EU: The Budget Battle Begins

4 MINS READMay 2, 2018 | 16:03 GMT
The Big Picture

Stratfor's 2018 Second-Quarter Forecast said that the proposals for the next EU budget would deepen the divisions within the bloc, since countries in Northern, Southern and Eastern Europe have different priorities and interests. The recent budget proposal by the European Commission suggests that the next budget could indeed exacerbate frictions within the union.

After weeks of speculation, the first draft of the EU budget is finally here. On May 2, the European Commission presented its proposal for the bloc's next multi-annual budget, which will be in effect from 2021 to 2027. The proposal has the potential to create a political storm within the union because it touches on highly sensitive policy areas such as agricultural subsidies and structural funds. At a time when the European Union is already dealing with internal fragmentation, the new budget could be yet another source of friction among member states.

To start things off, the Commission wants a slightly bigger budget. The proposal asks for a budget of 1.135 billion euros (expressed in 2018 prices) in member state commitments, which is equivalent to 1.11 percent of the European Union's gross national income (GNI). This is an increase from the previous budget, which only represented 1 percent of the bloc's GNI. The increase will generate resistance among the budget's net contributors, most of which are in Northern Europe. Countries such as the Netherlands, Denmark and Sweden have argued against increasing national contributions to the common budget, saying that a smaller European Union (that is, one without the United Kingdom) should consequently have a smaller budget. The Commission is also proposing to progressively phase out the rebates that countries like Austria, Denmark, Sweden, the Netherlands and Germany receive from the budget. The Dutch and Danish governments have already criticized the proposed budget.

Regarding the union's spending priorities, the draft proposes cutting spending on agricultural subsidies and cohesion funds by around 5 percent each, while increasing spending in areas such as border management, defense, migration and the digital economy. This reflects the bloc's changing policy interests, driven by the recent immigration crisis, successive terror attacks and Europe's fear of being outmatched in the digital economy by the United States and China. But the proposals will generate controversy. Countries in Central and Eastern Europe, which are all net receivers of structural funds, will probably protest the cuts in that area, while agricultural lobbies in countries such as France are sure to oppose cuts to farming subsidies. Moreover, agricultural and cohesion funds are politically sensitive topics in many member states' domestic arenas, and various populist forces can use the proposed cuts to attack the European Union.

In a controversial move, the Commission also proposed linking the disbursement of EU funds to member states' commitment to respecting the rule of law. The Commission wants to introduce a regulation that would allow it to suspend, reduce or restrict EU funds for members that fail to follow the union's rules. The regulation itself would need to be approved by a “qualified majority” of EU members, meaning any combination of countries that includes 55 percent of the total number of member states and represents 65 percent of the union's total population. If the regulation passes, the Commission will have the power to impose sanctions that could only be blocked by a group of countries that accounts for 35 percent of the bloc's population (what in EU jargon is known as a “blocking minority”).

This idea will certainly cause unrest in Central and Eastern Europe, as countries in those regions would be the most likely targets of the new punishment system. Under the current system, sanctions connected to the rule of law require a unanimous vote in the European Union. This proposal shows that the Commission wants to overcome this problem, but a solution could come at the cost of alienating several member states, since unanimity is seen by many as the ultimate protection of their national sovereignty.

This new document is only a draft and, in the coming weeks, the Commission will present additional details on the spending priorities and future of specific EU programs. Only then will member states have a complete understanding of what the plan will mean for them, as a clearer picture of the budget's winners and losers emerges. Once all the details are revealed, member states will work to negotiate, amend and approve the budget — a process that requires unanimity. The Commission has said it wants the budget to be approved by May 2019, before the next EU Parliament elections. But, considering the complexity of the issues on the table and the divisions within the union, this goal will likely prove too ambitious.

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