What to Know About the EU’s New Budget

This week, the European Commission published its proposals for the next seven-year Multi-annual Financial Framework. What does this budget tell us about the EU’s priorities, and about how the invariably acrimonious negotiations among member states might play out?

Published 3 May 2018 Updated 7 October 2020 2 minute READ

Professor Iain Begg

Associate Fellow, Europe Programme

The final budget will be a messy compromise.

The budget is always a balancing act between three competing sets of demands. First, there are the net contributors who want to keep EU spending as low as possible, especially against the backdrop of losing the UK’s payments after Brexit. In parallel, there are the powerful interest groups used to benefitting from EU spending, from the farm lobby to the regions receiving economic developments support.

At the same time, there is the need to focus on new priorities, such as dealing with refugees and economic migrants, securing external borders and countering terrorist threats, enhancing the resilience of the eurozone, and promoting the digital economy.

The budget reflects sensitivities to recent, high-profile political interventions.

Emmanuel Macron in particular argued in a speech to the European Parliament for new thinking on the budget, more spending and an end to the complex system of rebates (which France does not benefit from). Whereas the Swedes and the Danes have been adamant in saying ‘not a krone more’, the French president pledged to increase France’s contribution.

Similarly, Commission President Jean-Claude Juncker has called for more spending and for cuts in both agricultural support and funding for regional development to make room for new priorities, including border management and defence. As so often is the case, the big question is what Germany will want. The Germans may be willing to make-up some of the lost UK contribution, but they will want more disciplined spending in return.

The new priorities will scrape up against traditional interest groups.

Overall the new proposals would only slightly increase planned spending. (As a proportion of EU gross national income [GNI], it moves from 1.05% for 2014–20 to 1.11% for 2021–27, but without the UK, the EU GNI decreases, so the true increase is pretty marginal.)

Over the past months, there was speculation that member states would be asked to co-finance direct payments to farmers. However, this now appears to have been misguided. The share of support for direct payment to farmers and the fishing industry, cohesion policy (mainly regional development and certain social policies) and rural development projects will fall from three quarters of a percentage point of GNI to a little under two-thirds of a percentage point.

These three headings have consistently absorbed around three-quarters of EU spending for the last three decades. The decline is gentle, rather than radical, yet even so farmers were quick to condemn the proposals.

However, this relative fall does allow for a sizeable increase in the new priorities of border management and defence. This is new money for new priorities and will be seen as the main innovation in the proposals.

This budget won’t make the Commission look any more bold or responsive to public opinion.

If these proposals are adopted, there would not be significant new social policy programmes and, although citizens may welcome increased funding on dealing with migration and enhancing internal security, it will touch too few lives directly. Following the predictably negative immediate reactions to the proposals, some of them will be reined back and member states, each wielding a veto, will push hard to achieve their national priorities.

Expect proposals to impose conditions on entitlements to EU spending, including potential penalties for deviating from EU political norms (notably for Hungary and Poland) to face a rough ride. Expect, too, that it will be the new priorities that are squeezed most in the horse-trading. And expect the outcome to be pretty much in line with what the Germans are prepared to countenance which will be close to the status quo.