Although it was largely absent from the European election campaign, the negotiations over the next so-called Multiannual Financial Framework (MFF)— the EU’s budget—will take up a prominent place on the European agenda in the coming months. The European Council and the European Parliament have just 18 months to reach an agreement on the next seven-year MFF, and this has to be done in parallel with the finalization of 45 regulations that provide the legal basis for the various EU spending programs.
Agreeing on the EU’s budget has always been difficult, but the current MFF negotiations are particularly tough. The post-2020 budget has to make up for the Brexit gap caused by the United Kingdom’s departure, a financial shortfall estimated at €84-98 billion over seven years. It can do this either by making unpopular cuts to cherished programs (agriculture, cohesion policies, etc.), getting larger contributions from the member states, or both.
On top of that, the EU is confronted with new spending needs in areas such as migration and border control, external security, and digital transformation, which require anything between €91 and €390 billion of additional resources between 2021-2027, according to the commission.
Member States Are Digging In
The outgoing commission led by Jean-Claude Juncker did a good job in trying to “square the circle.” The original MFF proposal, presented in May 2018, offered an intelligent political compromise to member states. Richer countries would agree to moderately increase their contributions to the EU budget to keep EU spending for the remaining 27 member states roughly at the same level (in real terms) after Brexit.
Poorer countries, in exchange, would consent to a certain degree of spending re-allocation, with significant increases in new spending priority areas (an 80 percent increase for security and defense, a 160 percent increase for migration and border control, a 60 percent increase in research, innovation, and digital), and moderate increases or reductions in cohesion and agriculture (+6 percent and -4 percent respectively).
Finally, new sources of revenue, such as a small levy on corporate profits and a share of the proceeds from the EU Emissions Trading System, would be introduced to make the numbers work and partially offset the impact of Brext on member states’ net contributions.
The commission’s balanced proposal, however, has failed to change the dynamics of MFF negotiations in the European Council. After roughly one year of discussions, various net-payer member states made clear their opposition to any increase in net contributions. Meanwhile, the countries that benefit most from agriculture and cohesion funds have built up coalitions to preserve the existing envelopes in these two areas, and a majority of member states continue to reject any reform of the system of EU own resources. There is thus a strong risk of ending with a European Council compromise on an EU budget close to 1 percent of EU GDP, with no increases in new spending areas and agriculture largely preserved from cuts.
One crucial factor is the new European Parliament’s reaction to the council proposal. An absolute majority of elected MEPs must approve the MFF. In a more fragmented parliament, obtaining this majority could be difficult, particularly if the council comes up with a not-so-ambitious proposal.
An Opportunity
This leads us to another, related factor. A particularity of the current MFF negotiations is that they coincide with a change in the EU executive. This is in fact the first time this has happened since the creation of EU multi-annual financial frameworks in 1988—and it offers an opportunity for the new EU commission to try to align EU spending with its political agenda.
The Juncker commission did not get this opportunity. It took office in November 2014, less than a year after the adoption of an EU multi-annual budget covering its entire executive term (2014-2020). As a result, it had very little capacity to influence EU spending choices and had to struggle to finance one of its main flagship priorities, the “Juncker investment plan.”
While the Von der Leyen Commission cannot remake the MFF proposal from scratch, it will have some leverage on MFF negotiations if it allies with the parliament. The commission and MEPs can also work to introduce some modifications to the 45 legal regulations that are the basis of the various EU spending programs. For some of these programs (for instance, the new EU research program Horizon Europe) there is already a partial agreement between the council and the parliament, but as long as the regulation has not been formally adopted, the new parliament is not legally bound on issues agreed by the previous parliament and can always re-open the agreement. In other cases (for instance, the Common Agriculture Policy) neither the parliament nor the council has taken a position, and thus it is easier for the parliament and the new commission to introduce changes to the original proposal.
The question is how much appetite Ursula von der Leyen’s commission will have to modify the MFF proposals tabled by its predecessor. Von der Leyen has taken various positions in her wide-ranging candidature speech to the European Parliament. Some of them have no budgetary implications—for instance, completing the Capital Market Union or relaunching the Dublin asylum rules reform. Others do not imply a major break with the budgetary proposals tabled by the previous commission, like the creation of a Budgetary Instrument for Convergence and Competitiveness for the eurozone.
Testing Times
In some areas, however, von der Leyen has called for budgetary changes that would require amendments to the existing MFF proposals. An example is the promise to triple the Erasmus+ budget, as requested by the parliament (going beyond the Juncker Commission’s proposal to almost double it), or to create a European Child Guarantee to combat child poverty.
Another area in which the new commission’s ambitions may require new or different funding is on climate. Achieving climate neutrality by 2050, a goal endorsed by the von der Leyen, will not be possible without significant additional investments in energy and transport, a major disinvestment in fossil-fuel energy and high-carbon infrastructure, and a serious commitment to support territories and individuals most affected by the transition.
No-one knows yet what will be included in the “sustainable Europe investment plan” announced by von der Leyen, but she has already committed to set up a “Just Transition Fund” to support people and regions most affected by the energy transition, an idea which is cherished by the parliament but not included in the Juncker Commission’s MFF proposal. It is also possible that the new commission backs the parliament’s demand to increase the percentage of EU budget funds dedicated to climate action from 20 to 30 percent (instead of the 25 percent proposed by the Juncker Commission). This would require, in turn, re-adjusting the specific climate engagements set for the different programs and funds.
MFF negotiations may well be the first “litmus test” for Commission President von der Leyen. If she is capable of partnering with the new parliament and delivering on her budgetary promises, she will demonstrate to her critics that she has the necessary skills to head the commission—of which only a small majority of MEPs were convinced back in July.
