BRUSSELS — And so it begins again. Negotiations over the EU’s next seven-year central budget — typically the most tortuous and contentious of any in Brussels — start here. And this time they’re more complicated than ever.
When they meet on Tuesday, the EU’s 27 commissioners will fire the opening salvo on sketching out the next spending period, running from 2028 to 2034. Talks on the multiannual financial framework (MFF) usually drag on for years and are often only unblocked by high-stakes, last-minute horse trading by EU leaders.
Deliberations are even more difficult this time around because the Commission’s €300 billion joint debt program to rescue the EU economy after the Covid pandemic is up for repayment from 2028. Without a new plan, that could take a huge chunk — between 15 percent and 20 percent, according to the Commission’s estimates — out of the bloc’s spending power.
What’s the problem?
The EU has to come up with a repayment plan before 2028.
The Commission originally proposed levies on carbon emissions, imports and the profits of multinationals, a move that was expected to generate €36 billion annually.
But EU governments nixed the plan because much of this revenue is already going to their national coffers.
The Commission is keen to breathe new life into EU-wide taxes — known as “own resources” — and has urged leaders to bring new ideas to the table during a gathering in Brussels on March 20-21.
The EU’s budget commissioner, Piotr Serafin, is promoting the bloc’s carbon border tax — which will fall on certain EU importers — as a potential way to boost revenue.
What are the alternatives?
Failure to reach an agreement on own resources could spell trouble for the entire budget.
The default option consists of national governments filling the hole by sending more money to Brussels.
But this would open up a can of worms for the Commission.
Countries from Northern Europe — which have received a relatively small share of the EU’s post-Covid aid — are loath to pay more into the budget, and in exchange for a bigger contribution would likely demand cuts to the EU cash pot, which covers everything from agricultural subsidies to defense.
That trade-off would deal a blow to the Commission and to countries as diverse as France and Poland, which back a bigger central EU budget.
The other option would be for the Commission to postpone the repayment of its debt, just as national governments do.
Spain supported this approach in a document seen by POLITICO, arguing it would “alleviate short-term fiscal pressures, ensure liquidity in the EU bonds market, and allow continued investments for the future European economic model.”
But Germany and its fiscally conservative allies see this as a slippery slope toward a fiscal union, in which the Commission permanently takes on the debts of its 27 members.
What are the other battles?
The Commission plans to revolutionize how it doles out its cash.
Under the current budget, the EU spends around two-thirds of its money on agriculture and on local funding designed to narrow gaps among regions across Europe.
But the Commission now wants to adapt the budget to its political program and to the geopolitical challenges the bloc faces.
Rather than funding traditional industries, its goal is to use common cash to finance innovative schemes capable of generating big returns. Funding is also supposed to be directed to new priority areas such as the bloc’s defense sector.
In order to achieve this, the Commission supports linking payments to economic reforms that are designed to make EU countries more efficient.
The Commission’s budget department toyed with the idea of lumping together over 500 different funds into a single cash pot for each country that would determine spending in sectors ranging from farm subsidies to social housing.
Spain dismissed this option on the grounds that it “may not be the most effective way to achieve a simpler and more focused budget in practice.”
What will be decided, and when?
Tuesday’s discussion kicks off a long and Byzantine process that will end before the start of 2028, when the new budget takes effect.
This week the commissioners will rubber-stamp a short document laying out the major issues to be addressed.
There is some disagreement over how much individual commissioners will be able to influence the proposal, two Commission officials told POLTICO.
Commission President Ursula von der Leyen wants to keep a firm grip on the process, whereas commissioners with skin in the game would like a bigger role in steering the debate.
After the Commission puts forward its proposal this summer, negotiations start between the Council and the European Parliament.
National capitals are arguably the most powerful players in the process as each country can veto the budget.
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