections gradually
25
Q

what changed from 2007 onwards regarding EU revenue

A
  • the new MFF adapted to 27 countries
  • austerity continued but some changes in spending structure:
    1) sustainable growth and employment (44%)
    2) preservation and management of natural resources (43%)
    3) citizenship, freedom, security and justice (1%)
    4) EU as a global partner (6%)
    5) administration (6%)
    6) compensations (<1%)
26
Q

what did the european strategy entail

A
  • globalisation
  • scientific and technological progress
  • demographic changes (labour market)
  • migratory pressure
  • social and economic cohesion
  • climate change
  • protection and citizen security
  • COVID
27
Q

what did the MFF split into from 2014

A
  • smart and inclusive growth (47%)
  • sustainable growth (38.9%)
  • citizenship and security (1.6%)
  • EU as a global partner (6.1%)
  • administration (6.4%)
  • compensations (<1%)
28
Q

what is the operating budgetary balance

A

analysis of the distribution between member states of EU’s revenue and spending
- contributions by member states
- spending allocated to each country

29
Q

what do the contributions of each country depend on in absolute terms

A
  • GNI
  • consumption basis (VAT)
30
Q

how can we analyse the distribution of revenue by member states

A
  • own resources , VAT and GNI
31
Q

why are there large differences in spending between countries (in absolute terms)

A
  • size of country
  • if they have an important agricultural sector
  • if they less developed than other regions
32
Q

is the spending in the EU redistributive

A

yes, money goes from richer to poorer countries

33
Q

how to calculate net contributions

A

difference between allocated expenditures and allocated revenues

34
Q

in absolute terms who are the biggest contributors and beneficiaries

A
  • contributor: Germany
  • beneficiaries: Eastern european countries, Greece, Spain, Portugal
35
Q

who are the biggest beneficiaries in relative terms

A

Eastern European countries, Greece and Portugal

36
Q

why is the debate about net contribution misleading

A

it does not reflect all the costs and benefit that each country obtains from being a EU member

37
Q

why did the pandemic trigger important changes in the EU’s budget

A
  • drop in GDP
  • increase in unemployment
  • bad performance of austerity policies applied during the previous recession
38
Q

what are the EU next generation funds

A
  • issuance of bonds centralised at the european level
  • funds projects and loans for national projects
  • 750 billion euros
39
Q

from 2021 onwards what did the MFF and NextGen fund

A

both:
- most of nextgen money went towards recovery and reslience as well as some MFF
- MFF and NextGen funded single market, innovation and digitalisation
- MFF and NextGen funded projects for natural resources and the environment

just MFF:
- immigration/border control
- security and defence
- neighbours and the world

40
Q

how did they decide how to distribute the nextgen funds

A

70% is decided by:
- population
- inverse of GDP per capita
- average unemployment rate over the past five years

International business management (6 decks)

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