A bigger budget for a smaller, more ambitious EU.
That is the political math of the European Commission’s proposal on Wednesday for a roughly €1.279 trillion spending plan for 2021 to 2027.
The proposal, unveiled in the European Parliament by Commission President Jean-Claude Juncker and Budget Commissioner Günther Oettinger, will pose an even greater test of unity for the EU27 than the tense negotiations with the U.K. over its departure.
In squeezing and pushing not only to fill the roughly €13 billion annual hole that will be left by Brexit, but also to ramp up spending on new priorities, the Commission has set forth an initial list of winners and losers who will spend the next two years or more fighting bitterly to shape the final outcome.
The budget plan risks deepening some of the EU’s most serious fault lines, especially between net payers and net recipients, and between the East and West.
For the wealthier northerners, most vocally the thrifty Dutch, Brussels is stretching the post-Brexit checkbook too far. The Eastern Europeans — the Hungarians and Poles above all — won’t take kindly to the barely concealed plans to punish them over alleged backsliding on democracy. The southerners will like the extra funding for border control to handle the migration crisis. Big Pharma will like increased spending on research. Farmers won’t be happy to see their subsidies go down.
Ultimately, the decision lies with the 27 leaders on the European Council, who in traditional fashion are expected to eventually negotiate through the night, with an array of last-minute buy-offs, compromises and concessions needed to secure a unanimous vote.
The financial blueprint unveiled by the Commission, called the Multiannual Financial Framework (MFF), smashes through the previous budget cap of 1 percent of the bloc’s gross national income (GNI), and seeks to push overall spending to 1.114 percent — even as the bloc loses Britain’s sizeable net contribution to EU coffers.
“The new budget framework … will decide the future of our Europe of 27 and will determine our legacy to forthcoming generations,” Juncker said. “The level of the budget is not without consequence. It is directly linked to our ambitions.”
Juncker insisted that the Commission has exercised restraint, by rigorously reviewing all existing programs for cuts and not simply putting forward the entire EU’s wish list, which he said would have been rejected out of hand by all 27 EU countries and most members of the European Parliament.
“We propose an ambitious but balanced budget, one that is fair for all,” he said, adding: “We want to present a proposal that is taken seriously, and a proposal that can represent a basis for future negotiations.”
Farms and regions face cuts
Oettinger said the cuts would amount to a 5 percent chop to the EU’s Common Agricultural Policy, which currently makes up nearly 40 percent of the bloc’s budget, and a 7 percent reduction in regional funds, which overall now account for one-third of spending by the EU.
In pushing for an MFF totaling 1.114 percent of GNI, Oettinger is trying to strike a delicate balance — demonstrating the Commission’s big aspirations by breaking through the old 1 percent cap and allocating funds for an array of new priorities like migration, security and defense, but also showing restraint by not overreaching in a way that could have prompted budget hawks to accuse him of profligate excess and to dismiss his plan as fantasy.
Still, the budget plan, which must be approved unanimously by all 27 leaders on the European Council, risks deepening some of the EU’s most serious fault lines, especially between net payers and net recipients, and between the East and West.
The proposal ups the ante in Brussels’ running battle with Poland and Hungary over democratic standards by seeking to create a new “conditionality” mechanism that would empower the Commission to cut off funds to nations deemed not to be respecting the rule of law.
The plan also risks provoking fury from entrenched agricultural interests — the biggest beneficiaries of EU spending — by cutting direct subsidies to farmers. It adds enormous political pressure on leaders of the net-payer countries who will have to convince their taxpayers to support sending more money to Brussels, which is never popular.
Some leaders started hammering the plan even before Juncker spoke to Parliament.
“The EU Commission’s proposal for a new EU budget contains some positive approaches for modernization,” said Austrian Chancellor Sebastian Kurz, whose country is a net contributor. “But it is still far from an acceptable solution. Our goal must be for the EU after Brexit to be slimmer, more economical and more efficient.”
Oettinger noted that even amid cuts, the Commission is intent on ramping up spending in certain priority areas, including a doubling of financing for the Erasmus+ educational exchange initiative, and a sharp increase in funds for research and development.
“With these new own resources, we believe that we can fill the Brexit gap to the tune of 50 percent” — Günther Oettinger
As part of the MFF process, the Commission must also develop a new Own Resource Decision, laying out the sources and amounts of EU revenue.
In what will certainly be among the most controversial points in the debate, Oettinger said the Commission wants to create several new sources of income, including a redirection to the EU of revenues from selling carbon pollution permits under the bloc’s emissions trading system, and a new tax on nonrecyclable plastics. National capitals historically have been extremely reluctant to cede taxation authority to Brussels.
Oettinger said the new revenue was needed to help close the hole from Brexit. “With these new own resources, we believe that we can fill the Brexit gap to the tune of 50 percent,” he said.
Oettinger insisted the spending level of 1.114 of GNI is reasonable, and that the cuts were prudent. “No program is being damaged,” he said, adding “we are pushing new investments in the future of the European Union at the same time.”
This article is part of POLITICO’s new coverage of the EU budget, tracking the development of the seven-year Multiannual Financial Framework, and the first EU budget that will face a low or no contribution from the United Kingdom. This coverage includes the Budget Briefing newsletter every Monday afternoon. Email [email protected] to request a complimentary trial.