View from Brussels: EU budget talks squabble over crumbs

Leaders from the EU’s remaining 27 members are currently locked in talks over the bloc’s overall budget for the next seven years, but disputes over how large the warchest should be and who gets what money make an agreement hard to come by.

The United Kingdom’s departure from the EU was always going to muddy the budget waters, given that Britain was a so-called net-contributor to the bloc’s coffers. Estimates put the Brexit-sized hole in the EU’s bottom line at around €75bn.

But political priorities like climate action, digitalisation, defence and industrial policy have led to calls that the EU should do more with less and become more effective in its new lean, stripped-down form.

The EU’s executive branch, the Commission, put together a budget proposal of just under €1.3tn, equivalent to 1.114 per cent of the bloc’s gross national income (GNI). A quarter of that pot would be ring-fenced for climate action initiatives.

National governments are divided though over that top line figure: wealthier western countries like Denmark and the Netherlands want a budget no larger than 1 per cent of GNI, while poorer countries in Central and Eastern Europe think more money is needed.

At a Council summit that started on Thursday (20 February), leaders like France’s Emmanuel Macron and Germany’s Angela Merkel met to try and hash out a compromise on both the overall spending and some of the finer details.

The basis for the negotiation is a new budget proposal compiled by the Council’s president, Charles Michel, who trimmed the overall figure to 1.074 per cent of GNI and shifted spending around between sectors.

Criticism has come in thick and fast.

In research and development, EU programme Horizon Europe sees its budget cut from a proposed €86.6bn to just over €80bn. It is a similar story in tech, where a scheme aimed at pumping investments into artificial intelligence and supercomputing is pared back from €8.2bn to €6.7bn.

Cecilia Bonefeld-Dahl from trade association Digital Europe insisted that spending should increase significantly, not be reduced, if the continent wants to remain competitive at a global level. 

“This European Council will define Europe’s future. Spending on digital can deliver economic growth, good well-paying jobs, and energy efficiency,” she warned.

Increased EU forays into the defence sphere are also set to be cut back under the current proposal. A new defence fund originally worth €13bn could be almost halved to €7bn.

The scheme, which was blocked originally by the UK, is designed to help member states pay for new defence technology research and streamline existing spending, by harmonising procurement, for example.

Space policies also haemorrhage €3bn, despite the European Space Agency receiving a beefed-up budget from its member countries late last year. 

There are innovations in the budget proposal though. One idea is to gradually add to the pot by implementing a tax on certain plastics and to funnel 20 per cent of revenues from the bloc’s carbon market into a dedicated EU-wide fund.

However, critics have pointed out that neither are long-term solutions as, by design, the more successful they are, the less money they will make. A plastic tax, for example, is aimed at reducing production or consumption, which will inevitably decline when levied correctly.

The current plan does put its money where its mouth is when it comes to climate policy though. A new fund worth €7.5bn is designed to help countries help carbon-intensive industries go green and build public support for stricter environmental measures.

Poland, the Czech Republic and many others lobbied for a dedicated part of the budget that they can spend on cleaning up coal mines, retraining workers and helping communities that are heavily reliant on the fossil fuel industry.

But the so-called Just Transition Fund comes with strings attached. Only countries that have signed up to the EU’s carbon-neutrality target for 2050 will be able to access it in full; non-subscribers will be limited to 50 per cent.

The only country yet to agree is Poland, which as things stand is on track to see its €2bn windfall halved. Warsaw is probably lucky to still get half, after Macron proclaimed in December that all funding should be withheld.

All of the budget squabbling still going on in Brussels is just a show though, purely intended for domestic consumption so that politicians can claim they put up a fight and earned concessions.

When the numbers are written down in plain terms, there is only a gap of around €130bn between the two camps. As one eagle-eyed analyst pointed out, that is about the same as what EU households spent on alcohol in 2016 alone.

That does not even include booze bought in pubs and restaurants.

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