The EU has a sizeable impact on public expenditure throughout the Union in three main ways. First, the Union spends significant sums of money itself, and the amounts spent by Brussels have been growing in recent years much more rapidly than EU economic output as a whole. Secondly, the borrowing and spending criteria laid down in the Maastricht Treaty put substantial constraints on the spending policies of all Member States, whether or not they are members of the euro zone, not least in Britain. Thirdly, the restrictive monetary policies pursued by the Union as a whole bear down heavily on the economic performance of the EU, slowing growth, raising unemployment, and thus increasing the need for public expenditure while at the same time restricting the means for financing it. This is why public services are under severe strain across the whole of the EU. 

The EU is currently restricted to spending no more than 1.27% of the aggregate output of all the EU economies, although moves are already afoot to raise this ceiling, as Commission ambitions expand. The total EU budget is currently £84bn. This sum is raised from VAT, import duties and other levies contributed by Member States. Some Member States pay in more than others, however, in relation to what they get back. Britain, in particular, has lost out every single year bar two since we joined in 1973. Last year, our gross contribution was £8.2bn, but crucially we paid in £3.5bn more than we received back. Our total net contribution from 1973 to 1998, uprated for inflation, has been £53bn. How many hospitals and schools could have been built for this sum of money?

Of the sums paid to Brussels, just over £1bn is spent on administration. Of the total budget, almost half is spent on the Common Agricultural Policy. The remainder is spent on a variety of social and economic programmes throughout the Union. Is this money well used? There are few people, at least in Britain, who believe that the Common Agricultural Policy — let alone its even more disastrous relation, the Common Fisheries Policy — is anything other than a scandalous waste of public money. The Regional, Structural and Social Funds have more acceptable objectives, but there is no reason why almost any of them needs to be run by Brussels rather than by the Member States, particularly as so many of them are poorly administered. The scale of fraud and mismanagement of EU budgets is hard to credit. Even the EU Court of Auditors estimates that 5% of the entire budget - about £4bn a year - is lost to fraud and other forms of malfeasance, while another 5% is misappropriated by being spent on objectives for which it was not intended. 

While attempts have been made to reduce the costs and increase the rationality of the CAP, fundamental reform has always foundered on the bedrock of national interests and the political power of the farming lobby. As a result, EU expenditure on agriculture is still rising. Most of the benefit goes to large scale agri-businesses in high income countries which damage the environment, rather than to small scale farmers in poorer countries, and those in scattered communities on poorer land, where spending is needed to look after the countryside. The CAP is now the largest single obstacle to expanding the EU to the East. The high cost agricultural regime entailed by the CAP has always cost Britain heavily because our farming industry is relatively small and efficient, and therefore attracts less subsidy than the average. It is also extremely expensive for the consumer — with food costs for a four member family estimated to be as much as £28 a week higher than they would be if we were not part of the CAP. 

The major reasons why countries across the EU are bearing down on public expenditure are the commitments to which they all agreed in the 1991 Maastricht Treaty, as part of the run up to the establishment of the Single Currency. These entailed that annual borrowing as a percentage of national income should not be more than 3% of GDP, whilst total government borrowing as a percentage of GDP had to be maintained at 60% or less. Fears by Germany that other countries might not stick to these rules led to the Stability Pact, agreed to subsequently at the Dublin summit meeting, which established draconian penalties to be applied to any countries which did not comply. Since then, massive efforts have been made by all EU economies, including Britain since the election of our Labour government, to rein back public spending which in consequence, fell some 3% as a percentage of GDP across the whole of the EU between 1994 and 1997 alone. This is why there have been marches, rallies and demonstrations all over the EU, even in such heartland countries as France and Germany. 

Some of the cuts in public expenditure which have taken place have undoubtedly been real, but many have involved one off, unsustainable book-keeping adjustments. More have been designed to get what should clearly be public spending off the governments’ books in ways which have been expensive, inefficient and which have distorted priorities. During the run up to the introduction of the euro, the French reduced their public expenditure ratio by selling off France Telecom pension assets, while the Italians raised nominal levels of taxation only by promising to pay the money back after the Single Currency had been launched. More seriously, the pressure to reduce spending has forced governments across the EU to sell public assets wholesale, to avoid the cost of maintaining them, while those that are retained now have to have improvement works financed by partnerships with the private sector, such as the much derided "Private Finance Initiative" programme. Invariably, these entail both higher borrowing costs than would be necessary if the state raised the money, and a profit stream for the private sector partners which would not need to be paid if the public sector did the work. They also tend to be very complex and expensive to establish. The inevitable results — as the state of the London Transport network shows only too clearly — is delay, penny pinching and under-funding. 

The combination of tight fiscal controls in the EU and monetarist policies to bear down on inflation implemented by the European Central Bank and its precursors before the establishment of the Single Currency, has been to produce very slow rates of economic growth in the EU during the 1990s - an average of less than 1.5% per annum between 1991 and 1997. The inevitable result is that unemployment, which was already painfully high at the beginning of the decade, is still almost 10% across the whole of the EU, although higher, on average, in the euro-zone countries and lower among the non Single Currency members, such as Britain. The published unemployment figures, however, only tell part of the story. As the ILO Employment Survey statistics show, the true number of people who could work if the jobs were there, but who are presently out of work, is currently closer to 30m than the more familiar 16m in the published unemployment statistics.

The slow economic growth which the EU has experienced in recent years has both increased the need for public expenditure, and reduced the capacity of the tax system to pay for it. Much of the need for public spending has arisen from the fact that the ratio between those in work and those who are either unemployed, or who have withdrawn from the labour force, is bound to be lower in deflationary conditions. In these circumstances, dependency on the state inevitably increases. The only way of then squaring the circle between more claimants and less funds is to reduce entitlements and to toughen the criteria for state assistance by means testing. This trend is clearly evident not only in Britain but in many other EU countries, not least in Germany, where moves to cut DM20bn from pensions and welfare spending have plunged the Social Democrats into losing one election after another at local level.

During the 1950s and 1960s, there was almost no unemployment in Europe. Nearly everyone who wanted a job could find one. Employment was secure, and levels of skill and training were rising rapidly. Nowadays, we are told that the only way of making EU countries more competitive and prosperous is to have more deregulation, privatisation and job insecurity, to attack trades unions, and to drive people into working - even if they have good reasons for not wanting to do so - by cutting benefits. Something has to be wrong with this argument, however, because all the EU economies performed much better in the decades after World War II than they are doing at present. Nor was inflation particularly high then. The truth is that the sort of policies being implemented across the EU nowadays to destabilise and deregulate the labour market only seem necessary because the deflationary, monetarist policies which are now so fashionable make it look - quite wrongly - as if there is no alternative to them.

The sad fact is that over the last quarter of a century, since the start of serious attempts to integrate the EU economies, particularly by monetary union, the slow growth and lack of tax buoyancy which has resulted, have had a hugely negative effect on building the sort of society which most left of centre people would like to see. The distribution of wealth, income and life chances have all become more unequal. The improvement in average living standards which has taken place masks the fact that the rich have become much richer, those in the middle have not done very well, and the poor have become relatively, - and in the worst cases - absolutely poorer than they were a quarter of a century ago. The plain fact is that a major consequence of all the efforts to achieve economic and political integration in the EU has been to make the whole Union a less fair place in which to live and work. All the polls show that a large majority of ordinary trade union members and working people instinctively understand what is happening, and - rightly - do not like what they see.

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