After nearly two years of shadow-boxing, EU leaders are ready to rumble.
Fights over the bloc’s long-term budget are always brutal. But a special summit on the next spending plan, beginning Thursday in Brussels, looks certain to be particularly acrimonious as leaders struggle to adjust to a smaller union.
The exit of the U.K. leaves a gap of some €75 billion over seven years in the EU’s finances. But member countries want to do more than ever with EU money — to continue spending big on farm subsidies and regional development while also devoting more to new priorities such as research and innovation, the European Green Deal and defense industry cooperation.
Countries have been sparring ever since the European Commission put forward a €1.135 trillion blueprint in May 2018. Now leaders will enter the ring for a showdown that is expected to involve at least one all-night session and could drag on for days. A final deal needs the support of all EU members and must also be approved by the European Parliament.
Before the big fight over the 2021-2027 budget is over — and it could take more than one summit to get there — a series of interlinked battles will also need to be settled.
Here’s a guide to those battles and how they’re shaping up.
1. Size of the pie
How big should the budget be? That’s the biggest question for leaders at the summit.
The Commission’s proposal amounts to 1.11 percent of the EU’s gross national income (GNI) and has the backing of many eastern and southern countries. But a coalition of self-declared “frugal” members — Austria, Denmark, the Netherlands and Sweden — argues that figure is too high. They have pushed for keeping the budget at 1.0 percent of GNI.
European Council President Charles Michel has put forward a compromise equivalent to 1.074 percent of GNI, meaning the bloc would commit to spending €1.095 trillion over seven years (in 2018 prices).
The frugal members — and Germany, which closely identifies with their approach but is expected to be more flexible — maintain that their contributions would already be much bigger this time around, even if capped at 1.0 percent of GNI. Economic growth since the last budget was agreed means this percentage is worth a lot more in cash terms now.
While debating the right way to calculate these increases has become a major point of contention in the budget debate, everyone agrees that the burden on wealthier member countries will be heavier in a post-Brexit EU. According to the Commission’s estimates, if its own budget plan is implemented, Germany’s average yearly contribution would rise from €25.5 billion per year in the current budget to €32.8 billion between 2021 and 2027. The Dutch contribution would increase from an annual average of around €5 billion to €6.9 billion.
2. How to slice it
The other overarching question is how to divide up spending between the three main components of the budget. Those are agriculture, regional development money known as cohesion funding, and priorities described by EU officials as more modern — including research and innovation, defense, migration and student exchanges.
Generally speaking, the “frugal” faction wants less money for traditional programs and more for new priorities. Those governments can afford to take a hard line as they are less directly dependent on EU funding. Expect their most outspoken leader, Dutch Prime Minister Mark Rutte, to be a key player at the summit.
On the other side are southern and eastern countries that want to safeguard agricultural spending and regional development funds.
Michel’s plan proposes cuts to cohesion funding of 12 percent and a reduction of nearly 14 percent in agriculture spending, compared to levels in the current budget. Governments in the poorer parts of the bloc say such cuts would be deeply painful.
Meanwhile France, one of the biggest payers into the budget, is facing a dilemma. Traditionally a strong supporter of agricultural subsidies, it is fighting hard to soften cuts for farmers. But fiscal constraints at home make it hard for President Emmanuel Macron to finance a budget that would preserve traditional programs at current levels and boost new priorities.
3. The Thatcher factor
Britain may have left the EU but the ghost of Margaret Thatcher still haunts the budget talks in the form of rebates for some member countries. Thatcher won a reduction for the U.K. in 1984, after making the case that Britain paid disproportionately more into the budget than it got back. Several other countries made the same argument and their rebates remain.
Some countries, such as France, have argued that Brexit should mean an end to the whole rebates system. But Austria, Denmark, Germany, the Netherlands and Sweden are pushing hard to keep their reductions.
These governments contend that they’re already being asked to stump up even more due to Britain’s departure and, despite being among the biggest payers into the EU budget, they benefit much less from EU budget programs than other countries.
For example, EU cohesion funds flowing to Hungary were the equivalent of about 2.75 percent of the country’s gross national income in 2014-2020, according to European Commission data. But for the Netherlands, cohesion funding allocations represent merely 0.03 percent of GNI. Common Agricultural Policy funds spent in France were the equivalent of 0.41 percent of French GNI during that time, while such funding represented only 0.12 of the Dutch GNI.
Michel has put forward a plan for “lump-sum corrections” to reduce the contributions of Denmark, Germany, the Netherlands, Austria and Sweden. But these reductions would decrease over time, according to his proposal.
One possible compromise is that the pro-rebate countries will get permanent reductions to their contributions but, in exchange, agree to a budget that is higher than 1.0 percent of the bloc’s GNI.
4. Laying down the law
Several western and northern EU governments have indicated that they will not approve a new budget without a system for linking the disbursement of EU funds to respect for the rule of law.
The Commission proposed such a measure, which could mean the EU cutting off funds to a member country if rule-of-law problems affect the bloc’s financial interests. But it has faced a host of legal and political hurdles. Countries like Poland and Hungary are fighting to ensure that the measure is as weak as possible even if it is adopted.
Michel has put forward a compromise that is widely seen as much weaker and more difficult to trigger than plans favored by many western capitals and the Commission.
Under Michel’s plan, which appears to enjoy the support of France, a Commission proposal to curtail funds would have to be approved by a qualified majority of EU member countries.
That is a much higher bar than in the Commission’s plan, under which a qualified majority would be required to block such a measure, rather than approve it.
The Polish government cautiously welcomed Michel’s approach. “We especially appreciate [the] decision to leave the only acceptable voting method — the method based on QMV [qualified majority voting],” Konrad Szymański, Poland’s Europe minister, told POLITICO. He added that Warsaw expects “more detailed provisions on the criteria of assessment” for cutting funds and will take a final view based on a legal analysis.
But proponents of a strong rule-of-law mechanism have not given up, and the matter will likely come up at the summit. A mechanism with teeth is “still on the table,” said one senior government official.
This article is part of POLITICO’s coverage of the EU budget, tracking the development of the seven-year Multiannual Financial Framework. For a complimentary trial, email [email protected] mentioning Budget.