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THE EU AUSTERITY BUDGET 2012 - AN IMPECCABLE ANALYSIS


European Union Austerity Budget 2012 – An Impeccable Analysis

To       The Right Honorable European Council President Herman Van Rompuy. 
          
From: Athinarayanan Sanjeevraja

Date:  November 30, 2011

RE:       EU Austerity Budget 2012

Suggestion: Balance between the fiscal discipline and growth.

Good Morning Mr. President. I read Financial Times, London last week that European Council had sought higher commitments from its member, agrees austerity budget for 2012. The council and the European Parliament agreed on an overall amount of € 147.232 billion, leaving a margin of € 1.23 billion below the MFF ceiling. It is a good strategy to attack in the midst of a serious financial crisis in Europe. Europe’s economy remains very fragile. Many member states are grappling with the consequences of unsustainable public deficits and very high debt levels. So all member states are largely looking at fiscal consolidation and plan for growth. EU budget needs to have some fiscal discipline in it. The EU Budget 2012 as proposed neat balance between austerity and growth. I am sure the European Parliament has looked at the process from its perspectives to see and making sure that the budget is prioritized to areas that will deliver on what Europe wants.

Let me layout my impeccable analysis of EU Budget 2012. Number one is spending control. Spending control is vital before the debt levels. High debt would severely damage the growth. So the fiscal consolidation at a modest level is essential. EU budget 2012 will likely to be a far more effective on the government spending than the tax side of the budget. I knew that government spending should be left to the national governments because every national economy within the EU is slightly different and they all have different ways of addressing their economic problems but I believe that EU can be part of the solution in how its budget is spent and it can help on areas such as research, agriculture, infrastructure, climate change, education etc.

Number two is The European Council proposes 7th Research and Development Framework Programme, which was reinforced by € 92 million, the competitiveness and Innovation Frame Work Programme (€ 15 millon), Life Long Learning Programme € 52 million and Erasmus Mundus € 1.9 million. The Council cuts in education especially to reduce the LLP as well as research initiative people. I think it is quite disappointing our own commitment for Europe 2020 growth agenda. I think that the Council wants to see across the board savings. It is particularly important for this year and next year. The Council must ensure that cutting budget should not drag on track.

Number three is The Council proposes cohesion for growth and employment at € 52.8 billion, leaving a margin of EUR 8.4 million and payments at 43.8 billion. I understand that Structural and Cohesion funds are important, potentially for new member states and it is bigger part of the EU budget. One of the problems that we have seen with Structural Cohesion fund is that some of the new member states have not spent elements of the funds that they have been given in last year. EU is to help counties within the EU that are relatively less developed to get the right infrastructure to stimulate growth of the new member states. From my perspective, we will need to look carefully at how we can improve the effectiveness of Structural and Cohesion funds which help us to regenerate and develop the economies that we want to see developed particularly the new member states.

Number four is The Council proposes for preservation and management of natural resources at € 60.00 billion, leaving a margin of €834 million and payments at € 57.00 billion. The Conciliation Committee agreed on a joint statement on preventing measures for future crisis in the fruit and vegetable sector. I knew that EU has done a good job in agriculture sector. I agreed that this is a key area. There is lot of problems about food supply. Is there any possibility of move some of the money currently in the CAP into agricultural research which would be much more meaningful and it leads to a modern form of agriculture producing better goods and more jobs?

Number five is The Council proposes for Administration at € 8.3 billion, leaving a margin of €474 million. Administration budget is effectively on salaries, allowances and pension. I think that there is big opportunity to get savings over the coming years and make sure pensions are frankly more affordable for the EU in the future. European Council & Parliament should look at how we can make pay, pension and allowances at the EU level affordable and better value.

Number six is tax reform. I believe that tax is a national prerogative. The idea with corporate tax is to create an environment where it makes sense for European companies to reinvest their profits in the Europe in new plant, new equipments by creating new jobs and ensure that corporate investment should be a long term one which generate increased capital over a period of time. So that it creates sustained growth. In addition, lowering the tax rates on the richest tax payers and reduction of top marginal tax rate will increase tax revenue. Incentives for research and innovation increase business competitiveness. Investment deduction of SME’s will add value for European companies. GDP growth may accelerate when the relative burden of taxation in terms of actual revenues rather than headline rates and shifted towards private individuals and away from corporation.

And finally  encouraging private business investment and ensure that the cost of doing the business and regulation in Europe should be low so that it will encourage private investments. High costs and more regulations are discouraging private investments.       
Let me conclude it president, I think we can really start to see some savings from this austerity budget 2012 and we want to make sure that the budget 2012 as proposed finds a neat balance between fiscal discipline and growth.  I am sure the European Council should recognize that financial discipline is critical for the next financial perspective.  
Thank you very much for letting me states my opinion.

I am Athinarayanan Sanjeevraja with great respect of you.   


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