The first post-Brexit EU budget outlined in ten points

By May 23, 2018EU insight

By Quentin Philippart de Foy

On the 2nd of May, the European Commission released its proposal for the EU budget that will cover the 2021 – 2027 period. The EU budget – also known as the Multiannual Financial Framework (or ‘MFF’) – translates the political priorities of the Union into financial terms by setting expenditure ceilings for the different sectors in which it is active. The MFF is a crucial policy instrument as it allows beneficiaries of EU funds – be they private or public – to better foresee and plan their future.

As provided by Article 312 of the Treaty on the Functioning of the European Union, the MFF Regulation follows a special two-steps legislative procedure that can be very lengthy. Indeed, after receiving the consent of the European Parliament, the Council has first to adopt the MFF Regulation by unanimity. Then, sector-specific legislations containing further financial details are proposed and adopted under the ordinary legislative procedure where the Council and the Parliament decide jointly, on an equal footing.

The Commission’s MFF proposal published on the 2nd of May is the result of approximately a year of public consultation on the future of Europe and reflects the societal context in which we are living. While the 2014 – 2020 MFF was elaborated in the aftermath of the European sovereign debt crisis and in an austerity backdrop, the EU budget Jean-Claude Juncker presented recently has rather been designed in view of the highly likely defection of Britain from the EU, the security and migratory crises as well as the rapid developments artificial intelligence and digital technologies in general underwent the last couple of years.

The outcome of the Commission’s reflection can be summarized in ten points:

  1. Despite Brexit and the annual budgetary hole it entails (between €10 and 13 billion a year), the Commission proposed a bigger budget of €1,135 billion in commitments over the period from 2021 to 2027. This amount of spending surpasses the symbolic 1% of the EU28’s gross national income (GNI) as it brings it to 1.11% of the EU27’s GNI. This rise in expenditures is due to the fact that the EU intends to intervene in more domains where it can provide real European added value and have a bigger impact than public spending at national level.
  2. The structure of the proposed budget intends to be clearer with a reduced number of funding programmes, to cut red tape for beneficiaries and managing authorities by integrating rules in a single rulebook and allow for flexibility by strengthening crisis management instruments to deal with unforeseen events.
  3. Following this idea of simplification and as a result of the UK leaving the Union, the Commission proposed the progressive elimination of the rebates mechanism by which a number of Member States whose budgetary burden was considered excessive have been benefitting from corrections.
  4. The Commission suggested important increases of expenditures in security, border protection and defence – domains where the EU is expected to play a greater role in response to the terrorist attacks and migratory crisis the European Union has experienced. Investments in security should grow by 40% to reach €4.8 billion and will be accompanied by a €13 billion Defence Fund.
  5. Common Agricultural Policy and Cohesion Policy programmes will remain predominant in terms of funding (i.e. still the largest share of the EU budget) but will have to operate more methodically as their share will undergo a 5% reduction.
  6. The Commission heavily counts on research, innovation and digitalization for building a bright future in Europe. Approximately €115 billion resources will be allocated to these areas. The research and innovation funding programme Horizon Europe, due to take over from Horizon 2020, will benefit from a budget of almost €100 billon. Along with this flagship programme, the Digital Europe Programme aiming at encouraging investments in high-performance computing, data, artificial intelligence, cybersecurity as well as advanced digital skills will enjoy a €9.2 billion allowance.
  7. In order to bring further stability and convergence in the euro area, two new financial instruments were proposed: a new Reform Support Programme offering financial and technical assistance to Member States for the pursuit of priority reforms and a European Investment Stabilisation Function which will help to maintain investment levels in the event of serious financial difficulties.
  8. To support all the aforementioned programmes, the Commission proposed to create three new ‘own resources’ flows – from the Emissions Trading System, the new Common Consolidate Corporate Tax Base and national contributions compensating non-recycled plastic waste – that would make up to 12% of the total EU budget.
  9. Worthy to note, as to protect the EU budget from generalised deficiencies regarding the rule of law in the Member States, the Commission proposed a conditionality mechanism allowing “the Union to suspend, reduce or restrict access to EU funding in a manner proportionate to the nature, gravity and scope of the rule of law deficiencies”. Poland and Hungary have already reacted to this proposal and qualified it as a “massive power grab” from the Commission.
  10. As opposed to the previous EU budget, the 2021 – 2027 proposed MFF integrates the European Development Fund in its plans. The integration of this development policy fund to the EU MFF partly explains the overall budget increase as it amounted to 30€ billion in the 2014-2020 period.

These proposals are among those that will constitute the basis for the negotiations to come between Member States. The Commission has announced that it will further detail the MFF proposal by submitting legislative sectorial proposals for spending programmes by mid-June. The Commission hopes that an agreement will be reached before the next European Parliament elections that will take place in May 2019. However, as these negotiations pertain to sensitive financial and policy matters and as Members States must agree by unanimity, delays may be expected.