Robin Hood Or The Sheriff of Nottingham?

José Barroso, European Commission president, yesterday advised Tony Blair not to act like the Sheriff of Nottingham, taking from the poor to give to the rich. I don’t know whether Tony’s been taking his advice, but this decision seems significant, and seems to reflect a willingness to try and get a deal. I don’t know what will eventually happen to the badly needed reform of the CAP though.

UK prime minister Tony Blair has signalled London will agree to cut its rebate from the EU budget, without a link to common agricultural policy (CAP) reform but through excluding new member states from contributions to the “British cheque.”…

London had, until now, insisted that a complex reform of EU spending, mainly on farm subsidies, is needed if the UK is to give up the rebate, which was negotiated in 1984 by Margaret Thatcher.

However, with France unlikely to agree on any farm cuts at the December summit, UK officials have revealed they will offer to freeze the UK’s €5.6 billion annual rebate at something close to the current level.

The solution is similar to one which London rejected in June, but the proposed British rebate cuts are less severe.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

19 thoughts on “Robin Hood Or The Sheriff of Nottingham?

  1. “I don’t know whether Tony’s been taking his advice, but this decision seems significant, and seems to reflect a willingness to try and get a deal.”

    Tony, as we know, is especially sensitive about his prospective legacy and the way he is presented in the media – which is why we have had so much spin. Now even the most obtuse, Blairite fanatic is obliged to admit that the vibes in Europe about his management of the UK’s EU Presidency have not so far been exactly complimentary and he has only a few weeks remaining to change perceptions before the Presidency transfers to Austria in the new year.

    He was – I think – intent on stoking sufficient pressures to gain some flexibility for reforming the Common Agricultural Policy but the protectionist sentiments in the EU are too deeply entrenched so that tactic plainly isn’t working. Add to that recent reports that with the UK’s rebate left unchanged the UK’s net budgetary contribution of £4 billion to the EU will tend to diminish through time and he feels inclined to switch stance from the Sheriff of Nottingham to Robin Hood to maintain good will among the new EU’s new member states.

  2. But the problem for Blair is that it is easy to bash the French about CAP – his UK audience will put up with that – but it is a little more difficult to bash the Poles etc…and this issue is not about Europe at all, it’s about how Blair looks at home.

    So on Dec 16 expect everyone to come out saying they are the winner. Blair will keep most of Thatcher’s rebate, the French will still have their CAP, the Poles will have most of their subsidies…

    Either that or it’s going to be given to the Austrians to sort out. Poland won’t like that…

  3. What a mess. So much for the skills of British diplomats. If Blair was going to burn all his bridges on this “CAP versus Rebate” isse why the hell didn’t he draw this line in the sand when the CAP financing deal was struck in Brussels in 2003 ?? If he had said back then that without further cuts in subsidies the British rebate would stay then he could claim the high ground. As it is everyone – just everyone – is blaming the British for unreasonable intransigence. A diplomatic balls up.

  4. “why the hell didn’t [Blair] draw this line in the sand when the CAP financing deal was struck in Brussels in 2003 ??”

    In 2002, when Blair was still in a fit of Europhoria, he signed up to an EU deal for financing the CAP through to 2013. Reality only dawned later.

    Unsurprisingly, the French – and the Irish, the Spaniards and the Poles – are saying they want to stick with what was agreed and are entirely within their rights to refuse to sign up to any change in the CAP until 2013.

    Don’t blame the British diplomats. The trouble is “that Blair doesn’t do detail,” as Sir Christopher Meyer, until recently, Britain’s ambassador in Washington, put it.

  5. At one level, the proper goal of EU negotiation is to ensure that all current leaders come up smelling of roses. Chirac had less room to manoeuvre than Blair and less need to do so. The ‘bash the French’ approach in British foreign policy and domestic media presentation initiated since the build-up to the Iraq war goes down well at home, but is really not effective on the continent, partly because it’s a misunderstanding of the rules of the game. The objective is not to score points off the Froggies, however much that may suit Mr Murdoch’s agenda – and consequently enhance a British party’s re-election chances.

    A crude misrepresentation of correct British perceptions of the real urgency of CAP reform? Bah, humbug.

  6. Let’s not mince words. The CAP is patently daft. It takes up c. 45% of the EU’s annual budget for what amounts to c. 5% of EU economic activity.

    Famously, every EU cow is subsidised to the extent of USD 2 a day. It happens that France is the largest single beneficiary of CAP and Ireland attracts more CAP funds per head of population than any other EU member state.

  7. Yes Bob. But agriculture is the only European sector for which institutional support is primarily the responsibility of the EU, so the comparison with the overall figure for European economic activity is very misleading. More generally, I think Chirac put it rather well when he asked (I paraphrase) why only American cows should be subsidised.

    Obviously, the CAP needs reform – precisely on the lines that were blocked by the British government, namely a greater proportion of funds going to a larger percentage of beneficiaries. This is the kind of reform that the Eastern Europeans will back enthusiastically.

  8. “But agriculture is the only European sector for which institutional support is primarily the responsibility of the EU”

    But the big and obvious question is whether that makes any sense at all when agriculture amounts to only 5% of EU economic activity. It was recognised back in the 1970s, when Britain joined what was then the EEC, that the Common Agricultural Policy was a nonsense. Its financing then took more than 70% a year out of the budget but the line was the EEC would reform. Some 25 years later, the CAP was still taking c. 50% of the annual budget. No wonder the EU has continuing “competitiveness” problems.

  9. the EU budget is a 1% of EU GDP (which I assume Bob B is reffering to as “economical activity”), then CAP is 0.45 of EU GDP for an activity that represent 5% of EU GDP, that doesn’t look as excessive.

    DSW

  10. But, Antoni, why all this huge negotiating effort to maintain the EU’s present administrative infrastructure and spending just to protect, subsidise and otherwise prop up agriculture, a mere 5% of the EU’s GDP, instead of maintaining the push needed to revive the Lisbon Agenda and keep that going?

    “On 22-23 March 2005, the Spring Council discussed the Commission’s mid-term review of the Lisbon strategy for economic, social and environmental renewal. More focus on growth and employment, simplification and national ownership via national action plans are the key elements to relaunch the Lisbon reforms agenda.”
    http://www.euractiv.com/Article?tcmuri=tcm:29-131891-16&type=LinksDossier

    “The 25 European Union leaders want to give new impetus to economic reforms – especially to make their countries more competitive. ”
    http://news.bbc.co.uk/2/hi/business/4373485.stm

    The Lisbon Agenda seems to have been forgotten – again. The future strength and competitiveness of European business in a globalised economy is not going to depend on agriculture, for heaven’s sake. The evident EU priorities don’t make any sense except in terms of protecting narrow vested interests.

    We already know that most of the CAP spend disproportionately benefits big land owners and not the mythical small and peasant farmers of legend who need income support for social reasons.

  11. CAP is 0.45 of EU GDP for an activity that represent 5% of EU GDP, that doesn’t look as excessive

    That is overlooking a lot.

    1. There are national subsidies, too.
    2. Prices are driven up, that hurts a lot in a time where low paying jobs have to be created.

    On a related note, on tax policy. Is taxation of consumption better for employment than taxation on income? Taxation on income means that labor intensive goods are discriminated against and in addition, imported goods are not hit by taxation on icome.

  12. With all the stuff in the news about Britain’s notorious rebate on its annual net budgetary contribution to the EU as famously negotiated by Mrs Thatcher in 1984, I wondered about how the rebate was actually calculated.

    The most lucid explanation I could find on the internet was by the BBC – and it is remarkably unpartisan:

    http://newswww.bbc.net.uk/1/hi/world/europe/4721307.stm

    If anyone knows of a better account on the web, I would appreciate knowing about it and the relating link.

  13. The UK region should just forget about the the so-called rebate and join the euro. That why it would come fully under the control of the European Central Bank which is vital to making sure peace in Europe lasts forever by stopping people fighting over money. If the UK starts a war over this issue, I will proudly put on the uniform of the European common army (although I do have flat feet and am slightly colour-blind so that might save me either way).

  14. “JACQUES DELORS, the former President of the European Commission, fuelled the controversy over the euro yesterday by admitting that Britain was justified in opting out of the single currency because its launch was flawed.

    “In a remarkably frank interview with The Times, the one-time bogeyman of Eurosceptics also predicted that Britain would stay out for years, not least because Gordon Brown was so ‘passionate about his contempt for Europe’. . .

    “But his most surprising comments were on the euro. He lamented that EU leaders had failed to heed his warning that monetary union must be matched with close co-ordination of economic policies, and argued that the euro was consequently less attractive than it could have been. . . ”
    http://www.timesonline.co.uk/article/0,,724-967150,00.html

  15. Any readers here wanting to recap on the British Treasury’s assessment of the economics of Britain joining the Euro, as published in June 2003, may like to try this link:
    http://news.bbc.co.uk/1/hi/business/2970126.stm

    Since then, repeated policy statements by the Chancellor of the Exchequer have indicated that he believes there has been no subsequent need to revise the conclusions of that assessment so far.

    The plain fact is that Britain’s economy has performed better than the other major European economies in the period since June 2003 in respect of both GDP growth and unemployment and mostly on controlling inflation as well until a brief period very recently.

    The British economy does have a problem with a house price bubble – as the OECD recently commented – but that would likely be exacerbated by the loss of national monetary autonomy and aligning prevailing interest rates in Britain with the substantially lower interest rates prevailing in the Eurozone.

    It was often claimed that inward investment into Britain would fall away if Britain failed to join the Euro but that has not transpired – quite the reverse, in fact:

    “The UK attracted a record number of investment projects from foreign firms last year, official figures have shown.

    “Government body UK Trade and Investment said nearly 40,000 jobs were created in 2004/05 from 1,066 investment projects.

    “That was an increase from the 25,463 jobs created by 811 projects in the previous year.”
    http://news.bbc.co.uk/1/hi/business/4632923.stm

  16. I guess I could probably find this out for myself, but I’d like to ask the economists here whether there’s anything about the British housing market that make it more of an inflationary factor than its continental equivalents – the rate of owner-occupancy for instance or the basis on which home-loans are given?

  17. You could try the Treasury’s case study on Britain’s housing market and the Euro, one of 18 studies undertaken in support of the Treasury’s overall assessment of joining the Euro published in June 2003. It is reachable with the other studies via the BBC links at:

    http://news.bbc.co.uk/1/hi/business/2970126.stm
    http://news.bbc.co.uk/nol/shared/spl/hi/europe/03/euro/html/default.stm

    The first time I came across published concerns relating to the Euro and the distinctive features of Britain’s housing market was in a collection of essays by Walter Eltis: Britain, Europe and EMU (2000).

    The special significance is that Eltis was Michael Heseltine’s economic adviser when he was DTI minister in John Major’s government in the 1990s yet Heseltine at the time and subsequently is widely known to have been a leading advocate of the benefits to Britain from full membership of EMU. It would seem that he did not pay much heed to the advice he was getting from his economic adviser. Quoting Eltis:

    “In much of continental Europe, familes obtain finance for home ownership or personal consumption far less readily. . . In consequence, aggregate mortgage debt is 60 pc of GDP in Britain but only 40 pc in Germany, 25 pc in France and less than 10 pc in Italy. The interest rates paid on these lower levels of personal debt are also less flexible than in the UK. The variable interest liabilities of the United Kingdom personal sector total 64 pc of GDP. They are only 16 pc in France, 3 pc in Germany and 2 pc in Italy.” [p.185]

    It is these circumstances which explains why a change in short-term interest rates in Britain, as set by the Bank of England’s Monetary Policy Committee, has a virtually immediate impact on the monthly disposable incomes of so many households in Britain and why the transmission mechanism of monetary policy changes in Britain is therefore so much more powerful compared with national economies in much of mainland Europe. Quoting Eltis again [p.186]:

    “An independent committee . . reported in May 1997 that: ‘Simulations on macroeconomic models run by national central banks suggest that, for the UK, the impact of an interest rate change on domestic demand after two years is four times the EU average.'”

    The no-euro campaign’s pamphet on: UK mortgages and the euro, by Graeme Leach of the IoD, is here:
    http://www.no-euro.com/factsfigures/pdf/mortgages.pdf

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