Economic Policy Review ISSN 1313 - 0544

Multiannual Financial Framework (2014-2020) of the European Union: Analysis and Potential Effects on Bulgaria

23.11.2012
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October 2012

 

Vasil Nikolov

Nikolay Valkanov

Desislava Nikolova

 

The analysis discusses the changes that the EU is planning to implement in the upcoming MFF, explores the reasons behind them and makes conclusions about their effect on the Bulgarian economy. The main points of interest include the basic structure of the MFF, the proposed reforms of the Common Agricultural Policy, the heading for Smart and Inclusive Growth and the way the budget is financed.

Although containing reasonable proposals, aimed at addressing current deficiencies in the European economies, the new MFF also poses a multitude of dangers, with its bloated expenditures and the EC’s desire for greater independence and centralization. The analysis concludes that the Bulgarian government should defend its positions on certain issues more ardently, while making a complete revision of its standing on other points.

In view of the raging European financial and debt crisis, the EU’s commitments to reducing the weight the EU budget poses on the national ones have not been attained to a sufficient level. Although decreasing as a percentage of GNP, in real terms, expenses increase, as currently existing opportunities for optimization have been missed or intentionally overlooked, especially in the administration sector and the Common Agricultural Policy. This, in turn, leads to forgone benefits, market distortions and unnecessary pressure on member states.

The review of the newly proposed financing methods of the MFF demonstrates that the EC’s push for greater independence, in its current form, poses a danger on the EU and on Bulgaria in particular. Whereas the idea for simplification of the existing VAT resource can be seen as a step forward, albeit a small one, all other suggestions, including a new form of the VAT resource and its counterpart – synchronization of the tax base, as well as the introduction of a tax on financial transactions, can have negative effects on the Bulgarian economy. Furthermore, light is shed on Bulgaria’s losses due to the British rebate and the possible ways of eliminating its causes and, eventually, completely removing it.

When discussing the CAP, the analysis focuses on the propositions, concerned with reforming the structure of the direct payments system, the introduction of a ceiling for subsidies and the lack of complete equalization of the direct payments between the different member states. The inference made is that the suggested reform of the CAP is not in the best interest of Bulgaria and will only aggravate the negative effects of the subsidies on the country’s agricultural sector. The paper recommends that the Bulgarian government insist on the complete removal of direct payments or, at the very least, on their synchronization for all states at a new level, lower than the current one.

The commentary on the heading for Smart and Inclusive Growth concentrates on the planned creation of a Connecting Europe Facility (CEF) and the redistribution of funds, which will put a bigger emphasis on education and competitiveness, at the expense of regional convergence. The conclusion is that these changes would effectively promote the goals, set up in the Europe 2020 strategy, but doubt is cast on their necessity and relevance in the current economic context. Another point, which is stressed, is that the projections of Bulgaria’s Finance Ministry might prove to be overly optimistic and that the country’s interests are all too likely to be harmed by the establishment of the CEF, the creation of a separate “transition regions” category and the introduction of capping rates for cohesion allocation.

The full analysis is available here.

 

The research was carried out under the project “Better Governance in Bulgaria”, supported by the Think Tank Fund (TTF) of Open Society Institute – Budapest (OSI-ZUG). The content of all materials represents the position of the authors and not necessarily the policy of Open Society Institute – Budapest.