European Commission chiefs are angling to use the urgency of Brexit to reshape the EU budget and push through a longstanding spending cap tied to national income.
The spending cap of 1 percent of gross national income — a measure of overall economic output — has been a cast-iron demand of the EU’s wealthiest countries for more than a decade.
But with the U.K.’s departure projected to leave a hole of up to €14 billion a year, and new imperatives to spend more on initiatives like defense and border protection, Budget Commissioner Günther Oettinger is pushing EU leaders to lift the cap.
To fill the Brexit gap and meet new priorities, Oettinger said Wednesday that EU countries would likely have to add €16 billion or more a year to the EU’s annual budget — or roughly 10 percent, given the 2018 budget of €161. 8 billion — a huge increase compared to national budgets.
Speaking Wednesday at a news conference on a new long-term budget plan, known as the Multiannual Financial Framework, Oettinger predicted a tough fight to win unanimous support for the Commission’s proposals.
“It cannot be that in a smaller European Union it means that you have to pay a lot more” — Gernot Blümel, Austria’s European affairs minister
Already some wealthier EU countries are balking at any increase, and fiscal experts say that a general climate of political distrust will make it extremely difficult to convince national capitals to send more money to Brussels.
“It cannot be that in a smaller European Union it means that you have to pay a lot more,” Austria’s European Affairs Minister Gernot Blümel said this week at a high-level conference on the EU’s long-term budget.
Maria Demertzis, deputy director of the think tank Bruegel in Brussels, said that the EU could claim success merely by filling the Brexit budget hole, and that it was unrealistic to expect EU countries would agree to a large budget hike.
“If Austria thinks this way, I just don’t see how anybody else will think differently, certainly big countries,” Demertzis said, adding that suspicion toward the EU in national capitals would pose a major obstacle to raising contributions to the budget.
“Nobody trusts anybody,” she said, “certainly in the narrative between north and south, between east and west, and everybody against the Commission … It’s very difficult to think about any new money being put forward. Any money pooled centrally to do anything is going to be very difficult to find.”
During negotiations over the last two seven-year budget plans, wealthy EU countries have insisted on a spending cap of 1 percent of gross national income (GNI) — a politically potent marker that has often provided a persuasive talking point.
But with the U.K.’s departure, Oettinger has said the budget must grow to “1.1x” — or between 1.1 and 1.2 percent — of GNI. At Wednesday’s news conference, Oettinger repeated his assessment that the Brexit budget gap would have to be filled with an equal combination of spending cuts and increased contributions from EU countries.
In addition, he said new priorities might amount to as much as €10 billion a year. “It’s not so easy to calculate how much will be needed for these new tasks,” Oettinger said.
A spokesman for the Commission, Alexander Winterstein, said the outcome of the budget debate would be determined by the aspirations of EU countries
“Once there is agreement on the priorities, and the level of ambition, the rest will follow,” he said. “Remember: everything that is done — with added value — at EU level saves money for national budgets.”
Cuts are likely to be concentrated in two of the EU’s biggest spending areas: the Common Agricultural Policy and cohesion funds, which support projects in the bloc’s economically poorer nations.
As for increased spending, Fabian Zuleeg, the chief executive and chief economist of the European Policy Centre, said he expects that overall the EU’s new budget would likely end up flat, with the Brexit hole plugged by officials asked to do more with roughly the same amount of money.
He added it is not surprising to hear the Commission seeming to push for a big increase at this point in the negotiation cycle. “At this stage, yes, there is usually an argument from the Commission that there is a need for a bigger budget,” he said. “There is also usually a relatively quick response from the net payers, which says that is not going to happen.” He added, “What we then end up with is a negotiation.”
Overall, he said, a relatively flat budget was the easiest to sell from a political perspective. “If you go upwards, where do you stop?” he asked.