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What are the key issues causing divisions over the EU budget?

What are the key issues causing divisions over the EU budget?

After proposals by the Commission as well as European Council president Charles Michel, the EU27 met last week to begin discussions on the EU’s next long-term budget for 2021-2027, also known as the Multiannual Financial Framework. But the summit ended in no agreement, with key divisions remaining between the member states over the size of the budget, and how to spend it.

It is certainly nothing unusual to see no agreement after the first summit on the EU’s next budget. Negotiations have always been marked by conflicting priorities among member states, particularly the division between the net contributor countries, who pay more into the budget than they get back, and the net receivers, who benefit the most from EU programmes in key areas such as agriculture and structural funds for poorer regions.

But the negotiations for the 2021-2027 budget need to address a few additional concerns which seem to have further entrenched disagreement in Brussels: the hole in the budget left by Brexit, and the EU’s ambitious new agenda which brings with it new spending priorities.  

One of the biggest sources of disagreement has been on the overall size of the EU’s budget. The current budget represents less than 1% of EU gross national income, but the Commission initially proposed increasing the next budget to 1.11%. While many southern and eastern net receiver member states are happy to see an increase in the budget, a group of four net contributor “frugal” countries, the Netherlands, Austria, Sweden and Denmark, have refused to accept raising the EU’s budget over 1% of EU Gross National Income. The so-called “frugal four” argue that certain wealthier member states shoulder an increasingly large amount of the EU financial burden and want to keep their contributions at a stable rate, also maintaining that, even by capping the budget at 1% of EU GNI, due to economic growth national contributions will still increase anyway.

Their sentiment is arguably further compounded by the loss of the UK’s contribution. As one of the largest net contributors, Brexit is estimated to leave a €75 billion hole in the EU’s budget over the next seven years, and the wealthier, net contributor countries will most likely have to make up the gap. Austrian chancellor Sebastian Kurz wrote in the Financial Times that Brexit requires a “responsible approach” and a smaller budget, and the frugals continued to stand their ground at last week’s summit, with European Council president Charles Michel’s compromise amount of 1.07% also failing to achieve consensus.

But alongside significant reservations from some of the wealthier member states over increasing the budget, the EU has also launched an ambitious set of new policy priorities which will need the financial backing to become reality. Commission president Ursula von der Leyen has called for a “modern and flexible EU budget that invests in our future” which addresses “European concerns” such as migration, Erasmus, defence and research. In addition, central policies such as the digital strategy will require “strategic investment” in areas such as 5G, artificial intelligence and cybersecurity and the European Green Deal, with the central target of Europe becoming the world’s first climate-neutral continent by 2050, will likely require substantial funding programmes included in the long-term budget.

Yet without a dramatic increase in the amount of money available to spend, these new priorities ultimately mean taking money away from existing programmes. This is the line being taken by the “frugal four” who want to see more money diverted away from traditional programmes towards new priorities such as knowledge and innovation, digitisation and security. Currently, the bulk of the EU budget is spent on programmes such as cohesion policy, which provides structural funds to the EU’s poorest regions for development, and the Common Agricultural Policy, which provides subsidies to farmers. New spending proposals such as a Just Transition Fund of €7.5 billion to help regions move towards greener economies would have to be pursued at the expense of these traditional programmes, which could face funding cuts of over 10%.

This has not gone down well with another set of member states who benefit enormously from EU funding, calling themselves the “Friends of Cohesion”. An alliance of 15 primarily southern and eastern member states, they are strongly opposed to any cuts in cohesion policy and support new spending priorities only in addition to maintaining the current levels of cohesion spending. In short, they are standing more or less in direct opposition to the wishes of the “frugal four”.

Add to this mix France, who is a huge beneficiary of the Common Agricultural Policy and is pushing against any cuts in this domain. Agriculture is a highly sensitive policy area domestically and President Emmanuel Macron has been facing a tense situation with French farmers. Speaking after the summit to a domestic audience, Macron emphasised his resistance to any cuts in agricultural funds and promised to continue his opposition. Not only is the budget battle a matter of numbers, it is also highly political.

Arguably, this set of budget negotiations is more complex than ever. With an added tension between focusing on new priorities on the EU’s agenda whilst also satisfying those member states that rely on the traditional funding programmes, how can the EU do “more” in the world and maintain a budget size acceptable to all? And how can this be reconciled with the loss of the UK’s contribution?

There are lots of obstacles still to overcome. Either agreement will need to be found on increasing the size of the budget, or trade-offs will have to occur between spending priorities.

Nevertheless, the summit was the first opportunity to lay out expectations and ambitions, as echoed by Ursula von der Leyen after discussions concluded on Friday, deflecting from the lack of agreement by emphasising the value of an opportunity to have a “detailed discussion” and “go into the specifics in looking at the various interests”.

An EU budget compromise will require some key concessions from all corners, especially if the Commission’s vision of the EU as “geopolitical” and a global leader is to be realised. Keeping with tradition, agreeing the new framework will likely be a marathon.

 

Photo: Mr Charles Michel, President of the European Council; Ms Ursula Von Der Leyen, President of the European Commission. | Credit: European Union

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