European Policy Analysis APRIL · ISSUE 2-2008 Swedish Institute for European Policy Studies · Publisher: Jörgen Hettne · www.sieps.se EUROPEAN POLICY ANALYSIS 2–2008 · PAGE 1 Filipa Figueira 1 A Better Budget for Europe: Economically Efficient, Politically Realistic Abstract Dissatisfaction with the EU budget has grown steadily over the past three decades. During that time, economists have produced a large number of studies which attempt to find the optimal structure of spending for the budget, based on theories of fiscal federalism. Those studies have provided invaluable insights into how EU money should be spent. They are often ignored, however, by policymakers. For many, the EU budget is all about politics; finding a spending structure that allows all Member States to reach agreement so that the EU can con- tinue with its most important activity: not spending, but regulation. Both groups are right. The expenditure of the EU budget must be determined both by an economic analysis and by a political decision. The economic analysis should be used to select which areas of spending can be done efficiently at the EU level. But the decision on which of those areas should benefit from EU funding must be based on political criteria. This European Policy Analysis proposes a method for analysing the EU budget which combines economic, political and legal aspects. This integrated and multidisciplinary approach was lacking in the previous literature on the EU budget. The objective is to offer a basis for a realistic and comprehensive analysis of how the budget should be structured. Why go Beyond Fiscal Federalism? Most studies on the EU budget are based on economic theories of fiscal federalism. These theories assess which policies can be done more cost-efficiently at the EU level than at the national level. They conclude that these policy areas have ‘European Value Added’ (because EU citizens get more value out of them if they are done at the EU, rather than national, level) and therefore should be carried out under the EU budget. This analysis is no doubt correct – but it is incomplete. It does not take into account the fact that the EU budget is not the same as a single country’s budget: it is only a relatively small sum of money, which national governments make available to be spent at EU level. Given that the EU has grown to be much more than a simple international organisation, we have naturally begun to see the EU budget as much more than an international organisation’s budget – but it is not. While the powers of the EU have grown exponentially, its budget has not; it is still very small, and there is no willingness from the great majority of EU countries to make it any bigger. 1 Filipa Figueira is an Associate Research Fellow at the Centre for European Policy Studies.