CHALLENGING TIMES FOR THE EU – WHY WE SHOULD CARE ABOUT ITS NEW BUDGET CEILING

CHALLENGING TIMES FOR THE EU – WHY WE SHOULD CARE ABOUT ITS NEW BUDGET CEILING

By Steven van der Plas

On the 14th of September 2018, head of the European Commission Jean-Claude Juncker gave his annual State of the Union speech to the European Parliament, in which he addressed several major issues and prospects for future EU budgets [1]. The last years have not been kind to the EU, with migration issues and subsequent right-wing backlash threatening the support for EU cooperation in many member states. Furthermore, financial troubles in southern member states and the ongoing political conflicts with Poland and Hungary have complicated the relations between the EU and its members [2]. This already impressive list of issues would be incomplete without mentioning Brexit, the biggest setback for the EU in the last decades. Looming over these issues is the new EU budget ceiling, which needs to be approved within a relatively small timeframe by all member states and the European Parliament [3]. This challenge will be the focus of this article, as it takes a backseat when it comes to public attention in favour of more visible issues. Answering three simple questions will help convince you why the new EU budget ceiling is in fact an issue worth following.

How is the EU budget determined?

The EU budget is mainly determined through economic plans, called Multiannual Financial Frameworks or MFFs. In essence, the MFFs are a financial translation of the EU’s political priorities [4]. The MFFs cover a period of at least five years and lay out the limits (ceilings) of how much the EU will spend each year in this period. Moreover, they determine what contributions the member states have to make in order to fund the EU budget [3]. The money will be divided between several policy clusters, which differ in size and in importance to the EU and its member states [4]. For example, the current MFF, which covers the period of 2014-2020, allocated 34 percent of its budget to economic, social and territorial cohesion while the security and citizenship cluster received only two percent of the budget [4]. In May 2018, the European Commission presented an MFF proposal for the next seven years to the European Parliament [5]. After negotiations on this proposal, the European Parliament has to give consent to the Council of the EU, in which all member states are represented, to adopt the new MFF. These negotiations have previously taken up to 22 months, as all member states have to agree on a solution [6]. Meanwhile, lobby groups of varying levels of influence try to influence the contents of the final version of the MFF, turning the whole process into a black box: Even though a clear proposal is on the table, the negotiations are muddled and its outcomes uncertain.

Why is the next EU budget ceiling so important?

The next MFF is special for a number of political and practical reasons. Without an agreed upon budget ceiling, the EU cannot effectively function as an organisation. There would be no grand strategy behind the annual budgets and there would be continuous negotiation on the course of the EU.  Furthermore, Brexit has significantly influenced the importance of the next MFF. The UK has been one of the top contributors to the EU budget, as a result of the redistributive nature of the contribution system [7]. This system entails that wealthier member states generally contribute more to the EU budget than they receive from the EU, while less wealthy member states receive more in terms of assistance than they contribute [7]. The UK leaving the EU has created a hole in the EU budget, which the European Commission has addressed in its proposal by increasing contributions of remaining member states [5]. The question arises whether high-paying member states such as France and Germany will accept this increased level of spending. Moreover, the next MFF directly influences how the EU will respond to the issues and challenges it is facing. In the Commission’s proposal, Poland and Hungary receive significantly less funding compared to previous MFFs, which is perceived by many as punishment for their undemocratic reforms [5]. The new MFF will have its impact on other major issues as well. For example, the impact of migration on southern member states is addressed in the proposal by expansion of EU border police agency FRONTEX from 1,500 to 10,000 members [1]. These political and practical dimensions of the MFF proposal only further complicate reaching consensus at the highest level.

What are potential problems in negotiating the next EU budget ceiling?

Negotiations for the new EU budget ceiling are constrained mainly by the contents of the proposal and the current relations between the EU and its member states. Most importantly, the new budget plan touches upon many existing cleavages between the EU member states [7]. The northern member states, with The Netherlands at the forefront, want to cut EU spending to create a more efficient and smaller EU, whereas south and eastern member states have an incentive to vote for increased spending on border security and development funds [2]. Another complicating factor is the rise of populism in Europe, which has led to a renewed emphasis on national sovereignty and opposition towards goals that are not completely in line with national interests [8]. For example, Italy has threatened to block the next annual EU budget if no immediate action against the migration problem is taken on the EU level [8]. While the validity of this threat is questionable, as EU member states cannot single handedly block annual budgets, it shows the deterioration of relations between the EU and some of its member states. Lastly, the upcoming 2019 parliamentary elections might impact the role of the European Parliament in the whole process: A new parliamentary composition might alter existing power balances within the European Parliament, possibly changing the criteria for acceptance of the new budget ceiling.

Conclusion

Even though the European Commission has developed an extensive proposal, every detail of the next MFF will be subject to negotiation between the 27 remaining member states and the European Parliament. Despite the importance of MFFs for the functioning of the EU, the negotiation process is muddled by the different parties, lobby groups and other stakeholders. Furthermore, the road to a new EU budget ceiling will be long and riddled with obstacles, of which only the basics have been covered in this article. Most compelling however, are the uncertainty and high stakes involved in the future EU budget ceiling. Anyone interested in understanding the EU’s future in the next decades should follow its development closely.

References

[1] BBC. (September 12th, 2018). Juncker: EU will send additional 10,000 guards to borders. Retrieved September 17th, 2018, from: www.bbc.com
[2] Herszenhorn, D.M. (September 9th, 2018). EU’s autumn obstacle course. Retrieved September 17th, 2018, from: www.politico.eu
[3] European Commission. (June 29th, 2011). Multiannual Financial Framework (MFF): Questions and answers. Retrieved from: http://europa.eu/rapid/press-r…
[4] European Commission. (February 14th, 2018). Factsheet: EU budget for the future. Retrieved from: https://ec.europa.eu/commissio…
[5] Herszenhorn, D.M. & Bayer, L. (May 4th, 2018). Commission wants bigger budget for smaller EU. Retrieved September 17th, 2018, from: www.politico.eu
[6] European Commission. (May 2nd, 2018). EU budget for the future. Retrieved September 17th, 2018, from: http://ec.europa.eu/budget/mff…
[7] Keep, M. (September 7th, 2018). A guide to the Eu budget. House of Commons Library: London
[8] Ermakova, M. (August 26th, 2018). Italy vows to veto Eu budget after feeling shunned by EU. Retrieved September 17th, 2018, from: www.bloomberg.com