EU Budget: The Rule of “Deadlock as usual”

The European Council has showed deep divisions between the Member States when it comes to reaching an agreement on the budget. Like during most of the meetings dedicated to the 7-year Pluriannual Financial Frameworks (PFF), only contradictory statements were issued following the talks on Thursday and Friday (20 and 21 February).

President Macron, Chancellor Merkel, the Finnish PM Sanna Marin, or the Austrian Premiere Sebastian Kurz could not hide the discrepancies in the negotiations, despite dozens of hours of talks.

Amid this disorder, Charles Michel, Ursula von der Leyen and David-Maria Sassoli could not do anything against that. Although the President of the European Council praised the Member States for their efforts, he emphasised that determination had to be combined with efforts.

Von der Leyen, the President of the European Commission, adopted a more pragmatic approach : “we have a long road ahead of us, in order, ultimately, to reach a result”. Yet, she also put pressure on everyone, adding that if the EU doesn’t reach an agreement by the end of the year, there will be no budget next year, and subsequently no policies like Erasmus.

Both Michel and von der Leyen proposed a budget draft that would amount to around 1,1% of the bloc’s GDP.

Mission impossible?

The 27 member states will have to square the circle, as the budget proposals must finance traditional priorities, such as the Common Agricultural Policy (CAP) and the cohesion policy, as well as new priorities like the European Green Deal, defence, artificial intelligence. Financing more priorities with one net contributor less, as these budget talks are the first since official Brexit on January 31.

Two groups of countries who defend opposite interests could not bridge their differences: the “Frugal Four” composed of Austria, Denmark, the Netherlands and Sweden (sometimes joined by Germany), who would not accept a budget of more than 1% of the bloc’s GDP. According to them, Brexit should be an opportunity to spend less and to focus on new priorities.

On the other side, “the Friends of Cohesion”, a group of 17 countries mostly from Central and Southern Europe, rejected any proposal that would not meet the requirements of the cohesion policy nor of the Common Agricultural Policy (CAP).

France and Germany tried to facilitate compromises, in vain. President Macron has even asserted that he would refuse to cut the CAP , much-sacred for French farmers, gathered last week for the much-attended Paris International Agricultural Show.

Following the failure of the talks, Charles Michel tabled a few days ago another proposal for a compromise, cutting some credits dedicated to research, space policy and defence, in an attempt to satisfy both camps.

President of the European Commission Ursula von der Leyen has already asserted that she would refuse any budget proposal that would not meet the financial requirements of her flagship policy, the Green Deal, aimed at reaching carbon neutrality by 2050.

Already a few weeks ago, Von der Leyen warned that the European Green Deal could fail due to lack of financing. For this to succeed, it will have to collect one trillion euros by 2030 through the European budget, contributions from the Member States, and public-private partnerships. The European Investment Bank will also contribute for 1 trillion euros, although some financing programmes will overlap.

The permanent stand off is looming, and the main victims may be the European citizens.

Reviewing the negotiation methods

If the European union wants to vote a future-oriented budget from 2021, it will have to change the way it negotiates. Deadlocks offer a feeling of “déjà-vu” and for the EU to be resilient in an increasingly unstable world, it must raise its ambitions.

Although the Pluriannual Financial Framework (PFF) allowed the EU to have an independent budget from the 1980’s onwards, it is not adapted any longer. In particular, the seven-year period is too rigid, as the EU has to adapt itself to the unpredictability of the global economy.

Furthermore, the PFF has two main flaws: first, the credits only represent around 1% of the EU’s GDP (the French budget represents around 55% of its GDP) and would therefore be useless to tackle Europe-wide asymmetric shocks. Second, this budget cannot generate a deficit and cannot be financed by any type of debt, unlike national budget.

The von der Leyen Commission has a lot of ambitions for the period 2020-2025, and a much larger budget is needed if these aims are to be fulfilled. A solution can be found in budgetary federalism. Federalism must be the basis for a European refoundation and to underpin a European democracy, a consequent budget – representing around 15% of the EU’s GDP – capable of financing ambitious policies, must be voted by the European parliament and implemented throughout the European Union. A fiscal equilization scheme can be set up to finance the budget while respecting each Member States’ capacity to contribute at the moment.

This proposal might sound elusive, as unanimity is required when reforming tax policy. However, the European citizens cannot be hostage anymore of the national selfishness of the governments and should help build a genuine European democracy.