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Battle of wills over the next EU budget on show at AEJ Brussels Seminar

Ghost of Mrs Thatcher’s “We want our money back!” holds back EU budget agreement

 

AEJ seminar in the European Parliament, Brussels, on February 18-19 with MEPs and Budget Commissioner Johannes Hahn

By Charles Jenkins, AEJ UK Secretary

 

The great majority of MEPs – all except those in the two far right wing party groupings in the Parliament – see this difficult budget debate as being about furthering the all-important priorities of the EU in its domestic and external strategy for the next seven years.  To them the dogmatic arguments about each member state’s net contributions and benefits are an unwelcome distraction. At the recent AEJ seminar the three largest parties in the Parliament—European Peoples Party, Socialists and Democrats and Renew Europe (liberal), plus the fifth largest, the Greens—displayed a remarkable degree of unity towards the negotiations on the Multiannual Financial Framework for 2021-27. They have called for a substantial increase in the MFF’s top limit to 1.3% of gross national income for 2021-27, compared with 1.13% for the EU-27 (excluding the UK) over the 2014-20 period; while the European Commission has proposed a figure of 1.11%.  In early February they sent a joint letter to the European Council president, Charles Michel stating that his proposal, which amounted to 1.074% (the break-up of that spending is of course as important as the total), would in no circumstances be accepted by the Parliament. MEPs from all four of the above parties revealed no apparent differences in their positions. For several of the member states, led by the “frugal four” (Netherlands, Denmark, Sweden and Austria, with Germany’ position being only slightly less hardline), the budget negotiations are all about agreeing an acceptable balance between so called “net contributions” and “net benefits” that they can sell to their own populations – that is to say, the difference between the share of taxation sent to the EU and what it gets back in direct expenditure. This concept was first made famous by Mrs Thatcher in the early 1980s, when after several years of acrimonious negotiations she won an ongoing rebate, something that was later partly replicated for other large “net contributors”.

 

For most MEPs this obsessive focus on the precise value of payments in and out are an unwelcome distraction from the business of reviving the EU’s sense of purpose after the departure of a large and relatively wealthy member state, the UK. All the MEPs who spoke at the seminar made the argument that the accounting of outgoings and receipts for each state did not capture the wider impact of the budget, let alone the single market. A cogent case was made by Clothilde Armand, regarding her own country, Romania. Many of the investments in infrastructure made in Romania and other poorer countries, which are funded by the EU budget, are in fact contracted to companies in the richer states which make substantial profits and income for their employees, from those projects. Huge profits are also made on other investments enabled by EU-wide free movement of capital, with for example all Romania’s main retail chains owned by foreign companies. Most important of all is the issue of free movement of skilled workers and qualified professionals, such as doctors. Romania has been losing up to 10 percent of its doctors a year to other member states, especially France, creating a serious shortage at home and meaning that Romanian taxpayers’ money spent on their training is benefitting other member states, but not the Romanian taxpayers.

 

Even given this difference in budget philosophy, it is hard to see why the differences are proving so difficult to bridge. It seems unlikely that governments would agree to a budget above that proposed by the Commission, so in the end the Parliament will probably have to accept a settlement close to that proposed by the Commission (provided it mirrors the Commission’s current proposal for the breakdown of overall spending). This implies that the margin under discussion is between 1.074% and 1.11%, or less than 0.04% of EU Gross National Income. However, as we now see, the negotiations are being bedevilled by governments’ obsession with calculating their precise net contributions and benefits according to the traditional accounting criteria which parliamentarians from all countries regard as highly misleading.

 

More positively, the Council does seem to have taken on board many of the Commission’s ideas for “greening” the budget, such as that 25 percent of all spending should be on climate related projects and there should be no new projects which actually go against climate objectives (how both these commitments will be put into practice is another matter but not a leading factor in the current negotiations).  Where the Parliament and Commission both share a good deal of frustration is over the Council’s proposed cuts to what they see as vital investments in the EU’s common future and its recovery of a real sense of purpose. They include proposed cuts in the budget for border controls that would make the Council’s previously agreed  objective of a 10,000-strong Frontex force out of the question; and reductions in spending on refugee integration; on a reduced defence budget whose limited ambition  would be to make more effective the much larger expenditure by member states (for example by achieving compatibility between the multitude of different equipment standards); and on the Erasmus student exchange scheme which has done so much to make students feel European; Digital Europe, a plan to boost the digital economy to compete with the US and China; and €15bn of funding of guarantees for a range of EU wide investment initiatives, grouped as InvestEU. These, including the initially named Juncker Fund --- now the European Fund for Strategic Investment -- have successfully enabled limited budget guarantees to generate a much larger volume of investment funding at low interest rates in areas like infrastructure, small business growth, innovation and renewable energy.

 

None of the participants at the seminar are likely to have been surprised over the failure of the Council to reach an agreement at their meeting over the two days just after the seminar. Although there are still ten months until the new MFF period commences, the need to pass a mass of enabling legislation after any deal is reached between Council and Parliament means that time is running out to avoid a damaging hiatus.