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Common policy, common budget? Péter Halmai Professor of Economics Szent Isván University Budapest, 30.05.2008 The future of the EU budget

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Page 1: Common policy, common budget? Péter Halmai Professor of Economics Szent Isván University Budapest, 30.05.2008 The future of the EU budget

Common policy, common budget?

Péter HalmaiProfessor of EconomicsSzent Isván University

Budapest, 30.05.2008

The future of the EU budget

Page 2: Common policy, common budget? Péter Halmai Professor of Economics Szent Isván University Budapest, 30.05.2008 The future of the EU budget

• CAP caught in cross-hairs? – After 2013 the situation of the CAP is open – facing the greatest challenge of CAP-history

• Widespread approaches – CAP represents the past, it makes EU-

adjustment to challenges of the globalization difficult

– Financing of the CAP doesn’t result in EU-wide value added

– Present sources of the CAP enable changes in budget expenses (other financial goals)

Page 3: Common policy, common budget? Péter Halmai Professor of Economics Szent Isván University Budapest, 30.05.2008 The future of the EU budget

CAP: moving target

• Changing priorities– Direct payments instead of market measures– Strengthening competitiveness – Agri-environment – cross compliance– Second pillar: integrated rural development – Health Check– Support is paid by taxpayers not by

consumers

Page 4: Common policy, common budget? Péter Halmai Professor of Economics Szent Isván University Budapest, 30.05.2008 The future of the EU budget

CAP expenditure and CAP reform path

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Export subsidies Market supportDirect aids Decoupled paymentsRural development % of EU GDP

billion €

EU-12 EU-15 EU-25 EU-27EU-10

% GDP

Page 5: Common policy, common budget? Péter Halmai Professor of Economics Szent Isván University Budapest, 30.05.2008 The future of the EU budget

Criticism on the CAP

• Partial decoupling• Direct payments are based on historical

payments• Capitalization of direct payments in land prices

and land lease fees – distortion of input markets• Restricted role of rural development • Significant disparities have evolved making the

new member states handicapped

Conclusion: despite remarkable changes present system of the CAP is still not sustainable

Page 6: Common policy, common budget? Péter Halmai Professor of Economics Szent Isván University Budapest, 30.05.2008 The future of the EU budget

Possible options

• Corrections

• Radical reform

• Re-nationalization

• Total liberalization

Page 7: Common policy, common budget? Péter Halmai Professor of Economics Szent Isván University Budapest, 30.05.2008 The future of the EU budget

European Public Goods and the CAP

• European agricultural model, multifunctional agriculture– Joint output– Certain non-product outputs: externality, public goods

(e.g. land management)– Purely on the basis of market mechanism an

adequate production of these is not ensured– Stricter rules – agri-environment, animal health, food

security – than that of competitors cause disadvantaged competition

– It is difficult to determine the economic costs of rural externalities

Page 8: Common policy, common budget? Péter Halmai Professor of Economics Szent Isván University Budapest, 30.05.2008 The future of the EU budget

To what extent community financing can be justified?

• Fiscal federalism theory – centralized financing (at EU level) is justified: significant, positive and negative cross-border externalities and spill-over effects

• Multifunctional agriculture

European Public Goods

• The re-nationalization would jeopardize the functioning of internal market, economic-social cohesion

Page 9: Common policy, common budget? Péter Halmai Professor of Economics Szent Isván University Budapest, 30.05.2008 The future of the EU budget

Vision: Common Agricultural and Rural Policy

• Change is needed: a radical deepening of CAP-reform

• Sustainability (economic, environmental, social) and a Common Agricultural and Rural Policy with environmental values and competitiveness in the focus should be emphasized

Page 10: Common policy, common budget? Péter Halmai Professor of Economics Szent Isván University Budapest, 30.05.2008 The future of the EU budget

Conclusions

• The rural economy provides European public goods, too

• The reformed (new?) policy might promote more efficiently the production of European public goods

• Free lunch is not possible

Page 11: Common policy, common budget? Péter Halmai Professor of Economics Szent Isván University Budapest, 30.05.2008 The future of the EU budget

Common policy, common budget?

[email protected]

Budapest, 30.05.2008

The future of the EU budget

Page 12: Common policy, common budget? Péter Halmai Professor of Economics Szent Isván University Budapest, 30.05.2008 The future of the EU budget

Certain public goods provided by agriculture

Public goods Spill-over effects

Environment friendly agricultural production practices

Protection of natural resourcesStable ecosystemBiological diversityProtection of valuable natural areas Carbon sequestration

Local, regional, EuropeanRegional, EuropeanLocal, regional, EuropeanLocal, regional, EuropeanEuropean

Ethical agricultural production Food safetyAnimal welfare

Local, regional, EuropeanLocal, regional, European

Socially sustainable agriculture Buffer function on the labour marketCultural diversity

Local, regional, EuropeanLocal, regional, European

Land management Stable ecosystemBiological diversityCarbon sequestration

Regional, EuropeanLocal, regional, EuropeanEuropean

Preventing deforestation Forest biodiversityStable ecosystemWildlife Reduction of greenhouse gasCarbon sequestration

Local, regional, EuropeanRegional, EuropeanLocal, regional, EuropeanLocal, regional, EuropeanEuropean

Combating desertification and drought Carbon sequestration Watershed protection Biodiversity conservation in drylands

European Regional, EuropeanLocal, regional, European,

Sustainable mountain development Stable ecosystemHydrological stabilityCarbon sequestration

Regional, EuropeanLocal, regional, EuropeanEuropean

Page 13: Common policy, common budget? Péter Halmai Professor of Economics Szent Isván University Budapest, 30.05.2008 The future of the EU budget

Structural change in Common Agricultural and Rural

Development Policy At present: Common Agricultural Policy

Pillar 1: market policy

VISION: Common Rural Policy (?)

Pillar 1: Incentives for provision of rural public goods

Direct payment

Other internal market measures

External market measures

Pillar 1/A

Flat-rate subsidies based on public goods

Pillar 1/B

Complementary subsidies on regional base (targeted support for the provision of public goods)

SPS

Coupled with production

Intervention Support for private storagePromotional/ marketing supportSupport for structural changeWithdrawal support

Export refunds Promotional/ marketing support

Pillar 2: Rural development Pillar 2: Strengthening the viability of

rural economy and society

Pillar 1

Competitiveness

Pillar 2

Environment management

Pillar 3

Diversification and improvement of life

quality

2/A: Improvement of competitiveness of agriculture, forestry, aquaculture

Structural adjustment Risk and crisis management

2/B: Economic/ Social Strengthening of rural communities