Tuesday

4th Oct 2022

The key budget issues on EU leaders' table

  • Does money grow on trees? Budget talks usually require more than one EU summit which run into the early hours of the morning (Photo: Images of Money)

As EU leaders gather on Friday (23 February) to start discussing the future of the EU's spending after the UK leaves, major battle lines are already emerging among member states. Here is a look at the key issues.

The overall figure

The UK's departure from the EU will leave a sizeable hole in the budget. The biggest net contributor to the budget, Germany said it was willing to pay more. The Netherlands, Austria and Nordic EU countries are more reluctant. They argue that a "smaller EU should lead to a smaller budget". Some argue that anything more would be a difficult sell to voters. Therefore net contributors will want to keep any exact overall figure out of the talks as long as possible.

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Most EU countries agree to fund new common policy areas, such as defence, security, migration. The EU Commission, which is hoping for guidance from the leaders to come up with a budget proposal in May, is telling member states to put their money where their mouth is and pay more.

The EU executive is aiming for a bigger budget than the current one of about €1,000bn. The commission laid down options to chose from: for instance it said that boosting the EU's external border protection could cost €20 to €25bn over seven years, but a full-fledged EU border management system would have a price tag of up to €150bn.

The commission hopes for an over 1.1 percent figure of the EU's gross national income. The European Parliament is calling for a budget of 1.3 percent of the EU's GNI. "Everyone wants his piece of cake," said an EU official.

Cuts in cohesion and agriculture

The buzzword in Brussels now is "European added value". EU countries want to screen where to cut from these two traditional European policy fields, which make up 70 percent of the budget, by checking where added value lies, and is not merely a simple money transfer.

The commission argues that one possibility for reducing the size of the cohesion fund could be to stop giving money to rich regions, used as a sort of a kickback to net contributors. The Netherlands, for instance, is happy to agree to that, but Germany is more reluctant.

Defenders of the agriculture policy say that pushing down some of the aid to national level only recreates differences among EU countries: poorer countries will be less able to support their farmers on a national level, while richer nations will be more able to chip in. They also argue that cutting direct payments would risk the livelihood of farmers across the EU.

Conditionality

Some countries, including Germany, want EU cohesion funding to be conditional of respecting the rule of law, and migration policy.

The Dutch coalition agreement also says the EU subsidies should be cut to countries that don't participate in the redistribution of migrants across the EU.

Some of the net contributors have run out of patience with countries like Poland and Hungary, which have challenged EU law recently. However, cohesion countries argue it is wrong to suggest that rule of law is only an issue in their countries. Poland has been also vocal about wanting an "objective measures" done by a "legitimate institution".

One option that has been raised in talks before the summit was to use the funds as encouragement, not sanctions. For instance, financing the integration of migrants. But cohesion countries are expected to remind their fellow EU members that cohesion funds are there to create economic convergence of poorer regions, not finance individual social policies.

Rebates

The UK's rebate, the partial refund for their payments into the EU budget will disappear with Brexit. In a complex mechanism, Germany, the Netherlands, Austria and Sweden, which are also net contributors pay only a share of the UK's rebate. So the commission is arguing that with the UK rebate gone, all rebates should be gone.

"Technically speaking these are from the UK rebates, technically they disappear," a senior EU official argued. However, this is emerging as a "red line" for those who get some of their money back. They argue that they need a correction mechanism so that their contribution does not inflate.

Own resources

The ever-present debate between those who want the EU to have the ability to tax on its own, and those who want to keep the right to tax solely in member states competencies – this debate will inevitably emerge this time too.

The commission this time is proposing customs duties, contributions based on value added tax, revenues from the emission trading scheme (ETS) to be collected at EU level not national level, and revenue from the European Central Bank issuing money.

Budget commissioner Guenther Oettinger's plastic tax ideas have disappeared.

Timetable

The commission wants to wrap up negotiations before the European elections next year. That's quite ambitious, given that talks last time around lasted for over two years.

Some national governments however argue that the new budget should be adopted by the newly-elected European Parliament and not the outgoing one for stronger legitimacy.

Most member states expect long negotiations, during which other issues could get entangled with budget talks, making a compromise even more difficult. Diplomats expect at least a couple of all-night EU summits before a deal is reached.

EU leaders to kick off post-Brexit budget debate

EU-27 leaders will meet on Friday to draw up battle lines and possible fields of compromise over the EU's next seven-year budget - the first one after the UK leaves the bloc.

Baltic states demand bigger EU budget

The leaders of Estonia, Latvia, and Lithuania say in a joint letter that they are open to talks on creating "new own resources" for a bigger EU budget after the UK leaves the EU.

Juncker pushes for bigger post-Brexit EU budget

Europe is worth 'more than a cup of coffee a day', the EU Commission president said, in favour of a bigger EU budget as the UK leaves and takes its share of the budget contribution with it.

Poland, Hungary push back at EU budget 'conditionality'

EU affairs ministers held their first discussion on the Commission's long-term post-Brexit budget plans - with cohesion and agriculture cuts, phasing put rebates, and the overall size emerging as major divisions.

Analysis

Commission wants bigger post-Brexit budget

The Commission wants the next EU budget to prove the bloc has survived Brexit unscathed. However, some net payers disagree. The EU executive plans to put out an overall budget figure of 1.13 to 1.18 percent of EU GNI.

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