Johan Van Overtveld sees the current budget negotiations as a classic example of a European headache or as a hexagon he draws on his note-pad. “There is a delicate problem at every corner,” says the Belgian MEP in charge of the budget negotiations committee. “That problem has to be networked with everyone else – the gross national product, income, the rule of law, a balancing of the various funding sources, the reserves, etc.”
Of course flexibility with a capital “F” is all-important and can’t, under any circumstances, be forgotten.
This is a familiar sort of problem in Belgium, where scores of governments were dissolved because of a minor budget-problem. It is a complex country which not so long ago solved such conundrums by doing without a government, which is itself a kind of solution that has become quintessentially Belgian.
Charles Michel, the new European Union Council President, is also Belgian and the country’s former prime minister. He is, therefore. a man who can deal with such the sort of political season that is upon us. His search for an elusive compromise and his first big test as the Council’s president occurred at the special EU summit which was held in Brussels on February 20-21, was exactly the sort of mud-slinging fight as most European experts had predicted.
Michel had to mediate between net payers and net recipients. They came from all parts of Europe, east and west; north and south; rich and poor. They included members from countries with lots of (normally angry) farmers, and the other EU members who preferred to spend the common budget on more modern issues like digitisation, migration, defence, research, climate change, and the environment.
In vain, Michel held a so-called individual “confessional talk” with each EU leader as he needed to convince the net beneficiaries of the European budget to accept mild cuts to the Cohesion Fund, which aims to reduce economic and social disparities and to promote sustainable development in European Union countries whose Gross National Income per inhabitant is less than 90% of the bloc’s average.
Furthermore, those countries with generous support from the agricultural and cohesion funds were to accept a few cuts as well. This did not go down well, either. Michel tried to lure the net payers, including the “Frugal Four” – Austria, Denmark, the Netherlands, and Sweden – all of who insist on keeping their discounts. The watchword from this was that there would be no higher spending than what was seen in the last seven years, In fact, even less.
Michel pointed out that all new tasks, from climate protection to digitisation, had to be paid for. Juggling figures from one column to another could no longer work and would not be acceptable.
Germany, the biggest payer in the EU, was sung a seductive, guilt-inducing song about the many advantages Germany derives from the internal market project. That, too, did not really work.
EU members like Hungary and Poland, those who violate the fundamental values of the European Union, should be sanctioned and have their EU funding cut, said German Chancellor Angela Merkel. Other net payers repeated her call.
From that, cue the protesting howls of Hungarian Prime Minister Viktor Orban and his Polish counterpart, Mateusz Morawiecki, both of whom know that at the end of the budget talks there has to be unanimity among the now 27 post-Brexit EU members.
The European Parliament has the last word in this case. It is a profoundly Herculean task for Michel. In fact, it may be virtually impossible, and this was clear by the evening of February 21. The negotiations were, in fact, postponed to March and could take weeks to complete.
Overtveld, who is the head of the European Parliament’s budget committee and who also happens to be another Belgian, as well as a Flemish nationalist, believes Michel can solve this task even after the failure of the first special summit.
“Michel can physically easily endure long negotiations,” said the Flemish politician, who was once the Belgian Finance Minister in the Michel cabinet, one day before the special summit at a seminar organised by the Association of European Journalists.
At the meeting with the heads of the four most important political groups in the European Parliament, Michel experienced his first reversal of fortune. His proposal to fill the budget with 1.074% of the respective gross national product was unanimously rejected as the demands of the European Parliament currently stand at 1.3%.
Negotiations for the common budget from 2021-2027 are more difficult than usual because of Brexit. With the United Kingdom as the second-largest net contributor now having left the EU, a gap of around €12 billion a year now exists. The remaining net contributors, especially Germany, whose net contribution would increase from €16 billion to €26 billion, according to Michel’s proposal, did not want to fill this gap alone.
Net contributors Denmark, the Netherlands, Austria, and Sweden also formed a special purpose partnership that wants to limit the budget to 1% of GDP, which would mean a reduction in the previous budget. The EU Commission’s 2018 plan provided for 1.1%. The President of the EU Commission, Ursula von der Leyen, announced, however, a number of new tasks for the European Union when she took office last year.
All of von der Leyen’s tasks cost money. They include the fight against climate change, a new asylum and migration policy, more cooperation in defence, better protection of Europe’s external borders using Frontex, remaining competitive in the digital sector, a domain where the US and China have long overtaken Europe.
“We are experiencing a total contradiction of the public debate about the global challenges for Europe. At the same time, many are in favour of massive cuts in important future areas,” explained Othmar Karas (PPE), the Vice President of the European Parliament. The digital Europe programme is expected to save 17% of the original expenditure. The savinfs for the Erasmus education programme will cut 20% from the Commission’s proposal, or 48% from that of the European Parliament.
Similar cuts are planned for the defence and the “Connecting Europe“ programme. “There is only talk about numbers, not about projects that should make the EU fit for the future,” Karas has said.
Moreover, according to the Eurobarometer survey, most EU citizens have misconceptions about what is actually financed from the common budget. Most believe that administrative costs swallow up the most money. The reality, however, is that only 6.7% is spent on administration. At a seminar organised by the Association of European Journalists, EU Commissioner Johannes Hahn proudly stated “with this cost-position, we far undercut every member state”.
Hahn is particularly bothered by the savings of up to 40% that is required by some states to protect the external borders. This was otherwise always popular. 10,000 new Frontex officials have already been requested by 2027. “They won’t work for nothing,” said Hahn. “And the suggestion that some member states should send their own officials, if necessary, raises my doubts about the efficiency.”
The EU budget of around €150 billion per year is lower than that of Austria (€192 billion) or Denmark (€157 billion) and amounts to only one tenth of the budget of Germany.
The bloc’s budgetary autonomy almost does not exist, owing to a lack of European taxes, which brings it closer to a classic international organisation, UN in style, and fuelled by contributions from its members.
At the outset, however, the budget was only supplied by resources which did not depend on the European Union’s individual members, e.g. customs duties and agricultural levies. But the cycle of liberalisation of world trade has reduced that income to a major extent. Instead of creating new resources which would not have depended on national budgets, the bloc invented, at the beginning of the 1980s, a VAT resource and from 1988, a GNI resource that is based on the national wealth of the EU’s members.
Today, the European budget is therefore supplied by the GNI resource at 71% and the VAT resource at 12%, both of which are paid by the each country in the bloc. Above all, everyone can calculate what their expenses or earnings will be by calculating the difference between the funding they receive and their contributions.
This calculation of “net balances” was invented by the United Kingdom, which makes little sense since it overlooks what a country pays for in terms of its participation in the internal market.
“Net payers are always net-benefitters, too“ says Valerie Hayer, a French MEP from the liberal “Renew“ group.
The EU Commission has proposed a levy on plastic packaging and a Common Consolidated Corporate Tax as new own funds. Together, these two sources of income make up around 13% of the EU’s revenue, or own resources. The original plan was originally to pay a tax on financial transactions to the European Union’s coffers, but all 27 countries could not agree on the detals of the tax. As a replacement, a levy on digital companies – mostly American companies like Google and Amazon – is planned, but here too, some finance ministers prefer to levy this tax on the national budget.
Part of the CO2 tax that the bloc’s countries have to pay is also to be reserved as new source of revenue.
The big bazaar for the common EU budget has only just begun.