EU proposes $1.48 trillion budget for 2014-2020

June 29, 2011 - 3:45 PM

BRUSSELS (AP) — The European Union on Wednesday proposed a budget worth euro1.025 trillion ($1.48 trillion) for the seven years between 2014 and 2020, up 5 percent from the previous budget period.

The budget outline from the European Commission, the EU's executive, kicks off months of wrangling with the 27 member states, which are determined to keep the budget down and the European Parliament, which will seek as much input as possible on where the money is spent.

According to Wednesday's proposal, the biggest amount of money, about euro376 billion, would go to boosting the EU's underdeveloped regions. That's followed by around euro372 billion to support the region's farmers.

"We are proposing an ambitious, and at the same time responsible budget," said European Commission President Jose Manuel Barroso. "It is a realistic proposal with which we can make a difference."

For years, the EU has been under pressure, especially from rich member states like Germany and Britain, to keep spending in check as national governments are struggling to get their own budgets under control. In October, the leaders of Britain, France, Germany, Finland and the Netherlands demanded that the EU budget should be frozen, allowing increases only to make up for inflation.

"I am expecting the discussions to be quite tough in the coming months," Barroso said, urging states to study the proposals in detail before criticizing them.

EU-skepticism has been on the rise, as taxpayers in richer countries are balking at spending hundreds of billions of euros on rescue loans for struggling euro countries like Greece, Ireland and Portugal — even though those bailouts are not funded through the EU budget. Citizens in the struggling states, meanwhile, are suffering from the austerity demanded in return for those emergency loans, which many see as an undemocratic imposition from Brussels.

Overall, the EU budget only makes up about 1 percent of total economic output in the EU, compared with an average of 44 percent of gross domestic product going to national budgets, according to commission data.

In an effort to show that it is embracing the message of austerity, the commission proposed some uncomfortable changes for its own staff, such as increasing working hours for EU officials to 40 hours a week from 37.5 hours currently, lifting the retirement age to 65 from 63, and cutting 5 percent of staff by 2018.

For the first time, the commission is also hoping to raise money for pan-European infrastructure projects on financial markets through project bonds. Until now, the EU has not been allowed to take on debt or run a deficit, but the commission argues that issuing bonds for specific projects will increase the impact of its own funds.

Among the most controversial items in the seven-year budget is a tax on financial transactions, through which the EU hopes to lower contributions from member states. The commission only gave a broad outline for a financial transaction tax, but Budget Commissioner Janusz Lewandowski said such a levy could raise up to euro30 billion a year.

Until plans for a financial transaction tax were revealed earlier this week, the EU had opposed its introduction in the EU only, saying that it could push banks and investment funds to move to financial hubs outside the bloc. Now, the bloc hopes to encourage other states to opt for the tax by leading the way.

"Let's create our own and then see if we can create better conditions for a financial transaction tax on a global level," Barroso said.

The tax, together with changes to the way the EU collects its share of value-added tax, could more than double the EU's own resources to some 40 percent of the total budget, Lewandowski said.