EU Public Policy: Cycle, Budget, and Key Policies

Posted on Feb 7, 2025 in Business Administration and Management (BAM)

EU Public Policy: An Overview

Within the framework of its powers, the EU can submit proposals on matters where citizens believe a legal act of the Union is required to implement the Treaties. Most public policy within the EU continues to be made at the member state (MS) level. However, in a growing number of areas, including various economic, foreign, and social policies, decisions are made at the EU level.

The Public Policy Cycle in the EU

The classical elements of the public policy cycle are agenda setting, formulation, legitimation, implementation, and evaluation. For a variety of reasons, all of these stages of the policy cycle are more complex within the EU than they are for formal states.

The EU has its own budget, although this is far smaller than most national budgets and must be balanced each year. The major source of revenue for the EU is contributions from its member states; its major expenditures include funds for poorer regions of the EU and agricultural subsidies for EU farmers.

The Policy Cycle: A Closer Look

The most common method to describe the study of public policy is in terms of a cycle. The problem with this approach is that it suggests that policy making is more logical and ordered than it really is. But the approach has the advantage of imposing some order on a complex process. In the case of the EU, that cycle has six key steps:

1. Agenda Setting

Before a policy choice can be made, the existence of a problem must be acknowledged, and the problem must be accepted as a legitimate concern of government and placed on the public agenda. The definition of public agenda is affected by prevailing economic, social, and ideological values; by the nature and extent of government authority; and by changing levels of public and political interest.

The broad or perpetual issues are those that tend to affect most people most of the time, such as economic questions, social issues, foreign policy, and the environment. Issues that rarely make it onto the EU agenda are those that are still mainly the responsibility of the MS, including welfare, health care, taxation, education, public safety, and crime.

It is important to appreciate that there is no single agenda in the EU but many different agendas. One key difference between agenda setting at the national and European levels lies in the relative roles of public accountability. A second difference lies in the extent to which easily identified solutions exist.

Although the European Council and the Commission are the primary agenda setters, they are subject to many different pressures and influences (public opinion, treaty obligations…). Agenda setting in the EU is based on a combination of:

  1. The extent to which national governments are prepared to allow the EU to have authority in different fields.
  2. The extent to which economic, political, or technical pressures demand an EU response.
  3. The compromises reached in the process of resolving the often conflicting demands and needs of the MS.

2. Formulation

Once a problem or a need has been recognized, a response must be formulated. This will typically involve the development of a plan or program, which may include agreeing on new laws and new spending. Policy is often driven by incrementalism, intuition, opportunism, or responses to emergencies or changes in public opinion.

Several obstacles interfere with the orderly formulation of policy:

  1. People disagree over problems, their causes, and their urgency.
  2. Policy makers may not always have enough information to give them a clear understanding of a problem or its causes, and even when they do, they may not always agree on its interpretation.
  3. Responses to problems are affected by personal, social, and ideological biases.
  4. It is frequently difficult or impossible to be sure about the outcomes of a policy or how that policy will work in practice.
  5. The distribution of power in any system of government is often ambiguous.

The major focus of policy formulation in the EU is the Commission, which has the sole power to initiate new legislation, is responsible for protecting the treaties and ensuring that their spirit is expressed in specific laws and policies, and is charged with overseeing the EU budget. The Commission listens to national governments, public opinion, interest groups, corporations, and policy think tanks and is often influenced by the ideological, social or national biases that its own staff bring to their analysis of a problem. The European Council will often also have an impact on policy formulation, since it decides not just what to do but sometimes how to do it. Commission proposals are also routinely changed as a result of lobbying and as they are discussed by the Council of the EU and the European Parliament.

3. Legitimation

In a democratic system, few policies are likely to be able to succeed unless, at a minimum, they are based on a legal authority and win public recognition. Legitimacy is a concept that describes the extent of the belief of citizens that the government under which they live has the authority to govern and make laws and also describes the extent to which the actions of government are regarded as proper and acceptable. Legitimation is the process by which a government gives legitimacy to its action, its policies must be converted into generally acceptable means for achieving its objective. Legitimation to the EU is achieved through one of four main channels: the treaties, legislation, decisions by the European Court of Justice and public opinion.

4. Adoption

Once a new law or policy has been formulated, it must be adopted. Responsibility for this is shared between the Council of the EU (particularly Coreper) and the European Parliament. The adoption of a new proposal is driven by the negotiating styles of the representatives of each MS, which will be influenced by tradition, by the attitude of the home government toward European integration, and by the extent to which a MS depends on EU law.

5. Implementation

Policies are only words or ideas until they are implemented and enforced. In the case of the EU this means monitoring the application of new laws and regulations, arguably the most difficult step in the policy cycle. Policies can be reinterpreted and redefined even at this stage. Responsibility for overseeing implementation lies with the Commission, although it must work through the bureaucracies of MS to ensure that governments turn EU laws and policies into practical change on the ground. The Commission also relies on individuals and interest groups to review the progress of implementation and on the Court of Justice to ensure that laws are uniformly interpreted and applied and that disputes are resolved. Implementation has also been made easier by the creation of specialized agencies such as Europol and ECB, with responsibilities in focused policy areas.

6. Evaluation

The final stage in the policy cycle is determining whether a law or policy has worked. This is difficult unless specific goals were set from the beginning and unless MS can be trusted to report accurately to the Commission on the results of policies. The outcomes of policies can be identified and measured, policies can be continued, adjusted or abandoned. Evaluation in the EU is carried out by a combination of the Commission, the Council of the EU, the European Parliament, the European Council and reports from MS, interest groups and individuals.

Features of the EU Policy Process

The policy process is not driven just by the usual pressures of compromise and opportunism, but also by some features that are unique to the European experience:

  • Compromise and bargaining: All politics is a matter of compromise. The fewest compromises are needed in unitary systems (UK or Spain), and more compromises in federal systems (Belgium or Germany).
  • Political games: National game among MS (taking as much as possible while giving as less as possible), game between EU institutions (gain more power relative to one another) and bureaucratic game (between DGs).
  • Incrementalism: Slow and cautious.
  • Multispeed integration: Not all MS have adopted the same set of common policies, like the Euro.
  • Subsidiarity: Apart from exclusive policy (trade, competition…), only when it is necessary the joint action.
  • Europeanisation: Instead of “Community method”, there has been a process of harmonization.
  • Spillover: The need to tackle new policy areas not anticipated. For example: to achieve the single market, there has been legislation over social issues, working conditions, etc.

The Single Market

European integration has always been a function of economic integration. Intended to promote peace and prosperity in the early years of the EU, in the last two decades significant progress has been made in completing the single market and in breaking down remaining physical, fiscal and technical barriers to integration. The fundamental goal of the Treaty of Rome was the completion of a single European market in which there would be free movement of people, money, and goods and services. The objective was to finally remove the remaining barriers to the single market, which took three main forms:

  • Physical barriers: Internal customs and border checks persisted because the government wanted to control the movement of people, collect taxes and excise on traded goods, and enforce different health standards. These barriers not only reminded Europeans of their differences but were also a significant economic constraint.
  • Fiscal barriers: Indirect taxation caused distortions of competition and artificial price differences among the MS and thus was a barrier to the single market. A particular problem was posed by different rates of value added tax (VAT) and of excise duties. Agreements on minimum VAT rate and now EU-wide VAT system under which tax is collected only in the country of origin.
  • Technical barriers: Different technical regulations and standards regarding health, safety and environment mainly. Through the Council they agree on laws with general objectives and specifications could then be drawn by private standards institutes.

The EU is now better understood as one large multinational marketplace rather than as a cluster of different national marketplaces. Impact on: rights of residence, transport & energy networks, corporate M&A, competition policy and justice and home affairs.

Main Economic Variables and Effect on Business

With just 6.9 % of the world’s population, EU trade with the rest of the world accounts for some 15.6 % of global imports and exports. Together with the United States and China, the EU is one of the 3 largest global players in international trade.

The EU countries had the second largest share of global imports and exports of goods in 2016. Their exports amounted to 15.6 % of the world’s total, though in 2014 these were surpassed for the first time in the EU’s existence by those of China (16.1 % in 2014, rising to 17.0 % in 2016). However, they remained ahead of the US (11.8 %).

The US had a larger share of world imports (17.6 %) than either the EU countries (14.8 %) or China (12.4 %).

In terms of the total value of all goods and services produced (GDP), it is bigger than the US economy. EU GDP in 2017: 15.3 billion €.

EU Budget

The amount of money a government has available and how and where it decides to raise and spend that money affects both its policy choices and the true effectiveness of policy implementation. The EU budget has a notable feature: unlike almost any national budget, it must be balanced. This means that there is no EU debt, so the EU is spared the problems that normally accompany debts.

Revenues:

  • Gross National Income (GNI) Own Resource: MS contribution into the EU budget, based on the size of each MS’s economy.
  • Traditional Own Resources (TOR): revenue generated from customs duties (levied on agricultural and non-agricultural products from non-EU countries) and sugar levies (paid by producers).
  • Value Added Tax (VAT) Resource: money paid by MSs based on how much they receive in VAT.
  • Other Revenue and Surplus from previous year: revenue generated from tax and deductions from EU staff remunerations, contributions from non-EU countries to certain programs (e.g. relating to research), interest on late payments and fines and budget surpluses from the previous year.
  • Fines: revenue is also generated from fines imposed on companies for infringing EU competition rules.

Expenditure:

As almost any budget, EU expenses consist of a combination of mandatory payments in which it has little or no choice and discretionary payments, regarding which there is more flexibility.

New own resources, four-phase approach:

  1. Non-recycled plastic waste based contribution.
  2. Carbon border adjustment mechanism and digital levy.
  3. EU Emissions Trading System based own resource (possible extension to aviation and maritime).
  4. Working on introducing other new resources (for example a financial transaction tax).

EU Budget and Main Policies

  1. Cohesion policy: is the name given to a number of EU policies funds designed to provide more balanced economic and social development and thus offset some of the distortions and inequalities of the free market. Cohesion in the EU has thus meant not only investments promoting employment and growth but also attention to social matters such as the rights of workers and women and improved working and living conditions.

    For cohesion policy, five main objectives will drive EU investments in 2021-2027:

    • Smarter Europe, through innovation, digitisation, economic transformation and support to small and medium-sized businesses.
    • Greener, carbon free Europe, implementing the Paris Agreement and investing in energy transition, renewables and the fight against climate change.
    • More Connected Europe, with strategic transport and digital networks.
    • More Social Europe, delivering on the European Pillar of Social Rights and supporting quality employment, education, skills, social inclusion and equal access to healthcare.
    • Europe closer to citizens, by supporting locally-led development strategies and sustainable urban development across the EU.

    A more tailored approach to regional development & Simplification: shorter, fewer, clearer rules.

  2. Justice & Home affairs policy: Covering asylum and immigration policy, external border management, judicial cooperation in both civil and criminal matters, and police cooperation. It aims to fight criminal activity that crosses national borders through a combination of intergovernmental cooperation between member states and supranational institutions run by central EU bodies. It promotes the principle of mutual recognition of different legal codes within the EU and is having the effect of making member states’ legal systems more similar. It is seen as one of the most controversial areas of EU policy because of the importance of criminal law to national sovereignty. Common European Asylum System (CEAS), Frontex, European Arrest Warrant (EAW), … Asylum shopping: the practice of applying for asylum at a second EU country after being rejected a first time.

    Pros

    • Cross-border crime can only be countered with crossborder criminal legislation, especially when borders are open across the EU.
    • JHA ensures a basic standard is maintained across the EU in important areas of policy.

    Cons

    • The rule of law is one of the most important sovereign rights of a nation and the EU should not have jurisdiction over it.
    • National police forces know their own countries and cultures: external interference and centralised bodies could hinder effective criminal investigations.

  3. Education policy: can be seen as tools for reducing structural inequalities throughout the union by increasing the portability of educational qualifications. Lifelong Learning Program (LLP)

    • Comenius for preschool
    • Erasmus Mundus for higher education (since 1987): Erasmus generation
    • Leonardo da Vinci for vocational education
    • Grundtvig for adult education/retraining program Bologna: European Credit Transfer and Accumulation System (ECTS).

  4. Agricultural policy: Common Agricultural Policy (CAP) & Common Fisheries Policy (CFP)

    For CAP:

    • Historical importance and relevance, especially for France.
    • Main reasons: stabilize agricultural prices, self-sufficiency in food, export powerhouse and the farm vote.
    • In 1958, agreement on a single market in agricultural products, “community preference” and joint financing.
    • Numerous problems: more production than needed, big business in the agri-food sector are more benefited, fraud, consumers have to pay inflated prices, and environmental concern (encourage of chemical fertilizers and herbicides…).

    For CFP:

    • Quota system: Disputes over fishing grounds and discard (dead) fish.

  5. Environmental policy: The purpose of the Green Deal is making Europe climate neutral by 2050, boosting the economy through green technology creating sustainable industry and transport, cutting pollution. For that, is going to be necessary to improve the quality of air, water and soil, producing healthier food and sustainable agriculture. The Biodiversity Strategy for 2030, this will put Europe’s biodiversity on the path to recovery by 2030, for the benefit of the people, climate and the planet.