Frugals vs. friends of cohesion: The difficult negotiations on the EU’s next Multiannual Financial Framework

After almost 30 hours of discussion and negotiation, the failure was certain. At a special European Council meeting on 20 and 21 February in Brussels, the heads of state and government of the 27 EU member states proved unable to agree on the EU’s next Multiannual Financial Framework (MFF) for the years 2021 to 2027. By calling the special meeting, European Council President Charles Michel had hoped to mediate between diverging member states’ positions and at least define the base lines of the next MFF.

Why this round of negotiations is particularly tough

The MFF, which must be adopted by the end of this year at the latest, sets the EU’s overall budget and spending priorities for the next seven years. It has to be agreed upon by all 27 EU member states and approved by the European Parliament.

Because of the many actors involved, EU budgetary negotiations are always complex and difficult. Member states largely see their contributions to and receipts from the EU budget as ‘their’ money. Consequently, domestic cost-benefit analyses and perceptions of winners and losers determine a member state’s bargaining stance. Moreover, national leaders are tempted to show their domestic audiences that they fought hard for their countries’ interests in Brussels.

Negotiations on the current MFF, concluded in February 2013, were mainly characterised by then British Prime Minister David Cameron enforcing the first cut in the history of the MFF. Some had hoped that with the United Kingdom’s exit from the EU, budgetary negotiations this time would be easier. To the contrary, however, numerous countries now have grouped into opposing groups, showing little willingness to compromise. Moreover, other than in previous budgetary negotiations, there so far are little signs of a Franco-German leadership, which would help bridging gaps between the groups.

Where we stand

On 2 May 2018, the European Commission presented her proposals for the new MFF. She suggested a volume of 1,279 billion euro in commitments, which corresponds to 1.114 percent of the EU’s gross national income (GNI) and is roughly the same size as the current MFF (2014-2020) of 28 member states.

Brexit means that the EU will have around 75 billion euro less available over the next seven years. On the other hand, the EU is willing to focus and spend more on security and defence, migration and border protection, as well as climate protection and digitalization. Thus, more tasks would have to be accomplished with fewer resources.

While the European Parliament and the so-called ‘cohesion group’ – a group of 15 net recipient countries – are demanding a budget at least as large as the one proposed by the Commission, some net contributors – the ‘frugal’ states Austria, Denmark, Sweden, and the Netherlands – require a budget of no more than 1 percent of the EU’s GNI.

The special European Council meeting (20 and 21 February)

At the special summit on 20 and 21 February of this year, President Michel suggested that the next MFF should comprise 1,094 billion euro (or 1,074 percent of the EU’s GNI). This number was below the Commission’s proposal, but still clearly above the demands of the net contributors.

In addition to the absolute numbers, there were also disputes about the composition and spending priorities of the new budget. On the one hand, the ‘frugal’ countries and Germany insisted on distributing the contributions more evenly among all member states and maintaining the ‘discounts’ on the contributions currently due.

On the other hand, France, in particular, opposed cuts in spending on the Common Agricultural Policy (CAP). Next to the payments for structurally weak regions (the so-called cohesion funds), the CAP still represents the budget’s largest item of expenditure.

Avoiding failure

It seems likely that the next MFF will only be adopted during the German Council Presidency in the second half of 2020. In case the EU does not agree on a new budget by the end of this year, the ceilings for 2020 would be extended to 2021.

This certainly would lead to economic and political damage, since the EU would lack the legal basis for new investments and policy initiatives and EU programs such as Erasmus, the exchange program for school and university students, could not be continued. Moreover, the authority and political credibility of the EU would suffer.

Therefore, the German Presidency and the entire EU will have to make great efforts in the second half of 2020 to prevent such a scenario.

For a solution, many actors have to move

The richer member states will not get around, especially in view of Brexit, paying an increase or at least maintaining current levels of contribution. Germany, in particular, the largest and economically strongest member state, must be prepared to bear most of these costs.

Conversely, the net payers should use their bargaining position and make their contributions dependent on the fulfilment of certain conditions. They can insist, for example, that the payment of cohesive funds be based on the fulfilment of rule of law criteria, as suggested by the European Commission. This would help them sell their budgetary contributions at home and increase the transparency, efficiency, and legitimacy of the next MFF. In turn, France, despite respective domestic interests, must not oppose further cuts of the CAP payments.

Compromises in an intergovernmental setting like the MFF negotiations require every actor to move and make some concessions. The member states must make sure that the EU can effectively pursue common and urgent policies such as security, migration and climate protection without neglecting future-relevant policies like research, development and digitalization. A bigger budget is inevitable.

Lucas Schramm is a Ph.D. Researcher in the Department of Social and Political Sciences at the EUI. His research focuses on the management and resolution of political-institutional crises in the process of European integration. His article ‘Exit from joint-decision problems? Integration and disintegration in the EU’s recent poly-crisis’ is forthcoming in the European Review of International Studies.