Overcoming the CAP debate: Two priorities for the EU budget

The UK's presidency over the EU came in a very challenging time. Mainly, the European Constitution had been rejected in France and The Netherlands and Tony Blair was weak at home. Nevertheless, the hopes were high. Mr. Blair’s speeches in June highlighted the main problem that the EU budget was suffering from: a huge misalignment between the priorities agreed under the Lisbon agenda and the actual budget. As he remarked, there is a problem in a Union that wants to be at the forefront of innovation and economic growth but at the same time allocates 40 percent of the budget to agricultural policies.


The CAP allocation is a huge constraint to any initiative that aims at increasing the share of the EU funding allocated to other areas. Few economist would defend its existence, which seriously damages the ability of the EU to promote innovation and, at the same time, hampers economic growth in developing countries. Moreover, the PAC interacts with other key policy areas. For example, it limits the ability of the EU to become a global actor by constraining its defence budget.

Nonetheless, the PAC is here to stay. The last agreement extended this policy until 2013 and, although we support the view that the CAP will not resist in its currently state until then, it will not totally disappear before the next decade. This means that any budget reformer will have to live with it and at the same time address the existing priorities in other areas. More importantly, we believe that much can be done without increasing the EU budget. With or without the PAC, we highlight two areas that are critical to foster economic growth in the EU: R&D and market-adjustment mechanisms.

First, R&D continues to be underfunded. Additionally, the EU takes too often a leading role in determining R&D priorities. To overcome these problems, the EU should become a R&D facilitator rather than a policy-maker. For example, it should aim at increasing cooperation between research centers such as universities, companies and the public sector, which continues to be weak. In this respect, the budget should be directed towards promoting the transfer of researchers between universities and the private sector at a large scale. In this case, the EU could finance the salary gap between jobs in the two organizations. This could be implemented without significant additional funding.

Regarding the second issue, much less debated at European level, the EU currently lacks mechanisms to react and adjust to short-term economic changes. For example, in the case of labour-market reforms, one of the key issues that is hampering economic growth, adjustment funds would be able to limit the negative effect of the reforms. These funds could be directed towards training programmes, unemployment support and workers’ reallocation. The rationale for EU intervention is clear: in a single market, the rigidities of a member are transmitted to the others, hampering growth of the whole economy. At the same time, these funds will have a positive impact on reducing the resistance of several countries to address economic reforms and promote additional market openness.

In conclusion, the EU budget debate has focused on the CAP for too long. It should be kept in mind that it surely is one of the major constraints towards fulfilling the Lisbon agenda. However, the allocation of the EU budget has significant room for improvement. We believe that a renewed focus on R&D and adjustment mechanisms will have two key impacts: first, it ensures that the EU stays ahead of other economies in the near future and second, it creates mechanisms to facilitate fundamental economic reforms. The CAP is a major constraint but it should never be an excuse. There is still much to do.