Notesale: Turn your study into money

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EU  BUDGET    

 

 
Top  recipients:  Poland  &  Spain  
Farming:  Denmark  &  Ireland  (large  
farming  sectors)  
Poor  regions:  Central  &  Eastern  MS  
Admin:  Belgium  &  Lux  
UK:  Low  receipts  for  its  size  (same  
as  Belgium  which  is  hella  smaller)  
 

 
!  source  of  tension  &  conflict    
Huge  political  importance  show  in  adoption  process  
EU  needs  financial  resources  to  conduct  policies  
 
 
I
...
rather  than  all  EU  

 
Budgetary  Principles:  
o Specification:  Every  expenditure  has  definite  
o Unity:  all  Exp  &  Rev  found  in  1  doc  
scope  &  purpose  
o Universality:  Total  Rev  covers  Total  Exp   o Unit  of  account:  €  
o Annuality:  1  yearly  budget  
o Equilibrium:  Exp  &  Rev  should  balance  
 
 
Limit  to  EU’s  fiscal  autonomy  :  budget  cannot  be  used  as  fiscal  policy  (no  deficit,  no  debt)      
 
 
 
 
           2  largest  resources  as  national  contributions  
Limit  to  EU’s  growth  potential:  source  of  legitimacy  is  MS,  only  MS  decides  upon  tax  /  redistribution  
of  resources  among  themselves    
 
Procedure  (set  by  Treaties):    
o Commission  prepares  preliminary  draft  budget  
o Presents  it  to  Council  for  amendments  &  approval  
o EU  Parliament  amends  a  bit  
o 2  readings  by  Council  &  Parliament,    
o Parliament  adopts  it  &  President  signs  it  
 
 
II
...

Agriculture:  CAP,  money  goes  to  large  landowners,  but  controversial  as  sector  barely        
contributes  to  EU  growth  
2
...

Internal  Policies:  inside  EU  other  purposes  (R&D,  Training,  …)  
4
...


Administration:  cost  of  running  EU  Commission  &  institutions  

 
•  Types  of  Expenditure:  
o
Commitment  appropriations:  wrt  operations  that  can  be  carried  out  over  long  period  
o
Payment  appropriations:  expenditure  effectively  incurred  of  past  shit  
 
 
III
...

Common  External  Tariff:  on  imports  w  non-­‐member  nations  
ii
...
 cuz  not  taken  account  for  in  CET)  
these  2  sources  existed  before,  they  are  ‘traditional’,  but  their  importance  have  fallen:  
 
levels  of  CET  lowered  in  WTO  rounds  
 
 
&  EU  enlargement,  CAP  reform,  FTAs  =  large  fraction  of  imports  now  duty  free  
 
!  2  largest,  
iii
...

GNP-­‐based  tax:  ensures  that  EU  doesn’t  go  in  deficit,  completes  gap                taxpayers  ultimate  
Others:  taxes  paid  by  European  institution  employees  (who  do  not  pay  national  taxes),  Financial  
Transaction  &  Common  Corporate  Income  tax,  Energy  levy  on  CO2  emissions,  fines  &  surpluses
ex  :  UK  rebate  -­‐  à  l’époque  v  poor  and  small  farms,  so  EU  Budget  didn’t  concern  them  a  lot    
!  discount  on  contribution,  correction  for  UK  redistributed  to  other  MS  (unfair)  
These  new  ‘own  sources’  would  improve  EU’s  fiscal  autonomy  
 
 
IV
...
2007-­2010  
 
•Origins:  Globalization  shock  
hella  ES,  US  +  EU  import  cheap  input  from  Asia,  lowers  costs  even  more  
positive  supply  shock  in  industrialised  countries  
downward  pressure  on  inflation  (“weapons  of  mass  disinflation”)  
in  response  to  this,  monatery  policy  lowers  interest  rates  
Emerging  countries  have  hella  current  account  surplus  
hella  K  flows  towards  EU  +  US,  currencies  overvalued,  low  interest  rates  
at  the  same  time,  big  permanent  imbalances  in  current  accounts  in  many  countries  
•2004/5,  supply  shock  seems  to  be  absorbed    
inflation  in  US+EU,  CB  starts  increasing  interest  rates  
As  interest  rates  go  up,  housing  prices  start  declining…  end  of  bubble  !  
inter-­‐banking  interest  rates  soar  though  —>  sub-­‐prime  mortgage  crisis  
Collateralized  Debt  Obligations  created  &  sold  =>  higher  US  i  &  falling  house  prices  =>  crisis  of  sub-­‐
prime  mortgage  then  extended  to  normal  mortgage  =>  tensions  on  inter-­‐banking  market  =>  fall  in  
asset  values  =>  liquidity  crisis  =>  banks  BS  deleveraging  =>  Lehman  Bros  &  Credit  Default  Swap  =>  
credit  crunch  =>  recession  
First  ‘signals’  of  crisis  erupted  in  Europe,  as  its  banking  system  is  largest    
•2007/8,  ‘Heart  Attack  scenario’  
BNP  Paribas  defaults  on  2  CDOs  funds,  credit  crisis  
liquidity  crisis  turns  into  a  solvency  crisis:  Bear  Sterns  goes  bankrupt  and  is  rescued  by  JP  Morgan  w  
 FED  loans  
1  year  later  Lehman  Bros  bankrupt  and  is  not  bailed-­‐out  
Merill  Lynch  in  distress,  acquires  by  Bank  of  America,  a  commercial  bank  
After  this  chaos,  Goldman  Sachs  &  Morgan  Stanley  change  status  to  commercial  bank  &  accept  FED  
supervision  
then  crisis  hits  greatest  global  mortgage  broker  AIG  &  FM&FM    
in  EU,  some  banks  to  be  rescued  too  
banks  do  not  trust  each  other  anymore,  no  liquidity  exchange  
inter-­‐banking  systems  stop  working  
Negative  effects  went  from  financial  to  real  side  of  economy:  
Credit  crunch:  hella  increase  in  interest  rates  =  lower  investment  
Loss  of  wealth:  value  of  financial  assets  &  house  drops  =  lower  consumption  
Confidence  decrease:  expectations  get  worse  
Trade  collapse:  less  money  available  to  pay  in  advance  invoices  +  D  falling  =  lower  net  exports  
Policy  response  was  (conventional)  monetary  policy  aka  cut  of  interest  rates  to  almost  0  as  to  
stimulate  Investment  and  Consumption  
+  ECB’s  quasi-­‐conventional  answer  
they  cut  interest  rates,  normal,  but  also  modified  implementation  of  policy  by:  
-­‐turning  minimum  bid  rate  for  main  refinancing  operations  to  a  fixed  rate,  
-­‐restricted  the  spread  on  marginal  lending  &  deposit  rate    
-­‐increased  later  on  maturity  of  some  main  refinancing  operations  (from  1week  to  several  months)  
Buuuuuut  whoops  liquidity  trap  !  Need  for  unconventional  tools    
(Quantitative  Easing  +  Fiscal  policies)  
 
From  October  2008,  coordinated  actions  of  monetary  &  fiscal  policies    
CBs  lowered  down  interest  rate  by  more  than  3%  in  a  few  weeks  (conventional)  and  ECB’s  shit  
(unconventional)  
+  CB’s  new  unconventional  QE  shit  
+  EU  govs  used  public  resources  to  guarantee  bank  liabilities  or  to  clean  BS  
Also  sustained  real  side  of  economy  through  public  spending  and  lower  taxes  

=>  coordinated  worldwide,  shock  therapy  for  whole  financial  system  
then  woo  everything’s  alright    
 
 
B
...
 
•2010:  Credit  crisis  becomes  a  debt  crisis  
EBC  is  hub,  continuously  finances  system,  while  banks  in  peripheries  sell  assets  to  get  additional  
liquidity    
negative  feedback  loop  can  be  horrible  
Maastricht  Treaty  did  not  foresee  any  mechanism  to  prevent  all  this  shit  
2  kinds  of  responses:  Fiscal  (allowing  countries  to  provide  mutual  financial  guarantees  to  support  
sustainability  of  public  debt  &  minimise  solvency  risks)  
aka  European  Financial  Stability  Facility      
and  Monetary  Tools  (allow  CB  to  buy  from  market  sovereign  debt  bonds  thus  reducing  borrowing  
costs  of  MS  and  improving  banks  BS)

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