A Modern EU Budget: What’s at Stake?


“Today is an important moment for our Union. The new budget is an opportunity to shape our future as a new, ambitious Union of 27 bound together by solidarity. With today’s proposal we have put forward a pragmatic plan for how to do more with less. The economic wind in our sails gives us some breathing space but does not shelter us from having to make savings in some areas. We will ensure sound financial management through the first ever rule of law mechanism. This is what it means to act responsibly with our taxpayers’ money. The ball is now in the court of Parliament and Council. I strongly believe we should aim to have agreement before the European Parliament elections next year.”

These were the words of Mr Juncker, who was defending the idea of the “new”, and “modernised” EU budget. The new Multiannual Financial Framework (MFF) will commence on 2021. What’s at stake in the ambitious seven years EU budget? Does the EU really have a grand economic strategy?

The 2014–20 MFF saw a significant intensification of conditionality, especially in relation to Cohesion Policy. In particular, there was a stronger link to the broader economic governance processes now embodied in the European semester. Despite a rearguard action by the European Parliament, resulting in “macroeconomic conditionality” being rendered as “measures linked to sound economic governance” in the Common Provisions Regulation, the principle is now established that payments can be suspended if a Member State does not comply with the economic governance obligations. For the next MFF and the associated regulations, the issue is, consequently, how such conditionality is framed and what its scope should be.

The matter raised in the Reflection Paper and would respond to some of the points highlighted in the White Paper, but there are few clues about the options likely to be preferred. In general, net contributors would be expected to be most attracted to tougher conditionality: for instance, Germany is reported to be keen on it. However, national positions on rules based policy as part of the wider economic governance framework will also be intruded. A particular concern is that conditionality can be inequitable, for example by punishing regions in weaker Member States for transgressions by their national governments. There may also be a form of double jeopardy because sanctions are already provided in the Stability and Growth Pact and in the Excessive Imbalances Procedure. Yet it is also argued that the connections between overall economic governance and use of spending from the EU budget is beneficial by creating conditions under which the policy can be more effective.

The new proposed budget reflects the EU’s updated priorities, with increased funding for research and innovation, for youth (including a doubling of the budget for Erasmus+), for climate and environment, for managing migration and integration. The proposal foresees an increase of investment in external actions up to 26% to reach €123 billion in the future long–term EU budget, along with a major restructuring of the EU’s external action instruments to provide better coherence, build on cooperation effectiveness, simplify processes and use economies of scale.

In addition, the Commission proposes that the Union enhance its strategic transport infrastructures to make them fit for military mobility. A dedicated budget of €6.5 billion will be earmarked in the Connecting Europe Facility. The links between the European Defence Fund and the projects implemented within the framework of the Permanent Structured Cooperation in defence (PESCO) will be ensured. If eligible, PESCO projects will receive additional co–funding (30% rather than 20%), but funding is not exclusive or automatic.

As Swedish Institute for European Policy Studies predicts, despite the opportunity afforded by Brexit, extensive changes in the EU budget would be a surprise because it will be very difficult to re–engineer the delicate balance of forces crucial for an agreement. However, if more extensive differentiation occurs, as seems likely, the EU may need to devise new mechanisms to fund initiatives or policies in which not all Member States participate, rendering the EU’s finance more complex.

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