Why would the EU have won the Nobel Peace Prize? Well, it is the world's largest donor to the developing world, largest contributor to world wide peace keeping and following the collapse of Southern European authoritarian dictatorship in 1974-75 and East European Communism in 1989, has been a major stabiliser and promoter of democracy and economic development in Southern and Eastern Europe.

We are now living through the worst economic crisis since the 1930s. The crisis of the early 1930s resulted in Fascism and the Second World War. Today, we have the European Union and other international institutions like the IMF to stabilise the situation. These did not exist in the 1930s and we under-estimate their effect in preventing conflict.

This month, Simona Milio and I bring out an edited volume on reform of the European Union budget published by Palgrave-Macmillan. The European Parliament and the 27 national governments of the European Union have until next year to approve a new multiannual spending programme for the years 2014 to 2020. Three outcomes are possible: reform, continuity or deadlock. The expenditure from the EU budget is limited at just 1 percent of the collective gross national income of the EU, equivalent to just 2 percent of total public spending. In percentage terms, this appears to be rather little but could total € 972 billion for the seven year cycle of 2014-2020, a real terms freeze compared to the previous budgetary period of 2007-2013. Although the budget is small in global terms, it matters because it is what saves the EU from being a mere free trade area, which is precisely what makes it controversial. Within that 1 percent of gross national income, there are also large subsidies for agriculture and for economically deprived regions, which have real significance. The approval of a new spending programme for 2014-2020 faces a number of challenges:

1. the rule changes brought in by the Treaty of Lisbon, which do not make decisions easier to reach and reinforce continuity;
2. the effect of enlargement of the EU since 2004 which means that a larger number of players are found around the table at the negotiations, each with demands for spending and each with the power of veto; and
3. most significantly, the effect of the global economic and euro zone crises, which has led to three contradictory impulses -  i) the desire for the practice of national austerity to be implemented at EU level; ii) the desire to provide public goods, such as investment in innovation and technology to combat the economic crisis; iii) the desire to protect existing expenditure for traditional EU redistribution in agriculture and regional cohesion in the face of demands for austerity

Our book brings together contributions that assess the political and institutional processes of budget change, before looking at their possible effects on areas of spending. We include chapters on innovation, public goods, agriculture, cohesion and foreign policy. The book assesses how reform might happen, reviews the theory on budget change in the EU and analyses the impact of the budget rule changes of the Lisbon Treaty. Sara Hagemann’s contribution goes beyond the rules to profile the prospect of negotiating in a different way to achieve a different outcome in keeping with the needs to incentivate economic innovation. As Robert Kaiser and Heiko Prange-Gstoehl reveal, the chance of a new shift in favour of innovation under heading 1a is slim given the incentives both to reduce the budget and protect traditional redistribution via agriculture and cohesion. Charles Blankart and Gerrit Koester provide a solution for financing public goods and economic innovation by creating a parallel budget through enhanced cooperation. This means that a sub-group of at least nine member states could produce an additional budget to which only the participating states would contribute and gain benefit. Unlike the agriculture budget, a parallel public goods budget would be reversible since its set-up rules would require unanimous re-approval every few years. We hope that this idea will gain traction given the recent pressure for the euro zone countries to develop a fiscal and budgetary identity separate from that of the EU as a whole.

The chapters on agriculture by Alan Greer and cohesion policy by Simona Milio predict that these policies will remain largely stable, will be oriented further towards the new member states and will be dressed more in the language of public goods, for example by associating agriculture with the environment. In the case of cohesion policy, an orientation away from economic and towards social objectives for example in employment could provide greater value through improving the capacity for economic resilience. Budget heading 4 (Global Europe) is predicted to see an increase from 5.7 to 6.8 percent of the budget. While much of the EU’s external policy is financed and managed by member states, extra resources will be required by the European External Action Service established by the Lisbon Treaty.

The Cypriot presidency has indicated a hope to conclude an agreement by November 2012 in which cuts would apply to all headings. A familiar division is taking place between net contributors and recipients in which public goods appear likely to face a squeeze. The book’s conclusion analyses the outcomes of the two most recent agreements on EU spending in 1999 and 2006 and predicts that continuity will be the result of the agreement of 2013. A deal which includes a small cut but which manages to protect agriculture, cohesion,  rebates for the UK and other net contributors, and payments for the poorest member states will be an agreement of the lowest common denominator. An overall cut that protects traditional redistribution in the EU can only be financed by reducing expenditure on public goods that would otherwise have helped to re-invigorate the European economy.

Today, The Guardian carries the news of the unusual discrimation against Bulgarian and Romanian students who are prevented from easily working in the UK during their studies. Click here.

This situation arises from a transitional arrangement put in place when Bulgaria and Romania joined the EU in 2007. Unlike other EU citizens, Bulgarians and Romanians do not gain the right to work in the UK until 2014, however they benefit from other rights of freedom of movement. For example, unlike let us say a Serbian citizen, a Romanian is allowed to reside (without working) in the UK and is allowed to study, paying Home/EU fees rather than overseas fees. The limit on work was fixed for political reasons because of the unpopularity of free movement of workers that took effect for the citizens of states like Poland that joined the EU in 2004. And it was only political because the population of Bulgaria and Romania is far lower than the population of the 10 states that joined in 2004. Put another way, the effect on the British labour market of allowing free movement of labour for Bulgarians and Romanians in 2007 would have been negligible and is in any case delayed only until 2014. Why not just allow it in 2007?

The situation for Bulgarian and Romanian students is dire for the following reasons. While other EU students, for example from France or Poland, have the unlimited right to work and study in the UK, non-EU students, for example from Croatia or Serbia, require study visas. If the latter get a study visa, it automatically provides them with the right to work during their studies on a part-time basis of up to 20 hours per week. Because the right to study for Bulgarians and Romanians is unlimited (as EU citizens), they don’t need a study visa – in fact they couldn’t get one even if they wanted it. Because they don’t have study visas and due to the limit on employing Bulgarians and Romanians, they can’t work without a work permit issued by the UKBA. To repeat Serbian or Turkish students in the UK can work for 20 hours without any permit from the UKBA.

The next step in this story is that the same rule will apply to Croatian citizens when Croatia joins in 2013 and will run for seven years. This is patently absurd since the population of Croatia is 10% that of Poland and the impact of allowing Croats free movement of labour into the UK would be precisely nil.

UKIP has always denied any alliance with the extreme right but here we have the evidence. Godfrey Bloom MEP has set up a transnational party with the French National Front, Austrian Freedom Party, and Flemish Interest.

The European Alliance for Freedom (www.eurallfree.org) received just under € 373,000 from the EU budget under the EU party statute in 2011:

http://www.europarl.europa.eu/pdf/grants/grant_amounts_parties.pdf

The Alliance’s President is Godfrey Bloom, while other board members include MEPs from the Austrian Freedom Party and the Flemish extreme right. The French National Front has revealed that both UKIP and Marine Le Pen are members of the Alliance:

http://www.frontnational.com/2012/01/marine-le-pen-en-autriche/

Here is a translation into English from the National Front’s press release of 27 January 2012 – note the last sentence of the second paragraph:

 ‘Marine Le Pen will visit Vienna this Friday 27 January at the invitation of the Austrian Freedom Party (FPÖ) and the European Alliance for Freedom (EAF). She will meet various political figures as well as the leaders of patriotic movements in Europe. She will then proceed to the Austrian National Assembly where she will be received by one its presidents as well as by the parliamentary group of the FPÖ.

‘Marine Le Pen joined the European Alliance for Freedom last October. This pan-European platform was founded at the end of 2010 and despite its opposition to the European Union such as it is organised at present, has been recognised by the European Parliament. The members of this Alliance have come from the ranks of those movements engaged in the patriotic and sovereignty struggles of our time. They include for example the Austrian FPÖ of Heinz-Christian Strache, the British UKIP of Nigel Farage, as well as other movements coming from Sweden, Flanders, Malta and elsewhere in the future.

‘The day will conclude with Marine Le Pen attending a ball at the Hofburg Imperial Palace in Vienna at the invitation of Heinz-Christian Strache, president of the FPÖ.’

If further proof of the EAF's far right politics were needed here we have a Flemish poster from its website showing a white sheep expelling a Turkish and Moroccan sheep from Flanders:

 http://www.eurallfree.org/sites/default/files/VB-leaflet.pdf

Clearly UKIP has some explaining to do. Perhaps the BBC and British political class should apply the same cordon sanitaire to UKIP as applies to the BNP. Should a party that forms transnational alliances with Marine Le Pen and the Austrian Freedom Party not be ostracised?

…for continuing the current crisis?

Usually the last thing to consider in a crisis of the kind that Greece and Europe face is electoral rules. But here is why they matter. Politically Greece has always been divided but since the 1970s nearly always enjoyed single party majority government within a two-party system. Although Greece uses PR subject to a 3% threshold for election, the Greek system allows for the largest party to get a bonus of 40 seats (increased to 50 seats in 2012). This was supposed to guarantee stability and one-party government. It worked well when each of the large parties had around 40% of the vote. Today’s inability to form a government is partly due to the fact that the largest party, New Democracy (ND) gained the normal 50-seat bonus but on a far reduced share of the vote at 18.9%.

Table: Greek election results 2009 and 2012 compared

What we see in Greece is a fragmentation with the entry into parliament of three new parties: Dimar (on the left), ANEL (or the right-wing Independent Greeks opposed to austerity), and the Neo-Nazis of Golden Dawn (also on the right). We see the very significant growth of Syriza, the radical left movement, and a huge decline for ND and PASOK. Without the 50-seat bonus, it is impossible to know if a government would have been formed. There would certainly have been a majority for the left-wing parties if PASOK had been prepared to form an anti-austerity government with the parties to its left. Likewise, without the 50-seat bonus, there would have an anti-austerity majority if ANEL had been able to make an agreement with the radical and Communist left. Whereas the 40 or 50-seat bonus was once a factor for stability, it is now a factor for instability.