Examination of Witnesses (Questions 640
- 659)
THURSDAY 6 DECEMBER 2007
Ms Dalia Grybauskaite
Q640 Chairman:
That is not quite true. You are able to go off the record if you
want to. Would you prefer that we go straight into questions and
answers or would you like to make an initial comment?
Ms Grybauskaite: As it is so formal we can go
straight into questions. I know that what you have probably received
about me is not so formal, but because you are so formal I will
do the best I can to be formal in my answers. I would prefer to
go by questions, you ask and I will try to respond. This is my
Director from the service level responsible for budget reform.
This is a political person from my Cabinet. They will try
to keep an eye on me and I will do my best to say as much as I
can.
Q641 Chairman:
Thank you very much. You mentioned at the outset of your consultation
document that the Commission had been invited "to undertake
a full, wide-ranging review covering all aspects of EU spending,
including the CAP, and of resources, including the UK rebate".
How does the Commission plan to interpret those specific references
to CAP and the UK rebate and the mandate? Are they focal points
of the review, are they key points, or are they just part of the
context?
Ms Grybauskaite: December 2005 was very much
a politically specific environment and the mandate we received
covered all aspects of expenditure and revenues. The addition
which you have mentioned relates purely to the political context
of negotiation, that is our understanding. We will look into all
aspects but not as focal points. There are no focal points for
us, all budget reform is a focal point. We will look at all aspects,
expenditure and revenues. That is the short answer.
Q642 Chairman:
That is a very complete short answer. You also stress, and quite
rightly, that spending must be organised in such a way that spending
meets its goals. It could be argued that the CAP's original goals
have very largely been achieved, while its new goal, particularly
in relation to the Single Farm Payment, remains a contested area.
Would the approach that you advocate demand a consensus on the
future goals of EU agriculture policy before you start allocating
the spending? In other words, are you looking at getting a consensus
on the policy direction before you do the allocation?
Ms Grybauskaite: Because I am responsible for
all budgets I will answer more generally and then specifically
on your question. The main aim of the budget reform exercise is
to focus our attention towards policies of the European Union.
The exercise will be mainly policy driven. That means we agree
first on the substance of policies and only then will we talk
about monies. That is the direct answer to your question, yes
we would like to agree on the objects, subjects and goals of CAP
and only then talk about how to finance it and how much it will
cost. It is policy driven and inclusive of CAP. We would like
to have an agreement before we talk about the allocation of resources.
Q643 Chairman:
Inevitably the proper approach is always a policy driven approach.
Ms Grybauskaite: We have never had it before.
Member States wanted us to talk about 1% or something else. For
the first time in history we have a chance. This is the first
time we have agreed with all Member States that we will exercise
this as a wide revision of all aspects for the future European
budget. We will be revising this for decades to come, it is not
for the next financial framework. That is why in our paper there
will be no figures, no monies. We are trying to avoid that and
do not agree with Member States who are trying to talk only about
how much it costs. Policy is first. The Health Check, which you
are now looking into in more detail, is some kind of preparation
for reform. For me it is a preparation stage, it is not reform
yet. This Health Check was agreed in the reform in 2002. Moving
inside the framework and the monies, which we have already agreed
until 2013. For me, as in sports, it is a warming up for the real
reform. I am targeting more ambitious reform for decades to come,
not the Health Check. The Health Check is just a step adapting
the situation to the challenges that we are facing now. In the
reform we would like to look beyond the Health Check after 2013
and 2020. The short answer is for CAP the first decision is on
substance, on policy, and then money and allocations.
Q644 Chairman:
When we did our inquiry into the reform of the wine regime we
kept coming across a mentality which was very much the money that
is there under the wine regime, whatever happens keep it in for
wine in some way or another, which is a totally disastrous approach.
Ms Grybauskaite: We will never avoid that. Now
I am talking as an ex-finance minister and finance minister for
the European budget. As national governments are negotiating a
new budget all ministers try to keep as much as they can, no matter
what the reform is about, just to keep the money inside. We will
have this mentality inside and outside the house but that is exactly
what reform is about. We need to look at a macro-level, at an
umbrella level, at what policies will give more value added to
be spent at the European level and what may be returned to Member
States. That is the case especially in CAP. You said at the very
beginning that CAP has reached its goal, and it has, but the goals
are old ones.
Q645 Chairman:
Yes, exactly.
Ms Grybauskaite: Today we are faced with different
challenges. We usually agree the CAP for ten or 12 years and then
fix the monies and we are not able to move inside. That is why
the Health Check is useful, because we can move inside and adjust
a little bit but it is not flexible enough. Life is changing so
fast and our financial framework is so inflexible that we are
not able to adjust fast enough with what is happening outside
the window. Especially in agriculture with the interventions and
market prices, environment challenges, diseases in the agricultural
area, we are not able to react because the monies are quite inflexible
inside the package. I am saying that we need to look very radically
at new goals, new challenges, how much can be done at the European
level, maybe something returned back to Member States which they
are responsible for. We need to look very seriously at the long-term
future.
Q646 Lord Cameron of Dillington:
Taking you on and perhaps just applying what you have said in
more detail to the CAP itself, in the CAP we have got Pillar I,
agriculture, and Pillar II. We think that Pillar II presents a
great opportunity because it is more diverse but, if you look
at the goals that you were talking about just now, Pillar I's
goals must be social for the people in the countryside, environmental,
the landscape and so on, and a lot of those goals are probably
better achieved through Pillar II money than paying for farmers
as such, either through the Single Farm Payment or otherwise.
My question is how do we get more money into Pillar II out of
Pillar I and why do we do it through modulation, why not just
allocate the money anyway?
Ms Grybauskaite: I do not want to be rude because
of where this proposal came from and from whom. There are a few
possibilities as to how to increase the leverage of rural development
with Pillar II. The more we look into the future it is supposed
to be more and more important. The direct payment scheme, no matter
how we relate it to the land or the crops or whatever, we see
that the results are not always what we expected or, as I said,
it is too inflexible a system that is not able to react to changing
market conditions. Rural development before was in structural
funds and after one financial framework it came into the agricultural
funds. It is not necessarily the only solution to move there via
modulation but the problem is that until 2013 all monies are fixed
between the pillars and there is not much flexibility. It is a
rigidity in the European budget that we do not have enough leverage
to redistribute. In the Health Check there is a proposal to increase
by 2% each year to do a little bit more rural development, and
modulation was proposed as one of the possible measures how to
push towards rural development. You are right, it does not necessarily
have to be modulation. If we decide that rural development is
a more progressive part of the policy, why not do what we want
to without any modulation. The decision is about modulation. It
was discussed under the Presidency of your country in 2005 and
at that time it was a good solution politically because it was
very difficult to push inside the CAP towards more rural development.
The problem is modulation is not a final solution. How we look
at it for the future and what goals it will solve, we need to
be very careful to see what we can do in a balanced political
way and what will be between the direct payments part and the
rural development part. It is not the best solution but it was
good in 2005. It was one of the creative approaches that we had
in that rigid environment we had.
Q647 Viscount Ullswater:
The idea of moving money from Pillar I to Pillar II also means
that it has got to be co-financed when it reaches Pillar II and
there are huge amounts of opportunities for spending money under
Pillar II under the various axes, a whole list of things. Are
we not creating a situation where we are slightly re-nationalising
some of the spending because the various states, and even the
regions within states, are going to spend the money very, very
differently when they have it available to spend? Is that still
a European policy or is it going back to the Member States to
decide? Is it going to create some form of unequal playing field
where people are going to be competing on slightly different terms?
Ms Grybauskaite: That is a very interesting
and speculative question. If you use the word "re-nationalisation"
everybody will go, "Oh". Let us look at the policies.
Do we have pure common European policies without co-financing?
Can you give me an example? That is very difficult to find. For
example, rural development is co-financed, all structural actions
are co-financed and 12 Member States' direct payments are co-financed
until 2013, (until 2016 in case of Romania and Bulgaria), so practically
today we have the phenomenon of co-financing. Is it re-nationalisation?
We still call it the Common Agricultural Policy. It depends what
we mean by the word "re-nationalisation". It depends
how we use co-financing. It is not really about co-financing,
it is if co-financing is voluntary that it is a problem. The richer
countries will be able to do more, and so on. If it is not voluntary
but mandatory then nothing will happen. If it is mandatory and
you fix the exact amounts you equalise the conditions and the
competition in all Member States. It depends how you do it. Co-financing
is not something bad as a word but I am not saying it is the only
solution because we can save or modernise CAP, not necessarily
with modulation or co-financing. But co-financing is a fact today
in agriculture.
Q648 Lord Cameron of Dillington:
Would your co-financing also extend to Pillar I?
Ms Grybauskaite: Yes. Today. 12 Member States
are co-financed.
Q649 Lord Cameron of Dillington:
For instance, Spain yesterday were almost nervous about transferring
money from Pillar I to Pillar II because it would leave the regions
to make the decisions and they were a bit nervous about that.
They preferred the money in Pillar I because it was mandatory
and it was not co-financed.
Ms Grybauskaite: You are right, the problem
is with the beneficiary countries who are receiving the most.
The country you have mentioned is in the top five receivers on
agriculture. This will be the same in Poland and new Member States
and they will be asked to add something from their budgets because
these monies are earmarked and it is easy, "You do nothing,
you receive something". I would say it is a kind of addiction
to easy money.
Q650 Lord Cameron of Dillington:
Absolutely.
Ms Grybauskaite: They do not need to compete,
to fight, to provide any nice rural development projects, they
just receive it. Do we want such a budget for Europe?
Q651 Lord Cameron of Dillington:
So co-financing in Pillar I is not outside your thinking?
Ms Grybauskaite: Co-financing is not what we
are thinking at all, we are listening at this stage. I am trying
to say that co-financing is an instrument which exists and if
it is a mandatory instrument it does not make for any problems
because if it is mandatory the same Spanish people will receive
this not from the European Union but national government. We put
as an idea in our budget reform that where European monies are
better and give more value added they could be spent at a European
level and maybe at a national level, especially in some areas
of agriculture. I sometimes go to Member States and ask, "Why
do you want Brussels to dictate to you what colour of apple you
grow? Why do you not want to decide it on your own?" It is
not an easy question but the problem in negotiations is people
do not want to talk about policy, they want to talk about money,
and if you talk about money there is no policy. The European budget
has become a redistribution budget, you put money in and ask,
"Give me money back". In the Court of Auditors I had
a joke proposal from one member who said, "Why do you need
a European budget at all? Why do you need a Commission at all?
You could have 2,000 people, make everything into executive agencies
and distribute to Member States by their size. No matter what
policies or programmes they have, just redistribute". That
is exactly what we are talking about. What is the goal of the
European budget? It a redistribution function only or is it for
policy? We agree and then we pay. Agriculture is the same, and
especially agriculture because, as I said, the easy money which
has been decided in the first pillar, especially now for the main
beneficiaries and new Member States, is becoming more and more
addictive. This will be a serious obstacle to reform, at least
in the short and medium-term. In the long-term it is another matter.
Between the EU-15 agreement was possible in 2005 until 2014 because
it is so difficult to change or do something with it. I am not
saying that co-financing as an economic phenomenon is wrong. I
am not saying we are going to propose it, there are other ways
in which we can reform CAP without it, but if Member States agree
there are policies which are more important than the first pillar
in this amount maybe they will agree more on rural development
or something else. That is what we are targeting. We do not want
to talk with Member States about money and we are pushing them
not to approach us with how much they will have. The problem is
not how much but for what and who will pay, the European budget
or national governments. In Spain they are main receivers of structural
funds also, in the top five, and if you look at this country they
are in the top five everywhere.
Q652 Baroness Jones of Whitchurch:
Given what you have said about getting the policy right first,
which I am sure we can all understand, I am not sure how far you
are able to answer my question. Given that we have seen the CAP
declining as a proportion of the total budget and is planned through
to 2013, do you see that trend continuing all things being equal
or is it too soon to say that? Do you think that we should aim
to have agriculture as a smaller portion of the overall budget
in the longer term?
Ms Grybauskaite: Again, it depends on how Member
States will agree what policy priorities are supposed to be financed
via the European budget. If we are talking economically we see
that agriculture gives about 7 or 8% GDP maximum in Europe, it
depends on country to country, but it is 40% of the European budget.
The message that we send to Europeans is very clear: we are not
paying for the areas where Europe is challenged as priority areas.
It was an agreement on two common policies in the Treaty and we
cannot avoid it, we cannot cut it or change it. It is about policies
that Member States will agree in the future, how fast we will
phase in new ones and how fast partially phase out old ones, how
much we reform the old ones inside and what budget we will have
finally. If the budget is 1% of GNI different proportions will
be one way for each policy and a larger budget will be in different
proportions for the policies. It is very speculative to say today.
Historically we have seen in absolute figures the trend is diminishing
for CAP but I do not want to speculate for the future, everything
depends on what policies Member States agree. We have seen in
the future Lisbon Treaty that some new policies are already mentioned:
energy, immigration, climate change. These will be future trends
and more attention will be given to these policies. Research and
innovation is a trend, yes. We cannot simply cut agriculture because
in the CAP today in the first and second pillars, especially in
the second one, a lot of resources are given to fight problems
on the environment in agriculture. For example, in December in
Parliament in the 2008 budget we proposed, and it is on the way
to being confirmed, about 11% will be given to environmental problems.
Diseases which you cannot stop, cow diseases or bird flu or whatever,
on the border means Europe has to tackle it together and some
amounts will be given. It is very clear that the CAP as we see
it will be shaped differently in the medium and long-term. We
are trying to compare it with the CAP today but such a CAP will
not exist tomorrow and I would be happy if it changed faster.
It depends how we will be able to negotiate.
Q653 Baroness Jones of Whitchurch:
Do you see that the big environmental agenda, and if you extend
it towards climate change it gets even bigger, being funded through
the CAP? Is that a mechanism for carrying on in that way?
Ms Grybauskaite: I would say very partially
via for example biodiversity which can be supported by the CAP
but all of these policies are under negotiation because we need
to avoid duplication. We have these elements in separate policies
and they all fight, "I need to do it", because they
want to keep their portfolio. There is this enthusiasm sometimes,
or what I call environmental populism in finances, and we will
need to look at this very carefully and avoid duplication as to
which policy will take the lead and where monies need to be transferred.
Q654 Baroness Jones of Whitchurch:
Could you envisage having a separate environmental pot from which
people would make separate bids, a separate strand of financing?
Ms Grybauskaite: We will see. As I said, first
we need to agree what policies we will take as common future priorities
and then mechanically structure how to do it and via what mechanisms,
which is a secondary question. It is too early to say.
Q655 Lord Greaves:
Can I move on to another aspect of which finance and which policy
is used for what. The new states, particularly the newest entrant
states, obviously need a great deal of structural change in agriculture
and the question is how much of the cost of that structural change
should come from agricultural funds from the CAP and how much
should come from other structural funds.
Ms Grybauskaite: If we had equal positions between
the EU-15 and EU-12 it would be a different answer. The problem
is in both policies, in structural or regional policies and in
agriculture, new members are only phased in. New members will
be full participants of the CAP only in 2013 and the next two,
Romania and Bulgaria, only in 2016. Today the figures are so small
that your question will be more relevant to the situation after
2014. I can say in 2006 we looked at execution, so for EU-10,
because 2006 was before enlargement to 27, only 6% of European
CAP was given to them and 94% went to the EU-15. What more can
we do? Today your question is not very relevant but in the future
these countries will not be new after ten years. After the Health
Check the CAP will be changed and moved a little more towards
rural development and market development and after 2013 the EU-25
will be more or less equalised in the policy approach, there will
be no possibility of distinguishing what can be done via rural
development or structural funds because it will be a discussion
about rural development still. I am not speculating but the question
is open to leave it in agriculture or somewhere else.
Q656 Lord Greaves:
They may not be new in 2015 and beyond but the needs are still
going to be there. The contrast between the old farming systems
and the rest of Europe is going to remain and probably get even
greater. Where is the resource going to come from to tackle this
problem? Until this problem is tackled there cannot be a proper
level playing field in terms of agricultural trade and agricultural
production within the Union, can there?
Ms Grybauskaite: You are absolutely right to
say the differences in the quality of agriculture between EU-15
and EU-12 or EU-10 are still very large. Today's CAP is not managing
to reduce these differences. The problem is the monies which are
agreed in the packages are agreed and fixed until 2013 and we
have no choice, we are not able to move from one to another pocket.
(The answer continued off the record)
Q657 Lord Greaves:
Your answer to my question is major unfinished business.
Ms Grybauskaite: My answer to your question
is until 2013 we are fixed and whether or not this is good or
not is up to you to decide. We are not able to move more radically.
Modulation was one of the chances within this rigidity to try
to move to rural development. It is not the best solution but
it was a good solution in 2005. I think your country and one more
uses it but nobody else. Portugal uses it. Under lobbying, governments
are not able to do it because direct payments are such easy money,
addiction is so fast and the lobby is so huge. It is very difficult
to come out from there. To reform CAP and agriculture is very
difficult politically. For new members it is a specific situation.
Q658 Lord Plumb:
Looking at the future, if there was more flexibility in the use
of funds from the rural fund or from the funding of Pillar II,
would this not start to solve the problem that you have because
we can all see very clearly that problem? For instance, take a
country like Romania where the average sized holding is three
hectares or whatever, we talk about two metre strips around a
field which has to deal with the environmental interests and that
is impossible for a country like that. If there was greater flexibility
and the money was either switched or funding was found for the
rural policy, that being as flexible as possible to deal with
some of the structural problems as well as the environmental problems,
without breaking the system would that not help to start to find
a solution to the problem that you so rightly raise?
Ms Grybauskaite: Theoretically and academically,
yes, but on the ground and in the concrete environment, no. All
governments are under pressure to give the same treatment to their
farmers and if governments are going to be more strategic they
will think about strategic changes but farmers do not care, they
want exactly the same payment their neighbour has, and that is
the problem. If any policy has too much flexibility or a voluntary
mechanism governments will not be able to stand against the pressures.
If we have something common it is supposed to be not voluntary
but obligatory. Do we need to have so much to regulate in this
area, that is the question and it is very fundamental. Maybe we
need to return some functions of regulation to Member States fully
and to reduce this common policy to a smaller amount. If you have
something and you go for voluntary this will not work. We proposed
modulation and we gave the chance to Member States but only two
use it.
Q659 Lord Plumb:
Taking the report we had from the Spanish representative yesterday,
the problem there seems to be within regions not the national
part, it was the arguments they had within regions, which you
can well understand because they have mountainous regions in need
of help and so on and other areas are developing still further.
Ms Grybauskaite: You are absolutely right. Europe
is so diverse and Member States so diverse, there is diversity
in the environment, in territory and in government structures
also. We have small countries which are centralised and we have
confederations and so on. Can we afford to have a Common Agricultural
Policy with such diversity between and inside Member States? That
is a very fundamental question we need to ask. What is possible
and can be done at a European level should be done at a European
level, the rest should be given back.
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