bankrolling Europe

Finance ministers meet but won't agree on EU budget

Grenzschutzagentur Frontex
We're gonna need a bigger budget. Source: DPA

Every time the EU Council of Finance Ministers meets, its members first parade in front of the media. They try to get their message out to the people. This week too, more ministers than usual paused in front of the microphones and cameras before disappearing into the EU Council building. Finnish politician Petteri Orpo told reporters: “Finland is ready to talk about higher contributions to the European budget.” But his Austrian counterpart, Hartwig Löger, made exactly the opposite pronouncement, insisting that the EU has “sufficient financial leeway.” Austria, Mr. Löger said, has no intention of increasing its payments to Brussels.

The ministers were only the advance guard. They will be joined in Brussels on Friday by the heads of their respective governments, who will be attending a special EU summit to discuss for the first time how the European Union will pay for itself from 2021 to 2028 – after the UK leaves. The EU’s current seven-year financial framework expires at the end of 2020.

The haggling over EU contributions and structural funds, agricultural subsidies and research funding is old news for the EU. This is already its eighth seven-year financial framework. But things will be different this time. In the past, net contributors tended to coalesce behind their common interest in keeping the EU budget and thus their contributions as small as possible. But not this time.

EU diplomats expect the majority of European leaders, including German Chancellor Angela Merkel, to agree to modest rises in EU contributions at the summit. “A moderate increase in the EU budget is a possibility,” acting German Finance Minister Peter Altmaier said in Brussels on Tuesday.

Hungary Poland
If these guys are a problem, how about less EU cash? Source: AP

There are two reasons for this unusual generosity. First, Brexit means that the EU will lose the British net contribution of around €10 billion a year. Second, the EU has new tasks to pay for: external border management, common defense and the integration of refugees. Nevertheless, not all net contributors want to transfer more money to Brussels. Austria, Sweden, Denmark and the Netherlands are refusing to increase their contributions. European leaders, therefore, will likely be unable to pave the way for a higher EU budget framework as early as Friday.

The German EU budget commissioner would be satisfied if the leaders were to set the pace together. For weeks, Günther Oettinger has been campaigning for EU member states to make negotiations on the new multiannual financial framework a political priority and conclude them before the European elections in May 2019. Mr. Oettinger hopes that the leaders will express their political will to do so at the summit on Friday.

If that were to happen, the finance ministers would have to agree on the amount of the next seven-year EU budget within a few months. EU spending currently amounts to around one percent of economic output. Mr. Oettinger is calling for an increase to 1.13 percent, while the European Parliament wants an increase to around 1.3 percent. As small as these differences may seem, they represent billions.

Higher contributions alone are by no means sufficient to offset both the Brexit-related shortfall and the cost of new activities. Costs must also be lowered. According to a German government position paper Handelsblatt has obtained, “The impact of the United Kingdom’s departure should be seen as an opportunity to put EU finances to the test and focus them on the common challenges currently facing the EU.”

21 p07 Who pays and who collects-01

The Commission aims to cut agricultural subsidies and funds for structurally weak regions by between 5 percent and 10 percent. These two areas account for about 70 percent of the EU budget. But some EU countries are demanding a more radical cut. Dutch Prime Minister Mark Rutte wants to focus the Structural Funds on poor countries in central and Eastern Europe. Wealthy countries, including the Netherlands, could largely do without the funds.

But when it comes to the structural funds, which are worth billions, Eastern Europeans will also have to get used to losses. This is particularly true of Poland and Hungary, which are either openly or covertly undermining the EU’s fundamental democratic values. “We cannot share our money with those who do not share our values,” said Finnish Finance Minister Orpo. Germany and France agree. “For this reason, we have asked the Commission to examine the extent to which the receipt of EU cohesion funds can be tied to compliance with fundamental principles of the rule of law,” reads the German government document.

Commissioner Oettinger has got the message. He is already working on a bill, although it is uncertain whether it will ever see the light of day. The EU’s 28 commissioners are divided. Dutchman Frans Timmermans and Czech politician Vera Jourova are in favor, while the EU commissioners from Poland and Hungary are unsurprisingly opposed to the Oettinger bill. Commission Chairman Jean-Claude Juncker and Mr. Oettinger also have their reservations. They argue that farmers and researchers cannot be deprived of funds because their government is making mistakes.

The fronts are likely to be similar among EU leaders. The European Commission intends to present its package on the new financial framework on May 2. That’s when the real haggling begins.

Ruth Berschens heads Handelsblatt’s Brussels office, leading coverage of European policy. Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin. Till Hoppe is a Handelsblatt correspondent in Brussels, covering the European Union. To contact the authors: berschens@handelsblatt.com, hildebrand@handelsblatt.comhoppe@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!