View from Brussels: R&D’s EU penny-pinching problem

The European Union’s research and development budget for 2024 will be smaller than hoped, as inflation, interest rates and politicking put a damper on calls for more cash for innovation.

Budget season has begun in Brussels as the European Commission this week proposed its draft plan for 2024’s finances. As things stand, the bloc’s coffers will be provided with €189.3bn to fund its various policies and programmes.

Where research and development is concerned, the Commission has allocated €13.6bn for R&D, with €12.8bn of that due to fuel the flagship Horizon Europe scheme. It marks a €400m increase on 2023 but a couple of caveats undermine that rise in fortunes.

Firstly, inflation means that any real-world increase is severely reduced with some in the European Parliament, which will propose its own financing plan, saying it is actually a cut masquerading as an increase.

Secondly, interest rate hikes mean that the EU will have to allocate more cash for repayments on its €800bn pandemic recovery debt. Initial obligations were forecast at just under €2bn and have now increased to around €4bn.

This is new ground for the Commission, which pre-2020 had never borrowed money on behalf of the 27 EU countries. That €800bn is still being dispersed in the form of loans and grants but the debt still needs to be serviced.

And lastly, the 2024 budget draft is just that, a draft. Members of the European Parliament will push for more cash, as is tradition, while national government delegates will seek more cuts and extra penny pinching.

That means that the €189.3bn figure could yet decrease and, in particular, the €13.6bn for research is by no means guaranteed or safe from the accountant’s red pen.

More details will come at the end of June, when the Commission reviews the EU’s multi-year budget, which runs from 2021 to 2027 and is worth some €1.2tn. The stocktake will include new ways of generating revenue for the debt repayment.

Granting Brussels its own powers to raise cash without national involvement is a dicey subject as many have seen it as a step too far towards federalisation. It is also just a question of cold hard cash as there are billions of euros at stake.

For example, one idea was to allocate a percentage of profits made by the EU’s carbon trading market to the debt plan but those revenues are mighty and increasing year-on-year as pollution permits become more expensive.

It has been politically unthinkable for governments to agree on ceding some of that cash to the EU’s coffers instead of hoarding the money and spending it on decarbonisation programmes or whatever else they want.

But it was also politically unthinkable that the Commission would borrow €800bn, yet here we are. There needs to be a viable plan to repay it or everyone will suffer when it comes to crunch time.

Other plans doing the rounds include a crypto tax, a charge for all companies that use non-EU labour that is paid below the poverty line and a corporation tax, all of which have their advantages, disadvantages, supporters and opponents.

As far as the draft 2024 budget goes though, it is somewhat of a mixed bag for research when you dive into the nuts and bolts.

Under Horizon Europe, more than €6bn will be used to fund collaborative projects, while a further €2bn will be doled out in grants by the European Research Centre. The European Innovation Council will get a budget of just over €1bn.

Indeed, all aspects of research are set to get a budget bump apart from the ITER nuclear fusion project, whose coffers will be stripped of €250bn due to what the Commission calls “delays in the project implementation”.

The experimental reactor in the south of France has run into a number of stumbling blocks related to supply chain disruption caused first by the Covid-19 pandemic and then Russia’s illegal invasion of Ukraine.

Programmes like the Connecting Europe Facility and the new Chips Act will benefit from ITER’s fall in fortunes.

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