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Current Forum: Focus on the Budget

Looking at the EU Multiannual Financial Framework 2021-2027
Europe

A Modern Budget for a Union that Protects, Empowers and Defends?

In May 2018, the European Commission adopted the EU Multiannual Financial Framework (MFF) for the period 2021-2027 and presented it as “A Modern Budget for a Union that Protects, Empowers and Defends”. The new MFF has ambitious objectives despite the departure of its third largest contributor, the United Kingdom. The ongoing debate on the MFF reveals differences of opinion on various aspects of the EU – including its very foundation.

  • Friedrich Heinemann considers the founding principles of the Treaty on European Union (TEU) and what to do when some EU Member States no longer share the same basic common values.

  • To cope with long-term challenges, EU value added should be create through the reform of the EU's own resources system. "Sustainability-oriented tax-based own resources would do more than just help to close the exisiting sustainability gaps in EU taxation," Margit Schratzenstaller writes.

  • Value is also added through EU commitments to the Paris Climate Agreement and the UN Sustainable Development Goals. Pressure to embed environmental and climate change action into the Common Agricultural Policy (CAP) of the MFF has increased, writes Alan Matthews.

  • And last but not least – defence. Daniel Fiott lays out the future plans for the EU with regards to security and defence – which will become a stand-alone heading in the new MFF. This is quite noteworthy due to the fact that Article 41.2 of the TEU prohibits the use of the EU budget for defence reasons.

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Figure of the Month

Sovereign debt ratio projections for Italy

Sovereign debt ratio projections for Italy

This figure from Oliver Holtemöller, Tobias Knedlik and Axel Lindner's article On the Risk of a Sovereign Debt Crisis in Italy shows the different forecast scenarios for je souvereign debt ratio in Italy

Editorial

Italy: A Question of Interest Rates and Trust
https://archive.intereconomics.eu/year/2018/1/how-can-behavioural-insights-be-used-to-improve-eu-policy/

Sergio Cesaratto argues that Italian public debt has had mainly to do with interest rate payments and conversely very little to do with fiscal profligacy. He rallies against what he sees as Europe's view that markets should be allowed to bring Italy to heel. His solution: allow interest rates on Italian public debt to fall, for example, to the French level. With sufficiently low interest rates, Cesaratto argues, stabilisation or even a slow, progressive reduction of the Italian public debt is consistent with a moderate fiscal expansion.

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Forum

Triage? Assessing the EU’s Modernisation Proposals for the WTO

Simon Evenett evaluates the European Commission's proposal to modernise the World Trade Organization (WTO) in July 2018. The three elements of that proposal differ in their specificity perhaps reflecting the urgency with which different threats are unfolding to the world trading system. The proposals identify proximate rather than root causes of the current malaise and give the impression that a World War I style triage of the rules-based trading system is ultimately being contemplated.

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Open Access Now

Intereconomics September/October 2016

All articles in the issue 5 from 2016 are now freely and permanently available. Read the Forum on The Post-Brexit European Union and a range of other interesting articles, e.g. The Political Effects of Ageing on Inflation or Weak Investment Poses a Threat to Industry in Europe.

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Forum

Tax-based Own Resources as a Core Element of a Future-Oriented Design of the EU System of Own Resources

There is a broad consensus among experts, says Margit Schratzenstaller, that the current structure of the EU budget is inadequate to cope with the long-term challenges confronting the EU. More needs to be done to address digitalisation, climate change and migration, among other issues. One way to do this is to create EU added value through the reform of the EU's own resources system.

"Sustainability-oriented tax-based own resources would do more than just help to close the existing sustainability gaps in EU taxation," Schratzenstaller writes. It would act as a catalyst to secure net contributors' agreement to maintain or increase spending in exhange for far-reaching reforms that will enhance European added value.

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Quote of the Month

Looking at the EU Multiannual Financial Framework 2021-2027

"EU funds that promote economic convergence will hardly reach their objective in countries sliding toward a system that lacks effective checks and balances."

From Going for the Wallet? Rule-of-Law Conditionality in the Next EU Multiannual Financial Framework by Friedrich Heinemann

Letter from America

Post-Midterms: What to Expect

The November 2018 midterm elections in the US did not produce the blue wave that some had predicted but they did flip the House of Representatives, thereby breaking the Republican's legislative stronghold. Jiffer Bourguignon considers the implications for the next two years of Trump's term leading up to the 2020 elections. What does the new configuration mean for the future of Trump's tax cuts, trade policy and the US economy? Are there opportunities for bipartisan cooperation or will the divide intensify? How will things play out as Trump makes his bid for reelection? For an indication, Bourguignon says, look to Trump's base.

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