The rapid rise in pension costs is part of a looming financial crisis in the Community, exacerbated by recession and currency turmoil. Pension costs will rise by nearly a fifth next year to 335m ecu ( pounds 260m), the Commission announced yesterday in its draft budget for 1994.
The reason is simple: the passing of a generation of Eurocrats. An official who arrived as a 25-year-old in Brussels in 1958 would now be approaching 60. The cost has meant that, to keep within budget guidelines, the EC will have to stop recruiting some time this year, an official said.
Underlying this is a far more serious deterioration in the EC's finances. 'This will be a budget of savings,' said Peter Schmidhuber, the Budget Commissioner. 'There is no room for manoeuvre left.'
Staff expenditure has been hit in another way. The devaluation last year of the pound, lira, peseta and Irish punt means that the ecu, in which all calculations are made, is worth 5 per cent less against the Belgian franc, in which most money is spent. Expenditure on the Common Agricultural Policy will leap by 7 per cent next year on the EC's calculations, to 36.5bn ecus, because of the continuing cost of subsidies but also new measures to support farmers that are part of the reform of the CAP.
The new Cohesion fund for Spain, Portugal, Ireland and Greece means spending on structural funds will rise by 4.5 per cent, to 23.2bn ecus. Although on paper expenditure will rise by 6 per cent next year, the EC has already had to have a supplementary budget this year. Once that is taken into account, spending only rises 3.4 per cent next year. Inflation in 1994 is expected to be 3.5 per cent, so in real terms EC spending will decline.
Recession is slowing the growth of revenue, which is partly tied to the size of EC economies. Nobody believes this will be kept to. Agricultural spending is bound to be higher than forecast because of ructions over how much farmers should get.
On Tuesday, ministers failed to set price guidelines for agriculture this year, with some demanding new measures costing an extra 1.5bn ecu. There is no room for manoeuvre on farm prices next year at all, Mr Schmidhuber said, but the farm ministers may yet make him eat his words. The result is likely to be a return to Europe's perennial financial clashes. Yet only five months ago the Twelve stitched together a budget package at the Edinburgh summit. 'Edinburgh was tight, but manageable,' said an official. 'Now we'll have to think again.'Reuse content