Deciding if a pay increase adds up

Last year, member states refused to give EU officials the pay rise that was proposed by the Commission. Will the situation will be different this year?

The national governments will decide next month whether to endorse a proposal from the European Commission to give a pay rise of 0.4% to EU officials.

The proposal was published by the European Commission last week (10 November), after a calculation based on economic developments in Brussels and eight member states.

Last year, when the same formula produced a proposal to increase pay and pensions by 3.7%, the national governments refused to approve such an increase, saying that it was unacceptable at a time when civil servants in national administrations were having their salaries cut or losing their jobs.

Instead, they allowed only a 1.85% increase. The Commission has filed a legal challenge to the member states’ refusal at the European Court of Justice, but a judgment is not expected until mid-2011.

The context for awarding a pay rise to EU officials is hardly more favourable now than a year ago. The member states are in a stand-off with the European Parliament over constraining the EU budget for 2011.

The UK and the Netherlands are leading a group of governments arguing that the EU’s spending should not escape the sort of cuts being imposed on national budgets. Until there is a deal on the 2011 budget, next year’s spending will be frozen at 2010 levels, so any pay increase is blocked in practice for the time being.

The Commission estimates that the proposed increase would add €9.7 million to the cost of pay and pensions across all the EU institutions in 2011. That figure comes on top of the €72.5m that has been included in the proposed 2011 budget to pay the remaining half of the 3.7% increase that was proposed for 2010 – in the event that the national governments lose the court case.

Last month, the Commission forecast that staff pay and pensions would be cut by 0.4% in 2011. It has revised its proposal upwards because it received updated figures from the UK and Spain, showing that civil servants’ pay had not been cut as much as initially reported.

Fact File

The Method

The annual salary change for EU officials is calculated using a complex formula that takes into account what has happened to civil servants’ pay in eight member states and to the cost of living in Brussels in the 12 months up to 1 July.

The calculation – referred to as ‘the method’ – processes changes in civil servants’ pay in Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Spain and the UK. The results for the eight countries, which take into account national inflation rates, are weighted according to the size of each member state to produce an overall figure.

The method is laid down in the staff regulations, which are a legal agreement between the Council of Ministers and the European Parliament. The regulations were agreed in 2004 as part of a major reform of staff employment rules. The method expires in 2012.

In Germany, the net change was a drop of 4.9% in the year to July 2010. Germany accounts for 24.8% of the total for the eight. Civil servants’ pay fell by 2.8% in Spain, which accounts for 12.6% of the total. Pay fell by 1.3% in the UK, which accounts for 18.9% of the total, and by 1.8% in Belgium. Average pay in the eight member states was deemed to have fallen by 2%.

The method also calculates changes in the cost of living for EU officials, using a measure called the Brussels International Index (BII), rather than the usual inflation index for Belgium.

This is intended to reflect better the spending patterns of EU officials based in Brussels, rather than price developments across the country. For example, it includes a higher share for the cost of international travel and communications and the cost of renting accommodation, though 69 out of the 80 elements used to calculate the BII are also used to calculate the Belgian inflation rate.

As the cost of living in Brussels for EU officials was calculated to have increased by 2.4%, while salaries fell by 2.0%, the Commission is proposing an increase of 0.4% to achieve a net reduction of 2.0%.

Revised figures

Günther Lorenz, secretary-general of the Union Syndicale staff union, said that the Commission had not been wise to announce a provisional figure in October. He said the figures always had to be reviewed several times and pointed out that the German government had recently agreed a 1% retroactive cut in civil servants’ pay that will also have to be factored into the calculation.

The proposed 0.4% increase would be a pay-cut in real terms, after rising costs of living are taken into account, but it is still a nominal increase. So its approval would hardly send out a clear message that officials in the EU institutions are sharing the pain of their counterparts in national administrations.

The EU officials would have the worst of both worlds: they would be denied the virtue of claiming that their pay is being cut, but would have to suffer a reduction in their effective income. Only if the national governments refuse to approve even the 0.4% increase will the EU staff regain their moral advantage.