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Lecture 18

POLI 451 Lecture Notes - Lecture 18: Budget Of The European Union, European Central Bank

Political Science
Course Code
POLI 451
Sven- Oliver Proksch

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The EU Budget
150B euros
so small compared to national budgets of MS combined
EU revenue
does not levy its own taxes
agri. levies and customs duties
VAT-based resource (value added tax, which goes to Brussels)
GNP-based resources
EU expenditures
agri. subsidies
regional funds
external action
other internal policies
no EU tax
EU not allowed to run budget deficit
no welfare state replacement
three big spending categories
common agri. policy
ensure availability of supply, increase productivity, fair standard of living
guaranteed prices + levies on imported good + export subsidies
early results
overproduction (“butter mountains”)
environmental destruction
obstacles to global free trade
CAP reforms
from price support to income support
dominance of agri. interests (Council)
since Lisbon Treaty: EP is a veto player (and more pro-consumer and pro-
cohesion policy
set of policies designed to reduce eco. disparities b/w regions
financial support to economically underdeveloped regions in EU MS
redistributive policy primarily to improve the efficiency of the single market
target: infrastructure projects in regions (not countries) to increase competitiveness
bulk of spending
who pays?
budget process
a multi-annual financial framework sets overall annual expenditure levels (EC);
e.g. 2014-2020
annual budget procedure
Comm., Council, EP
per capita net contributions on receipts from EU
calculate the difference on whether they receive more than they pay or pay more
than they receive
Sweden, Denmark, Lux., Ger., Fr., etc. are net contributors
budgetary politics
nat’l compensations
some net contributors with high contributions and small agri. sectors (NL,
EU receipts important revenue sources in poorer MS
economic and monetary union
what is EMU
EMU = Eurozone
Economic and Monetary Union (EMU)
single monetary policy
common interest rate
single monetary authority
single currency
coordinated macro policies
European Central Bank (ECB)
responsible for single currency
sets short term interest rate
monitors supply money
"shall not take instructions”
main goal: price stability
explaining EMU
The plan for EMU
put forth by Comm. back in 1980s
stage 1
free movement of capital
stage 2
convergence of MS eco. policies and strengthen cooperation b/w
nat’l central banks
stage 3
since 1999
gradual introduction of Euro as single currency
coins and notes since 2002
budgetary rules with penalties (but ineffective)
opt-outs for UK + Denmark (and de facto Sweden)
criteria for Euro membership
1. eco. performance
inflation/interest rate/exchange rate
2. no excessive budget deficits or public debts
3. nat’l central bank independence
economic union?
stability and growth pact
once a country gets in eurozone, must maintain criteria that was
required to first join
defines permissible levels of public debt and budget deficits
prevention: multilateral budgetary surveillance
correction: excessive deficit procedure
fines to act as deterrent (QMV in Council of euro area members)
sovereign debt crisis
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