Europe’s Next Budget Battle: Why the Post-2027 EU Plan Faces Fierce Opposition

Do You Know What Europe Is Going To Look Like In 2034?

The answer heavily depends on how Europe is going to invest its money: will we choose to focus on the environmental concerns, the growing international tensions, or the political fragmentation?

In July, the European Commission started what will be a 30-month negotiation period for the EU’s next seven-year budget. Brussels claims that it is their most ambitious work, and it’s being marketed as ‘strategic, flexible, and transparent’, yet the budget has faced criticism from socialists and democrats to right-wing and fiscally conservative parties. Whilst the scepticism differs in focus, one thing is certain: the road to agreement will be anything, but smooth.

In order to fully understand what is causing those differences, accompanied by heated debates, we will look through the general composition of the budget, some key procedures and features, as well as the concerns raised.

What Is the EU Budget and How Is It Adopted?

The Multiannual Financial Framework (MFF) is the EU’s seven-year budget plan that sets the maximum annual spending limits and outlines the EU’s financial priorities for that period. The process involves three stages: presentation, negotiation, and adoption. Firstly, the European Commission presents a draft MFF proposal, which happens about two years before its ratification. The proposal typically consists of three pillars, namely the MFF Regulation, which is the seven-year financial plan with a spending ceiling for each year and for each policy area, the sources of revenue, and sectoral legislation, outlining how the funds are spent in each policy area. In the second stage, the Council carefully examines the proposal and develops its position on the budget, which is passed on to the European Parliament. Simultaneously, the Parliament tries to influence the outcome by debating and adopting resolutions, yet it is essential to note that it can only give or withhold its final consent to the MFF, not amend it. Furthermore, the negotiation stage, as it will be seen in this article, is often highly political due to the fact that the MFF requires the unanimous approval of the Council, meaning each Member State can veto the final deal. Once support for the budget is reached, the Parliament must give its consent to conclude the process and the MFF enters into force on January 1st of the first year of the new framework.

How Is The EU Budget Financed?The EU budget is generally financed through Gross National Income (GNI)-based contributions, calculated as a fixed percentage of each Member State’s national income, customs duties on imports from outside the EU, a share of the VAT collected by each EU country, and a contribution based on non-recycled plastic package waste in each EU country. Additionally, the budget draws on other sources of revenue, including contributions from non-EU countries to certain programmes, interest on late payments and fines, as well as any surplus from the previous year.

The MFF is based on the principle that expenditure must align with revenues, ensuring that annual revenue completely covers annual expenditure. This can be illustrated by the following graphs taken from the European Commission’s website:

What Is In the EU’s Next Budget Proposal?

Three months ago, on July 16th, the European Commission presented the most ambitious budget proposal, equal to almost €2 trillion. This figure, totaling 1.26% of the EU’s gross national income, is a significant increase from the current MFF’s 1.05%. The distribution of the €1.82 trillion budget is divided into four pillars:

• €1 trillion for economic, social, and territorial cohesion, to be divided into 27 national and regional partnership plans (NRPPs) that would replace the over 530 current EU programmes.

• €590 billion for competitiveness and security;

• €215 billion for “Global Europe”, the pillar for the EU’s external action worldwide;

• €117 billion for administrative expenditure.

Source: European Commission - Europe’s Budget An ambitious budget for a stronger Europe 2028-2034

Furthermore, the Commission wants to introduce around €45 billion each year in new ‘own resources’ to fund its priorities for the forthcoming seven-year period and to begin repaying the loans acquired under the Next Generation EU initiative. However, it has chosen not to propose other potentially rewarding revenue sources, such as taxes on financial transactions, digital services, extraordinarily high incomes, or air travel. Additionally, it has not actively pursued new large-scale borrowing instruments. Whilst this proposal is a starting point and the main objective is to keep the changes rather limited, it appears that the budget could be subject to major changes over the course of the two years of negotiations.

According to the European Commission, the budget will ‘improve citizens’ livelihoods and support businesses and regions, simplify and accelerate access to funding and ensure greater impact, as well as make the Union more flexible in addressing future challenges and crises’. Yet, the budget was met by the European Parliament with strong scepticism, with MEPs portraying it as ‘a joke’, a ‘collection of slogans if not lies’, a ‘blank cheque’ given to von der Leyen to centralize power in her own hands further.

What Is The Criticism Of The MFF Proposal?

One of the main issues in the proposal concerns the future of cohesion and CAP. Historically, they have each absorbed a third of the EU budget, whilst in the newly proposed one, together they will represent less than 40% of the total resources. This has sparked intense criticism from the European Parliament’s political groups, who condemn its centralizing tendencies, undermining of regional priorities, and prioritization of defence over social needs. According to them, the new budget aims at putting all the cash in the hands of national governments and the Commission, whilst sidelining regions, cities, and Parliament.

‘The Parliament’s role as a budgetary, legislative and democratic institution is not respected in the Commission’s proposal,’ and Parliament having ‘no formal role’ in implementing the national plans is unacceptable, MEP Siegfried Mureșan told Euractiv.

The Commission addresses concerns about the proposal by promising that cohesion and CAP will remain at the heart of the new multiannual budget. The Commission assures that the national and regional 27 Partnership Plans will help reduce regional disparities by identifying, through the targeted approach, investments and reforms needed to better address future challenges of Member States.

Regardless of these claims, the European Parliament is not satisfied with the decisions made regarding the Common Agricultural Policy and on September 10th, a non-binding resolution was adopted by the Strasbourg Chamber. The resolution states that the post-2027 budget of the Union’s longest-running program will need to be more substantial and, most importantly, autonomous. This is a clear rejection of the EU Commission’s idea of supplementing agricultural funds with resources from other budget sections. MEPs call for direct payments to remain available to all active professional farmers, based on the area cultivated, and for administrative simplification to be made a priority. MEPs also want an incentive-based system, which will encourage farmers to achieve environmental and social objectives.

On October 15th, a resolution was unanimously adopted by the European Committee of the Regions (CoR). It aims at urging the European institutions to revise the new budget proposal, to avoid centralization in the hands of the Commission and nationalization of Cohesion Policy, fisheries, and agricultural policy. Merging these policies into a single nationalized package with no clear allocation criteria could spur competition between farmers and local communities. ‘The European Parliament and the Council of the EU must now take responsibility to stop these plans and avoid an increase in institutional conflicts and chaos,’ said Kata Tüttő, the President of CoR. Furthermore, the European Committee of the Regions denounces the lack of guarantees that all regions have access to the cohesion policy. The Committee fears that if accepted, the proposal could undermine trust in the EU institutions due to the lack of control by the European Parliament and national or regional parliaments on regional investment. CoR members believe a place-based Cohesion Policy to be the EU’s most important long-term driver of regional competitiveness and sustainable development. This is the reason why Cohesion Policy should continue to be designed together with local and regional authorities.

In the following statement, Tüttő clearly outlines the essence of the resolution: ‘We urge the European Commission to revise the very architecture and thinking framework of its long-term budget proposal. Indeed, it fails to provide clear, legally binding guarantees that Cohesion Policy investments will be shaped and implemented with regions and cities. There is no guarantee either that all regions will have access to the Cohesion Policy. Moreover, merging cohesion and agriculture funds in a single nationalized envelope without clear allocation criteria puts farmers in competition with local communities and disconnects the EU from its regions and cities. The European Parliament and Council must now take the responsibility of stopping these plans and avoiding increased institutional conflicts and chaos’.

Another concern that arises from the MFF proposal is that the larger overall budget is likely going to require an increase in Member State’s contributions in order to finance it. This is exactly the reason why Brussels proposed the five new additional own resources – to help fund priorities and service NGEU debt without proportionally burdening Members with their contributions, however, this does little to alleviate the concerns.

Countries like Germany, the Netherlands and Sweden made it clear that they do not accept the package as drafted, pushing back against the higher financial envelopes and preferring tighter spending discipline.

The Minister of Finance of the Netherlands, Eelco Heinen, stated his discontent with the argument that the new budget would add around €5bn per year to what Dutch taxpayers give Brussels. ‘At a time where all our budgets are under pressure’ from the need to boost defence spending, he said in an interview to the FT, ‘you cannot ask member states to spend more on the EU budget’.

This is not surprising given that the Netherlands are a net contributor to the budget, they pay more into it than they get out of it. They are also part of the “frugal four’ states that for decades have been seeking reduction of EU spending.

Heinen thinks that the EU should be spending better instead of spending more, which according to him means investing in defence, innovation, migration and saving elsewhere. Friedrich Merz, the Chancellor of Germany, has also repeatedly emphasized that EU spending must become more efficient instead of increasing the overall amount of cash.

‘Spending better’ is exactly what the budget’s proponents say they are doing. They argue that the increase in the budget reflects the need to repay the debt raised to fund the Covid-19 pandemic recovery, and to launch new initiatives such as the €409bn ‘competitiveness fund’ that is aimed at boosting key industrial sectors and also driving stronger economic growth.

The budget backers argue it is best to ignore the numbers for now and focus on the proposal’s overall structure; this is exactly what Denmark is planning on doing until a broad agreement on the structure is found.

However, the calculators will have to come out eventually, and the Commission’s main challenge will be to persuade the frugal countries: the Netherlands, Finland, Austria and Sweden, plus Germany, as well as fiscally constrained nations like France.

These are some of the main concerns and criticisms surrounding the new MFF proposal. As negotiations move forward, it is clear that the road to a final agreement will not be easy. Considering that unanimity is required, the real hurdle now lies in turning the conflicting interests of the institutions into a shared European vision.

Bibliography

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