Can EU budget do more from January 2014 to support employment creation?

Important developments are happening over the use of the EU’s cohesion funds–which are designed to help the development of the EU’s poorer regions notably in eastern and southern Europe. These are the joint largest element in the EU budget, together with agriculture although relatively small in relation to the transfers that take place within member states between richer and poorer regions. Germany notably transfers more than five times as much to the states of former East Germany than it does to the whole of the rest of the 28-member state in EU.  It is indeed partly because of these massive internal transfers resulting in large part from its own policy choices that Germany is strongly set against what it calls a “transfer union” and why despite all the rhetoric about a political union it is unwilling to make any concessions that might increase the very small EU budget (about one fiftieth of state spending decided nationally or locally).

However, while in percentage terms EU spending that might help its most troubled economies is very low, in absolute terms at about €100bn a year of which 37% is on cohesion fund, it seems more substantial. The sums could if well used make a difference to the key challenge facing southern and some of eastern, Europe, namely to create employment opportunities especially for young people. Hitherto the largest component of the cohesion funds, the regional fund, has been mainly spent on infrastructure, whose impact on economic performance is open to debate, but whether or not infrastructure is a necessary condition for better economic performance it is certainly far from being a sufficient condition. Southern Europe now has good enough infrastructure but job prospects in most areas remain bleak.

The agreement of the European Parliament and the Council in November to Commission proposals that will increase  Regional Development Fund spending on support for small and medium enterprises from €70bn to €140bn is welcome. It is hoped that this money will be spent effectively to boost employment and in particular in the coming months to support the promise of employment or training within four months of finishing education or being made redundant for all under-25 year olds under the Youth Guarantee Scheme agreed by all member states on April 22nd, 2013 and due to come into force at the beginning of 2014. In this respect, however, it should be noted that the Social Fund, of which a large proportion is devoted to training and employment services is being cut by €5bn to €71bn over the seven year budget period.

British-German relations are good but impact on UK objectives should not be exaggerated

The Adam von Trott Memorial Appeal and Mansfield College held a day’s seminar on November 7th under the title “Britain and Germany in Europe: What Prospects?” Adam von Trott was invited to spend a term at Mansfield College following his participation in a  world Christian student meeting in Liverpool in 1929. He later took a full degree at Balliol College as a Rhodes scholar in the trademark Oxford combination of Philosophy, Politics and Economics. During the war he wrote proposals for a post war Europe and social reform and conspired against the Nazi regime. He took part in the July 20th 1944 plot to assassinate Hitler and was executed for this.

The seminar was about the present and future and addressed a range of political themes. It was a success first in that it was well attended by people of all ages both British and German (the latter particularly German students at Oxford).  Secondly, it was an interchange of ideas involving British and German speakers, including the minister and current charge d’affaires at the German embassy, Rudolf Adam, which while not avoiding mentioning the two world wars, was notably lacking in underlying tensions.

This reflects a certain stratum of society, but British–German relations are also good at a political level. The Conservatives under David Cameron caused considerable offence to the Christian Democrats in Germany by pulling out of the European Peoples Party in the European Parliament and by vetoing the incorporation of fiscal rules affecting only euro members in December 2011, but Angela Merkel has nevertheless devoted considerable effort to establishing good relations with the British prime minister and those members of his party who want Britain to stay in a reformed EU now see Germany as an ally in its efforts to reform the EU along British priorities—focusing on the single market and trade while holding spending down and rolling back EU rules where not needed for the purposes of the single market. Even those who want to leave the EU no longer, as some older Thatcherites did, see the EU as a cover for a new form of German domination.

The Labour Party also has good relations with German Social Democrats and many of its policy makers admire German patterns of industrial relations—where unions still have a role and where there are well established forms of employee consultation in company decision-making—and the German training system.

Despite all this, the seminar did, however, point towards a possible danger in over-expectations on the British side. In tackling the euro zone crisis over the last five years Germany as the strongest economy has played a dominant role. In the EU as a whole it is economically and politically the most important country, at a time when French political leadership is weak. However, that does not mean that if the UK and Germany are in agreement they can get their way on everything. That can only happen if they are supported by a majority of other countries in the EU’s voting system. Furthermore, if Germany were faced with a choice between furthering Anglo-German relations and the maintenance of Germany’s harmonious relations with its immediate neighbours, including France and Poland, the latter would unquestionably have to take priority.

The prospects for renegotiating the terms of EU membership are poor. In 1974-75, a Labour government renegotiated the terms of the 1973 UK accession but achieved negligible concessions from eight other member states. This time 27 other member states would have to agree to any treaty change. A referendum in 1975 to stay in the then European Community was easily won but that reflected the fact the EC was then seen as an economic success while the UK was in great economic difficulty. At present the UK economy is also in difficulty but less so than in 1974, while the EU’s performance is much weaker, with the exception of Germany and some small member states. If a failed renegotiation were seen as a humiliation to the UK it could therefore have much more effect on the outcome of a referendum than last time.

The prospects for persuading other member states in everybody’s interests to reform the EU are more favourable. Already, the 2014-20 budget has for the first time been cut in real terms compared to the previous seven year period and a process of eliminating superfluous legislation has already achieved significant results (albeit only a fraction of what could be done).  One sensitive policy area, fisheries, has been radically reformed and decentralized.  There is clearly much more that can be done[i] but the UK will not get its way on everything. The controversial working time directive is unlikely for example to be eliminated though as it is essentially voluntary this is of much less importance to British business than is often claimed.


[i]  See Cut EU Red Tape October 2013 by a UK Business Task Force. The proposals are clear and well argued. They will not all be accepted by those who think that s competitiveness and efficiency are objectives that should automatically over-rule other objectives. But there should be general agreement that there is far too much red tape at both EU and national levels, which is not proportional to achieving environmental, health, safety or other objectives. The report could do more to clarify where its proposals are primarily to eliminate paper work and where there will be some impact on other objectives, but where it is arguing that such benefits are disproportionate to the costs.  It may be pointed out that not means all the proposals are for “less EU”.  For example proposals to extend the market in services, simplify VAT payments where two or more countries are involved, improve licensing of medicines across the EU and eliminating barriers to e-commerce, all require positive action at the EU level, overriding the rules and practices of member states.