workshop on ‘implications of ‘brexit’ for the eu agri-food ... · workshop on ‘implications...

Workshop on ‘Implications of‘Brexit’ for the EU agri-food sector

and the CAP’

Possible impact of Brexit on the EUbudget and, in particular,

CAP funding

Jörg Haas, Jacques Delors Institut – BerlinEulalia Rubio, Notre Europe - Jacques Delors

Institute

9/11/2017 Presentation for the Committee on Agriculture and Rural Development 1

Structure of the Presentation

1. Impact of Brexit on the EU budget One-off effects: The ‘Brexit bill’

Structural effects: The ‘Brexit gap’

2. Impact of Brexit on CAP spending CAP net balances and the ‘CAP gap’

Adjustment options and impact on net balances

3. Conclusions and recommendations


Impact of Brexit on the EU budget

Various consequences: One-off effect: impact of ‘Brexit bill’negotiations on

current and future MFF Structural effect: Budgetary shortfall of ca. €10 billion

per year during the next MFF Qualitative effect: UK exit may change dynamics of

negotiation in the European Council Relative size effect: increase of the EU budget in relative

terms (as % of EU GNI) Impact on Own Resources: elimination of UK rebate

and the related corrections


One-off effects: the ‘Brexit bill’

Deadlock in ‘Brexit bill’ negotiations

EU’s position paper, June 2016 net payment of €55-75 billion (Financial Times’ estimate)

Theresa May´s Florence speech, September 2016 €20 billion

Disagreement on size hides disagreements on nature of bill andfinancial obligations to be covered



Nature of the bill

EU: Brexit bill is about setting past financial commitments, notpayment related to possible transitional period/EU-UK futurepartnership

UK: generic recognition of ‘obligations to pay’ but insistence inpresenting bill as payment linked to transitional period

EU should be careful about linking agreement on Brexit bill tohypothetical transitional agreement.This might enable the UK to use money as bargaining chip in 2nd phasenegotiations


One-off effects: the ‘Brexit bill’Obligations – what EU includes in the bill:

RAL at the moment of withdrawal ~ €30 billion

EU spending linked to the current MFF but not yet committed inannual budgets ~ €37-€52 billion

EU liabilities recorded in consolidated accounts and notbalanced by EU assets (e.g. pension benefits) ~ €8 billion

EU contingent liabilities ~ €10 billion

Full costs of withdrawal process (e.g. cost of moving EU agencieslocated in the UK)

Settlement of UK participation in ECB, EIB or EU funds



Two most contested issues:

Should the UK pay for all EU spending commitments linkedto 2014-2020 MFF and not yet budgeted, or only for thosespending commitments recognized as liabilities in EUconsolidated accounts? (mostly ESIF spending)

How to deal with contingent liabilities: UK lump sum paymentto cover potential costs, or costs shared as they arise in thefuture?



Implications for MFF and CAP spending:

If UK only pays RAL at the moment of withdrawal all CAPspending for 2019 and 2020 is under threat

If UK pays for spending obligations not budgeted but onlythose recognized as liabilities in EU consolidated accounts EARDF spending for 2019 and 2020 will be preserved butEAGF spending will be threatened.

If UK maintains annual net contributions for 2019 and 2020but does not pay for RAL pending in 2020 all CAP spendingfor 2019 and 2020 will be preserved but negotiations about thenext MFF will become more difficult


Structural effects: estimating the‘Brexit gap’

Data: Actual revenue and spending data from DG BUDGET Calculations based on 2014-16 average to even out one-off

effects

Assumptions: UK rebate expires, ‘rebates on the UK rebate‘ expire No UK contributions, no TOR raised in the UK No EU expenditure in the UK, all other spending unchanged

Results: Estimated shortfall: approx. €10 billion per year Actual gap could be smaller: Possible revenue from UK budget

contributions (soft Brexit) or higher tariff income (hard Brexit)9/11/2017 Presentation for the Committee on Agriculture and Rural Development 10

How to adjust? Different scenarios

Possible scenarios:

Higher contributions Lower spending No agreement

How to measure impact? Change in net balances

Definition of net balance: Member State’s VAT- and GNI-basedcontributions to the EU budget minus total EU spending in thecountry

Not a suitable indicator of fairness, but good indicator of MemberStates‘ interests


Scenario 1: higher contributions


€10 billion increase in national contributions:impact on Member States

Source: Authors’ calculations, based on European Commission data.

Burden of adjustmentmostly borne by netcontributors

Large contributionincrease for Austria,Germany, Netherlandsand Sweden as‘rebate on the rebate’ceases to apply

Scenario 2: lower spending



€10 billion Brexit gap in comparison

Likely to affect netrecipients the most

Required savingssubstantial comparedto many EUprogrammes

Large spendingareas likely to comeunder pressure

Scenario 3: no agreement

No default option for adapting the current MFFto Brexit

MFF should be revised in case of Treaty change (Art. 20 MFFregulation).

But: no guidelines on criteria

If no agreement on post-2020 MFF:

Budget ceilings of the current MFF continue to apply (Art. 312.4TFEU)


Current CAP net balances, 2014-16



Adjusting the CAP to BrexitHow will Brexit affect CAP spending? ‘Brexit bill‘ could affect CAP even before 2020 Key question for post-2020 MFF:

How much should CAP contribute to balancing the EU budget? British CAP net contribution: €3 billion per year But actual reduction in CAP spending could be much larger if

other spending areas are protected from budget cuts

Data and assumptions: See above: DG BUDGET data for 2014-16; rebates expire Caveat: scenarios are not reform proposals, but highlight

dynamics that could follow from various changes to CAP spending.


Scenario 1: higher contributions


€3 billion increase in national contributions:estimated change in CAP net balances


Additionalcontributions based oneconomic strength

CAP net contributorspay more, especiallyformer rebatecountries

Existing imbalancesare magnified

Scenario 2a: limited spending cuts


€3 billion CAP spending cut:estimated change in CAP net balances


Relative togovernment spending,CAP net recipientslose the most

In absolute terms,mixed effects: biggestlosers are large netrecipients and netcontributors that usedto benefit from rebate

Moderate and diffuseimpact, but largercuts might berequired

Scenario 2b: large spending cuts


€10 billion CAP spending cut:estimated change in CAP net balances


CAP net recipientslose the most, inabsolute and relativeterms

Some net contributorsimprove their netbalances

Smaller CAPimbalances, butsignificant negativeimpact on poorer MS

The impact of co-financing


€10 billion reduction in CAP pillar 1 spending:estimated change in CAP net balances


Introducing co-financing for pillar onespending can modifyeffects of CAP budgetcuts

Tends to spreadburden of adjustmentbetween CAP netcontributors and netrecipients

Co-financing ratescould vary accordingto economic strength

Conclusions

The ‘CAP gap‘ amounts to €3 billion, but actual CAP spending cutscould be bigger if other EU programmes are protected

Increasing contributions tends to magnify imbalances in CAPspending

Large CAP spending cuts spending tend to affect poor MS the most

The end of UK-related rebates and possible co-financing of CAPpillar one can substantially influence how burden of adjustment isshared

There is no pain-free way to adjust CAP spending,but the impact on MS’ national budgets is in most cases limited


Recommendations

The EU should be careful about linking the agreement on theBrexit bill to an agreement on a transitional period

The EU’s first priority in the Brexit bill negotiations should be tominimise impact of Brexit on the current and future MFF

Bargaining about budget cuts and contribution increases shouldinclude the entire system of EU finances & take into account MontiReport

Brexit can be an opportunity to simplify and improve the EUbudget and financing, but the timing is challenging Need to prepare, debate contested concepts (‘EU added value’)and compromises ASAP


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