Braucht die Europäische Union ein neues Finanzsystem?

This economic policy forum is assigned to the question “Does the European Union need a new financial order?” Hans Fehr considers the recent development of the budget of the EU and discusses a number of reform options for the future. He shows that during the 90ies there has been considerable success in consolidating the budget and reforming its structure. The future challenge will be twofold. On one side the UK correction has to be further reduced and finally eliminated, since there are a number of countries with similar budgetary imbalances. In addition, the intended eastern enlargement of the EU creates a stronger reform pressure for the EU expenditure programs. Fehr argues that since there will be no new financing sources available in the medium term, one can be optimistic that the EU will continue its budget consolidation strategy also in the future. Bernd Huber analyzes the financing mechanism of the European Union. After presenting the current financing system, the paper studies the potential for reform. He remarks that in principle, the EU can be financed by contributions of member states or by taxes assigned to the EU. In a system of contributions, contributions should be imposed according to member states' GDP. In the current state of integration, the EU can only impose indirect taxes. Huber argues that a contribution system dominates EU financing via taxes. Thomas Kuhn studies the existence of schemes for fiscal equalization among regions in the EU. He focusses on designing schemes for the distribution of EU funds, which simultaneously meet allocative and redistributive objectives, given institutional constraints. Using an axiomatic approach, Kuhn finds that an allocation scheme assuring for fiscal equity and incentive compatibility does not exist. This is explained by the lack of institutions providing a link between the distribution of funds and the regional incidence of EU revenue raising, calling for a remodeling of the existing fiscal institutions of the EU. Otherwise, the potential for equalization may be restricted to a large extent, especially in the frame of the upcoming East European Enlargement of the EU.