European Union cost

Assessing the costs of the EU, its administrative structure and its benefits are recurring themes in public discourse. Let’s have clarity.

European Union cost, many aspects to consider

The recent government crisis and the heated political debate on many issues, including that of European funds and the potential “loss of opportunities” in case of delays on the NRP, bring to light a very frequent and debated question with broad and interesting implications: how much does Europe cost and (in parallel) how much does “non-Europe” cost?

As often happens when (seemingly simple) questions deal with numerical data, a small introduction of methodological clarification is necessary.

The question can be rephrased in at least two different ways, resulting in different answers, both of which are meaningful and complementary:

How much does European administration cost and how effective is it compared to other administrative systems?
What costs and benefits does membership in the European Union imply for a country and its citizens?

We will try to answer both questions. For both, we will try to clarify the margin of variability in the data, based on the parameters considered and assessments that are not in all cases purely arithmetic.

Costs and effectiveness of European administration

The first, more circumscribed question concerns the costs of the European “administrative machine” compared to its national and local counterparts. In analyzing the data, certain factors should be kept in mind that structurally distinguish the European “administrative machine” from other national and local “administrative machines.”

The European Union serves a population of nearly half a billion, an order of magnitude much larger than any other existing administration in Europe; to which must be added beneficiaries from third countries, the European Union also being the main funder of international cooperation projects (we have spoken here);
The European Union has a smaller and more circumscribed scope than other state, regional or local governments. For example, it does not directly manage the educational, health and infrastructure apparatus of an area. This has an impact on cost structure (the vast majority of the EU budget is spent directly on projects) and administrative structure (leaner than others);
The multinational nature of the European Union means that its administrative structure has additional costs compared to that of its national counterparts (travel, officials’ trips to Brussels, translations and interpreting into 24 official languages, etc.).

Having said that, let us try to compare the 2022 budget of three different administrations: the European Union , the Italian State and the Municipality of Rome (source documents can be accessed through the respective links).

	European Union	Italian State	Municipality of Rome
Total budget (millions of €)	167.516	1.093.956	13.924
Administrative expenses (millions of €) (*)	11.058	421.169	2.022
Administrative expenses/total expenses (%)	7%	38%	15%
Total budget/inhabitants (€ per inhabitant)	375	18.547	5.048
Admin expenditure / inhabitants (€ per inhabitant)	25	7.141	733

(*) N.B.: Administrative expenses are recorded differently in the three reference documents. The amount related to the City of Rome may be underestimated, the amount related to the Italian state overestimated. However, the data give an indicative idea of orders of magnitude. Specifically:

The European Union has a specific heading (“European public administration”) that includes all expenditures and salaries that are administrative and managerial in nature, i.e., not earmarked for specific interventions;
The Italian state does not have a special rubric, so administrative expenses are calculated by summing the rubrics “salaries” and “current transfers to PA.”
The City of Rome has a special heading (“institutional, general and management services”), but this does not include administrative expenses specifically dedicated to the other headings.

Based on these data and assumptions, we can conclude that:

The budget of the European Union is relatively “small”: it is about 15 percent of that of the Italian state, while covering a population almost 8 times larger. The Union’s per capita spending is negligible compared to that of other administrations;
The weight of administrative and management expenses the European Union (salaries, operation of the institutions, etc.) in the total budget is very low compared to that of the other institutions: it is 7 percent, compared to an average of about 25 percent, indicative of a particularly lean administrative structure.

European Union interventions, in member states and around the world, are managed by an administrative structure that “costs” 11 billion a year, which is less than the annual budget of the City of Rome (nearly 14 billion).

These and other quantitative considerations are also analyzed in a separate page by the European Commission. In contrast, qualitative assessment of a public administration’s effectiveness is a more complex, multidimensional issue that cannot be reduced to simple numerical aspects.

The comparative effectiveness of EU public administration seems to be confirmed, first and foremost, by a greater weight of intervention spending compared to purely administrative spending (although, as mentioned above, this also depends on the characteristics and particular scope of the EU administration compared to its national and local counterparts).

In addition, a special study by the OECD (2017) attested to a greater presence and use in the community system of “performance budgeting” structures, models and procedures (in which the allocation of resources is conditioned by the outcomes of the policies that are financed with those resources). The OECD has calculated that the application index for “performance budgeting” in the community is about 70 percent, is higher than both the OECD average (about 55 percent) and the index for Italy (about 25 percent).

Moreover, the same study indicates that in 50 percent of cases the effectiveness of the financial framework of EU-funded programs can be assessed as better than that of nationally funded programs; in 42 percent as similar or hardly comparable; and in only 8 percent of cases as less good.

Even with all the possible improvements (highlighted by the same OECD study ), we can therefore conclude that the EU uses a much smaller and relatively better managed budget Than national and local governments. It does so in each case by applying the so-called principle of subsidiarity, that is, its powers intervene only if the same function cannot be performed as effectively at a lower level, closer to the citizen.

Costs and benefits of membership in the European Union

The second question we identified is broader and aims to analyze the costs and benefits of EU membership for a country and its citizens. Even more than for the previous question, the question is difficult to solve with a simple arithmetic calculation.

However, let us begin by showing estimates of an arithmetic calculation that is often proposed in media discourse: how much do states “give” and how much do they “receive” from the European Union in terms of financial outlays? Estimates (in billions of euros) indicate that in 2017. Germany (+13), the United Kingdom (+7.5), France (+4.5), Italy (+4) and the Netherlands (+3.5) were, in terms of transfers, the main “net contributors” to the European Union; Poland (-8), Greece (-4), Romania (-3.5), Hungary (-3) and Portugal (-2.5) were the main “net recipients.”

What is the value of this arithmetic estimate? We respond with some comparative data:

As we mentioned above, the annual budget of the Italian state has an order of magnitude of one trillion euros: Italy’s four billion “surplus” with respect to the EU represents 0.4 percent of Italy’s annual spending. It is a lower share than in many other European countries and in some ways “structural,” being related to the economic size and income level of our country;
As explained in a appropriate post , Italy’s poor “absorption capacities” regularly generate a “loss” of tens of billions of euros, in terms of available and unspent EU funds. Thus, the main problem is not the amount of EU transfers received by Italy, but their effective use;
Specific events, such as the launch of NGEU and the Recovery and Resilience Device, can radically change the overall picture: within this framework, Italy will benefit of about 70 billion euros in grants and about 120 billion euros in subsidized loans, the cost of which is fully covered by community sources.

The arithmetic figure thus has a very relative weight in the overall economics of Italian finances and European funds as a whole.

The analysis becomes more significant when considering the benefits of European Union membership and the use of the euro: aspects that can be explored in more detail in Chapter 1.2. of the Guide and on special publications of the European Commission (on the achievements of the EU ; on the achievements of European integration ; on the advantages of the euro ). We mention some of them, which are purely economic in nature:

Business access to a single market of nearly half a billion people, a unique opportunity for economic development and attracting investment;
Membership in one of the world’s largest trading blocs, able to obtain better terms in international trade;
Price stability, low inflation, better protection from international fluctuations, better access to financial markets thanks to the euro.

To these purely economic aspects can, of course, be added many others that are equally important, such as lasting peace between European countries, common and world-leading measures to protect citizens’ rights, freedom to move, live, communicate and work in Europe, and belonging to a system of values that is a benchmark in the world in terms of social, environmental, development aid and human and technological progress.

An original and complementary viewpoint in this analysis is the strand of studies on the “cost of non-Europe“: that is, the study of the economic and social benefits lost by each of the member states due to the failure to establish unique, coherent and integrated solutions at the European level in various areas (economic, trade, infrastructure, social, etc.).

The first such study dates back to the 1980s and was entrusted by Commission President Jacques Delors to economist Paolo Cecchini.

This methodology was taken up in 2014 by the European Parliament services , to set subsequent priorities for European action and programming. The new study estimated that the EU economy could achieve improvements of about 800 billion euros (6 percent of EU GDP) over time through common, EU-managed measures (listed below by policy area).

Digital single market	260
Single market for consumers and citizens	235
Completion of financial markets	60
Transatlantic trade agreement	60
Integrated energy market	50
Banking Union	35
Coordination of fiscal policies	31
Common deposit guarantee	30
Common security and defense	26
Minimum insurance-unemployment	15
Equal pay for equal work	13
VAT and tax evasion	7
Fighting gender-based violence	7
Single transport space	5
Worker consultation	3
More	2
Total (billions of euros)	839

In 2020, the economists of the European Central Bank have taken Cecchini’s study further, estimating that the introduction of the Single Market in Europe (thus the EU’s single most typically “economic” measure) has increased EU GDP per capita by between 12 percent and 22 percent (i.e., by about 2.4 trillion euros, applying due proportions to the figures given above).

Other even more specific and up-to-date aspects related to this strand of studies can be explored in depth in a separate platform curated by the research service of the European Parliament. To find out, for example, what is the “cost of non-Europe” in the area:

of digital technologies ,
of energy systems ,
of fight against Coronavirus ,
in the area freedoms, security and justice ,
in the areas of migration , of asylum policies and the counter-terrorism .

As obviously more complex as the issues in this second analysis are, all the data and research suggest that the benefits of the EU are far greater than any costs; and that indeed, the real cost to European citizens and member states is rather that of “non-Europe.”