The EU budget: the huge gap between words and deeds

The first serious discussion on the European Union’s 2028–34 budget failed to produce any results. During the European Council meeting on 15 and 16 October, heads of state and government merely reiterated their positions. On the one hand, the ‘frugal’ states are calling for cuts to the overall size of the next Multiannual Financial Framework. On the other, the ‘friends of cohesion’ refuse to allow any changes to the national allocations granted to them under the Common Agricultural Policy and the Cohesion Policy. The ‘negotiation box’ presented by the Irish Presidency of the Council of the EU has not shifted the red lines by a single millimetre. The President of the European Council, Antonio Costa, has been tasked with leading the forthcoming negotiations. His objective remains to reach an agreement by the end of the year. Whether or not this timeline is met, the next budget risks claiming one major casualty: investment in competitiveness and defence.

The ‘negotiation box’ is the document that serves as the basis for negotiations. The Irish proposal envisaged an 8 per cent cut compared with the Commission’s original proposal of 1,763 billion euros: 141 billion less. The cuts were concentrated on budget headings dedicated to new priorities, such as competitiveness and defence, whilst preserving the funds made available to Member States for farmers and cohesion. For the group of frugal countries – Germany, the Netherlands, Sweden, Finland, Denmark and Austria – the overall cut is insufficient and the sector-specific cuts are misguided. In their view, it is the traditional policies – the Common Agricultural Policy and Cohesion Policy – that should be cut, not investments for the future.

On the other hand, the group of ‘friends of cohesion’ – led by Italy and Romania and comprising 17 Member States – is calling for a more ambitious EU budget and, above all, for national allocations for agriculture and cohesion to be preserved. National allocations determine how much they will receive during the 2028–34 period. For the ‘Friends of Cohesion’, the new priorities are less important than the annual funding they receive from Brussels. Even the flexibility to reallocate resources from one budget heading to another in the event of a major new crisis can be sacrificed on the altar of traditional policies.

Costa had hoped that inside the summit hall, away from the cameras, the leaders would begin to bridge their differences, at least by discussing own resources: the taxes that fund the budget. Instead, the leaders “continued to dig in their heels”, a diplomat from a Member State that considers itself neutral between the two groups explained to us.

The European Council has tasked Costa with leading the negotiations. A new ‘negotiation package’ will be presented in mid-November. It will be discussed at the informal European Council meeting on 26 November. It will be then that it becomes clear whether an agreement can be reached at the ordinary European Council meeting in mid-December. In the new "nego-box", Costa intends to focus on three elements: new own resources (the President of the European Council will present a new proposal, with technical support from the Commission), national contributions (a crucial issue for the "frugal" countries) and flexibility (an essential element for ensuring the modernisation of the budget, but one which risks affecting the national allocations dear to the "friends of cohesion").

The parameters of a potential agreement are already known. At least 200 billion in cuts compared with the Commission’s original proposal. A reduction in national allocations, but with more resources allocated for flexibility to be used in the event of a crisis. In the final hours of negotiations, ‘rebates’ – the discounts on national contributions introduced during Margaret Thatcher’s time – will be needed to convince the remaining ‘frugal’ member states. In return, the ‘frugal’ member states might agree to defer part of the debt repayment under NextGenerationEU in order to recoup the resources needed for the ‘rebates’ and balance the financial equation.

Sweden, Denmark, Italy, Hungary and Germany have indicated that they are in no hurry to reach an agreement. For them, waiting until 2027 is not a problem. But the end-of-year deadline is not merely technical. It is also political and electoral. As the French presidential elections draw nearer, the issue risks becoming a flashpoint in the election campaign. Should Marine Le Pen win – she has promised to halve France’s contribution to the EU budget – an agreement could become impossible. Emmanuel Macron has warned that allowing negotiations to continue beyond March would raise questions of democratic legitimacy.

For both the ‘frugal’ states and the ‘friends of cohesion’, the fine words spoken in support of Mario Draghi’s recommendations are contradicted by narrow national financial interests: paying less for the former, raking in as much as possible for the latter. The report by the former ECB president estimated that investments of 800 billion euros a year would be needed to enable the EU to avoid ‘slow decline’. The security threat posed by Russia has pushed that figure up to over one trillion euros a year. The drama surrounding an EU budget totalling 1,600 billion over seven years – much of which is earmarked for agriculture and cohesion – highlights the vast gulf between the words of EU leaders and their actions.

  This is an extract from Europa Ore 7, David Carretta’s newsletter. To read the full version, you can subscribe here