Friendship ends with money. For the ongoing negotiations on the #EU budget for 2021-2027, however, there is no way around this well-known and hackneyed popular wisdom. Whereby for the EU it should be more correct to say: When it comes to money, not only does friendship end, but the future also drops out.
What has happened? Actually, nothing happened, or only well-known things. On Thursday last week, the President of the European Council, Charles Michel, invited the heads of state and government of the member states to the first special summit on the coming multi-year financial framework of the EU (MFF), thus opening the hot phase of the budget negotiations. About 30 hours later the entourage left Brussels without having achieved anything – the differences remained too big.
Night sittings of the European Council loom again
This was not unexpected and is part of the rehearsed ritual. It has always taken several attempts – each of them with night sessions or the stopping of the clock staged in a highly dramatic way – before the EU member states could finally reach an agreement among themselves. Unfortunately, this usually happened at the lowest common denominator and to the disadvantage of the EU.
The most controversial issues each time are the absolute size of the budget and who pays how much into the budget and how much is refunded.
Sadly, less attention is paid to the crucial question of what the money should usefully be spent on at EU level. Here, the emphasis is on preserving what is already established and member states are happy to carry on with the old. This is particularly true of the continuing high level of expenditure on farmers (65 billion euros a year to date) or structural aid for less developed EU regions, which together still account for almost two thirds of the budget.
EU money rarely reaches those in need
Unfortunately, these funds also tend to end up in the pockets of those who cannot really be counted among the needy. After the Brexit, the Queen, as one of the largest recipients of direct income support from the EU agricultural pot, no longer benefits from it. But others have opened up to this. Politicians with at least a questionable understanding of democracy, such as Victor Orban from Hungary or Andrej Babis from the Czech Republic, are now the profiteers.
As the New York Times has revealed in a well-researched article “The Money Farmers: How Oligarchs and Populists Milk the E.U. for Millions” (3.11.2019), both heads of government are now directly or indirectly securing the largest share of agricultural subsidies distributed in their countries.
The list could be continued. The Mafia in southern Italy also knows the game.
The European Parliament is calling for new own resources
Each time it is also disputed whether new own resources should be made available to the EU budget. Today, around 70% of the budget is financed by contributions from the member states. In addition to a share of their VAT revenue, they each transfer to Brussels a share of the EU’s gross national income corresponding to their economic performance. For all Member States, this means less than 1% of their annual economic output.
The European Parliament, in particular, is pressing for additional sources of revenue in order to have more money available for the budget. This is not entirely altruistic, as it would give the EP more influence. First and foremost, however, it saves the EP – no better than the member states – from the unpleasant decision to cut back old expenditure in favour of new and more up-to-date expenditure.
Currently under discussion are either a plastic tax or the revenues from CO2 emissions trading. It remains questionable whether saving money in the right place would not be the better option after all. Especially as new types of own resources do not defuse the main battle line which – as shown – runs along the front line between net contributors (those member states which pay in more than they get out) and net recipients (which get out more than they pay in). Rather, it is to be feared that, because of the different levels of burden on the member states in the case of new EU taxes, only further rebates for net payers and other compensation payments would be introduced.
This time the situation is even more complicated
There is no doubt, however, that this time the situation is even more complicated than in the past. After the Brexit, the EU is missing 75 billion over the seven years that the UK has contributed to the budget so far.
The Commission has factored the loss of the UK contribution into its opening proposal. The coming budget is to amount to 1.11 percent of the EU’s gross national income, or 1,135 trillion euros. Cohesion funds have been cut by 24% and agricultural subsidies by 14% to free up funds for the many undisputedly important tasks such as migration, security or climate change. All tasks which, despite high-flying plans, have so far received very little money. Unfortunately, the funds allocated to these tasks already appear to be the first to be cut back.
The Commission’s budget estimate is still too high for the net contributors. Led by the Netherlands, Austria, Denmark and Sweden are insisting on further savings and on capping the budget at 1%.
The “Frugal Four” fight against the “Friends of Cohesion”
The ” frugal four”, as they call themselves not without pride, are opposed by the “friends of cohesion”. These are essentially 15 central and southern European countries. For some of them, transfers from the Cohesion Fund account for up to 85% of public spending. Their resistance to savings on this budget item is correspondingly strong.
But even France, which demands a sovereign, strategically autonomous Europe, does not want to do without agricultural subsidies. On the contrary. The German position seems somewhat more flexible. However, even after the British have left, Germany, as a major net contributor, insists on its rebate and with it all other net contributors.
There’s not much time left. Two years have already gone by unused since the Commission presented its proposal for the EU budget in 2018. If the member states do not agree quickly and the European Parliament does not approve the budget afterwards, the EU will have no money from 1 January 2021.
This is particularly tough on those Member States that receive significant funding from the EU. The ” frugal four” can wait and see. However, they must be careful not to overdo their card. Even at the special summit, criticism was already hailing for the strategy of total refusal. And even Chancellor Angela Merkel publicly found that the uncompromising stance of Dutch Prime Minister Mark Rutte was “childish”.
Even more serious, however, are the signals that emanate from a Union that is hopelessly divided over money. They punish all the Sunday speeches that conjure up the EU as a geopolitical actor that uses its money to meet the challenges of the future and thus creates European added value.
The European added value exists, we have calculated it
For this added value could really exist, as we in the Bertelsmann Foundation together with ZEW have calculated (see, among others, “The European Added-Value of EU Spending” and “How Europe can deliver“).
This added value is always achieved when the EU can do a task at a lower cost or takes on tasks that would overburden the individual member states themselves.
That holds true for policy areas such as development cooperation, migration, security and defence as well as environmental and climate policy or digitisation. Agricultural policy in the form of social transfers to landowners is not one of them.
Unfortunately, it currently looks as if everything will remain the same in the new MFF – at best slightly embellished by new “Green Deal” labels and smaller amounts for foreign and security policy or the digital revolution.
There is no future to shape with such an approach. Instead, we have to fear that the EU will lose even more ground globally and be further squeezed between China and the USA. Regrettably, the politicians of today who, for a little applause at home, fought short-sighted national interests on the back of the EU in the budget negotiations, will then no longer be in office.