PART 4 WITNESSES' EVIDENCE
43. This part of the
Report summarises the evidence of the witnesses on the major issues
which arose during the enquiry. Our witnesses included representatives
of the governments of the major net contributor to the EU15 (Germany);
and one large country, Poland, and one small, Estonia, from the
applicants, both of which were among the countries suggested to
be in the "the first wave" (see paragraph 27) above.
We are well aware of the diversity of the CEEC10 and we do not
generalise from evidence particular to one of them.
WILL MEMBER STATES PAY FOR ENLARGEMENT?
44. Community funds
for enlargement could be generated in three ways. First, they
could come from economic growth increasing the amount raised by
the 1.27 per cent ceiling of EU GNP for the Community's own resources.
Second, they could come from raising that ceiling in percentage
terms. Third, they could come from savings made by reform of Community
policies, particularly the Common Agricultural Policy and the
policies for economic and social cohesion. The scope provided
by each of these sources of Community funding for enlargement
is considered in turn.
45. Agenda 2000
estimates the growth rates of the EU15 as 2.5 per cent a year
and of the CEEC10 as 4 per cent a year over the period 2000-2006.
The Economic Secretary to the Treasury, Mrs Liddell thought that
the Commission's estimates for growth rates were "perhaps
overstated rather than understated" (Q 79). The Head of the
Polish Government's European Integration Office, Mrs Hübner,
pointed out that the Polish economy achieved a growth rate of
around six per cent in 1996; growth was expected to reach 5 per
cent in 1997 and to exceed 4 per cent for the years to come (Q
45). The Estonian government forecast growth in the domestic economy
of 5.5 per cent in 1997 and 5 per cent for 1998 (Q 99). The State
Secretary of the Federal German Foreign Office, Dr von Ploetz,
told us that the German "wise men" had forecast percentage
growth in their GNP of 2.4 for 1997 and 2.8 for 1998. He also
pointed to the expected positive effects of the growth of trade
and production links between Germany and Poland as well as of
the decisions to be taken in May 1998 on the membership of EMU
(Q 121). Commissioner Liikanen
reminded us that over the last ten years the Community had had
a growth rate of 2.4 per cent a year. So 2.5 per cent did not
seem "terribly optimistic". The growth rates of the
CEEC10 would have little impact on contributions to the Community
Budget until after 2006 (Q 165).
46. Mrs Liddell told
us of some Treasury analysis of the sensitivity of the availability
of EU funds to growth rates over the period 2000-2006. The Treasury
letter containing this analysis, which we received after hearing
her oral evidence, made the point that if the annual growth rate
in the EU15 were 2.25 per cent rather than the 2.5 per cent estimated
by the Commission, the margin between the own resources ceiling
and the total payments from the Budget would fall from 0.05 per
cent of GNP (ecu 4.8 billion) to 0.03 per cent (ecu 2.9 billion).
The letter also showed that on a more pessimistic assumption of
annual growth in the EU15 of only 2.0 per cent a margin of 0.01
per cent (ecu 1 billion) would remain (p 35).
The own resources
ceiling of 1.27 per cent of EU GNP
47. Our witnesses from
the governments of Germany and of the United Kingdom were eager
to display their reluctance to contemplate any increase in the
1.27 per cent of EU GNP ceiling on the own resources which fund
the Community Budget. Mrs Liddell said that the Government wanted
to ensure that the ceiling on the Community Budget's own resources
was held at its present level "right through the period of
enlargement" (Q 63). She made the point that the more the
United Kingdom paid by way of net contribution to the Community
the less would be available to spend on domestic policies (Q 67).
Dr von Ploetz gave a more oblique answer. He said that for his
government the basic point of departure was "not money"
but "What are the alternatives?" One was to leave the
applicants at the eastern borders of the Union to become disillusioned
and impatient leading to eruptions and instabilities. He recalled
that the "hot crisis management " in former Yugoslavia
had cost Germany 17 billion marks. He saw a crisis-preventing
political approach "called enlargement" as a bargain.
That was why Germany, as far as money was concerned, was "not
extremely worried" but would "look into the bill...and
be a reluctant payer, as everybody is." (Q 117).
Reform of Community
policies: (i), (ii) and (iii)
Funds and the Cohesion Fund
48. Commissioner Liikanen
foresaw difficulties in persuading the Southern countries that
the 0.46 per cent of EU GNP currently available for structural
policies under the present financial perspective should, for the
period 2000-2006, be reduced to 0.32 per cent by 2006. He acknowledged
that some other countries, including the United Kingdom and France,
would also face some reduction in receipts from the Structural
Funds. Southern Spain and eastern Germany would improve their
position if the eligibility rule of not more than 75 per cent
of EU average per capita GDP were applied strictly and certain
additions were made for high levels of unemployment (QQ 168-171).
Mrs Liddell did not explicitly accept that reform of the Structural
Funds would necessarily involve a reduction in the resources received
by the United Kingdom from these funds-she referred only to "the
possibility" of a reduction (QQ 65-66).
49. The Chairman of
the European Parliament's Committee on Budgets, Mr Samland, thought
that the Cohesion Fund should be phased out from 1999 onwards
(Q 15). He also told us that there was strong opposition to this
point of view particularly in Portugal and Spain, where the Fund's
inception was seen as a political prize won by the then Spanish
Prime Minister at the time of Spain's accession (QQ 17,19). Dr
von Ploetz reminded us that the Cohesion Fund was time-limited:
although the Commission had suggested in Agenda 2000 that
the Fund should continue, with a review of eligibility rules in
2003, if there was no agreement on the Fund's extension it would
lapse at the end of 1999 (Q 142).
(ii): the Common
Agricultural Policy (CAP)
50. Our witnesses had
no expectation of any early agreement on the reform of the CAP.
Mr Samland said that in his view before the German elections in
September 1998 there was no CAP reform which it would accept (Q
11). Dr von Ploetz, while not denying the strong resistance within
Germany to any reduction in payments to farmers, took a more diplomatic
stance by pointing out that there was, as yet, no definite German
government position on these issues (Q 119).
51. Although our witnesses
recognised that agreement on reform of the CAP would not be reached
early or easily there was a consensus that there was a powerful
case for significant reform even if enlargement were not in prospect.
Enlargement made the case even stronger. Commissioner Liikanen
pointed out the disruptive effects which would follow the application
of the present CAP to Poland: agricultural income would go up
by 47 per cent "overnight", and investment would move
from services and industry to agriculture where, given the strict
quota system for production, the price of land would be forced
up: "it would fully collapse the structure there" (Q
52. Commissioner Liikanen
was confident that CAP reform would continue. He said that the
1992 [McSharry] reforms had already made a fundamental change
because they made a major adaptation towards a market-orientated
agriculture. He was hopeful that regimes for cereals and beef
could be agreed. He saw the most difficult issue as determining
the level of compensation payments which had to balance the future
of agriculture-a major issue for many countries-with the avoidance
of over-compensation (Q 188). He defended the Agenda 2000
position that the applicant countries should receive aid for structural
agricultural reform and diversification of rural employment but
that their farmers should not receive compensation payments made
to farmers in the EU15 in the period up to 2006. He argued that
to do this would be unnecessary and even dangerous because it
would work against the introduction of the needed structural changes.
However, he recognised that in the longer run there would be a
demand for one agricultural policy that applied throughout the
Union (QQ 190-196).
53. Mrs Hübner
acknowledged that Polish agriculture would be the most "special"
issue in the negotiations. She said that although 25 per cent
of the population showed in the statistics as being engaged in
agriculture many had other sources of income which meant that
they could get out of agriculture relatively easily. Many Polish
farmers were elderly people on very small farms which produced
nothing for the market. She emphasised that the people who would
influence the negotiations were not in favour of Poland joining
an unreformed CAP: they wanted the CAP reformed as soon as possible.
She was confident that reform would come about "not for the
sake of Poland...but for the internal needs of the EU" (Q
39). She said the Polish government was already pursuing the policy
recommended in Agenda 2000 of supporting rural development
and the agricultural infrastructure so as to allow the decrease
of employment in the agriculture sector without increasing unemployment
overall. She expected the continuing pressures from within the
EU and from the WTO negotiations to create a situation which would
be acceptable to both the EU and Poland (QQ 40-41).
(iii): The Community
Budget: net contributions and rebates
54. Mrs Liddell said
that the United Kingdom rebate was "written in stone and
we will insist that it remains written in stone" (Q 69).
Other witnesses took a different view. Dr von Ploetz told us that
it was part of the German coalition government agreement that
there should be "fair burden sharing" under the new
financial perspective. The German government accepted that it
would continue to be the biggest net contributor but it wanted
other prosperous countries to be making a similar contribution.
He went on to attack the idea of the juste retour which
he said did not exist and should not exist: "the simple taxpayer
cannot refuse to pay taxes only because he does not get back what
he paid in" (Q 126). Commissioner Liikanen had a more detached
perspective. He saw the British rebate arrangement as underlying
the problems with the national net budgetary contributions in
Germany, the Netherlands, Sweden and Austria. The British should
visit Bonn and the Netherlands to hear the remarks made there
on the British rebate which were "very elaborate and their
questions extremely justified" (Q 188). He expected countries
to want "a generalised correction system" but the Commission
had proposed not opening the rebate discussion until after enlargement
when it would be unavoidable (Q 150). He claimed that the German
net contribution which in past years had been about 60 per cent
of the net transfers was declining. It would be about 55 per cent
in 1997 and by 2006 would be down to between 40 and 45 per cent
55. Dr Ploetz regarded
EMU as likely to have a positive effect in that it would remove
"a certain attentisme of potential investors"
in participating countries (Q 121). He also saw the euro as assisting
the development of the full potential of the Single Market which
had already boosted trade among the EU countries enormously. He
said that the euro was already having an effect long before its
final adoption: low rates of inflation and low interest rates
were being achieved pointing to "a new culture of stability
which was largely attributable to the Maastricht Treaty"
(p 41). The Chairman of the European Parliament's Committee on
Foreign Affairs, Security and Defence Policy, Mr Spencer, took
a more agnostic view of the EMU effect. He saw EMU as "the
wild card" in the enlargement process. He thought it impossible
to know how enlargement and EMU would interrelate because "it
depends on the success or otherwise of EMU...and the impact of
that on the financial room for manoeuvre" (Q 263).
Within the European Commission, Erkki Liikanen has special responsibility,
among other things, for the Budget. Back