This article confirms the validity of the hypothesis that national interests were the driving force behind the process and outcome of negotiations for the EU's next financial perspective for 2007-13. The hypothesis is tested by comparing hypothetical coalitions based on quantified national interests (partial net budgetary balances) and the actual (documented) coalitions. Based on these results, the article also discusses implications of the 'net balances problem' for the 2008/09 EU budget review. Copyright (c) 2010 The Author(s). Journal compilation (c) 2010 Blackwell Publishing Ltd.
Conflict among member states regarding the distribution of net financial burdens has been allowed to contaminate the entire design of the EU budget with very negative consequences in terms of equity, efficiency and transparency. To get around this problem and pave the way for a substantive budget reform, we propose to decouple distributional negotiations from the rest of the budget process by linking member state net balances in a rigid manner to relative prosperity. This would be achieved through the introduction of a system of compensating horizontal transfers that would take to its logical conclusion the Commission's proposal for a generalized compensation mechanism. We discuss the impact of the proposed scheme on member states' incentives and illustrate its financial implications using revenue and expenditure projections for 2013 that are based on the current Financial Perspectives and Own Resources Decision.
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