By Francesco Guarascio

By Francesco Guarascio

BRUSSELS (Reuters) - The migration and security challenges faced by the European Union need to be addressed with a different funding system which would give the EU a direct share of national tax revenues, former Italian prime minister Mario Monti said.

Monti, who was a European Commissioner between 1994 and 2004, chairs an EU advisory group on reforming the common budget that will deliver its final report to the Commission this week.

In an interview with Reuters, Monti said a different budget is needed because the EU is acquiring new tasks to deal with the migration and security emergencies.


He warned that change would not be easy to achieve but may be hastened by the prospect of reduced security support from EU's main ally, the United States. President-elect Donald Trump has hinted at the possibility that Washington may reduce its involvement in EU defense.

"Trump is an unexpected external variable which will accelerate certain reflections, especially on security issues," Monti said.

Last week German Chancellor Angela Merkel called on European countries to increase security cooperation and spending because there was no "guarantee of perpetuity" in relations with the United States.

Monti's report suggests the EU should be funded mostly with direct revenues, which now account for about 10 percent of its budget, rather than with indirect transfers from national governments that cause regular wrangling among capitals.

Money could come from a share of national taxes and duties on electricity, motor fuel, financial transactions or "other revenue stemming from EU policies", the report says.

Monti stressed the reform would "not increase the size of the budget nor the tax pressure on EU citizens and companies", because more revenues from taxes would be offset by lower national transfers.

The current EU budget, totaling around one trillion euros, runs from 2014 till 2020. It is likely to be reduced after Britain, one of its main funders, leaves the European Union.

Monti said Brexit offered a chance to be more ambitious on the budget reform because it would rid the bloc of Britain's traditional reluctance to address the topic and would eliminate the "intractable problem" of the British rebate, under which London ends up paying less into the EU budget.

But he acknowledged that other countries will oppose reforms. Any change on tax and funding issues require the backing of all EU states. The EU executive Commission is expected to start talks this year on a reformed EU budget for the period after 2020.

(Editing by Catherine Evans)

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