European finances

Germany’s plans for EU budget are more self-serving than they look

APTOPIX Serbia Migrants
No fun for refugees on the Hungarian border. Source: AP

Friendship can be tricky where money is involved. That is something that the heads of the 27 EU member states, post-Brexit, have once again made abundantly clear.

At their first meeting of 2018, held at the end of last week, the leaders discussed the EU’s financial framework for the next seven years. Although it does not take effect until 2021, all parties involved are already making the greatest possible demands to secure the best-possible position for themselves.

Take Angela Merkel, for example. The German chancellor proposed that EU member states which accept large numbers of refugees should receive billions of euros in EU structural funds. According to Ms. Merkel, “the commitment of many regions and municipalities to accept and integrate migrants” must be rewarded.

“I do not want a new split in Europe. We've had enough of that.”

Jean-Claude Juncker, president, European Commission

It may not be an entirely selfless suggestion – because Germany would be among the nations rewarded. In fact, the EU’s biggest member state is currently in danger of losing its portion of EU structural funds. Eastern German regions are no longer as poor as they were when the last EU financial framework was set in 2014, and will therefore get less EU funding in the future. Secondly, thanks to an impending Brexit, the EU must deal with the loss of cash from the UK. Savings in the structural funds, which account for the largest part of the EU budget, will be necessary and will mainly affect wealthier member states like Germany.

While the EU needs to save money on structural funds, it also wants to spend more on migration. That is why, for Germany, it would be a clever idea to put some of the money earmarked for refugees in the structural funds. It would enable Germany, for example, to make up for potential losses in money from Brussels. Other EU net contributors who accept many refugees have also welcomed the move. For example, the Danish prime minister, Lars Lokke Rasmussen, has expressed support for Ms. Merkel’s idea.

But not all western European nations are behind Ms. Merkel. The new Austrian chancellor, Sebastian Kurz, distanced himself from the proposal. He said he understood why EU subsidies had to be conditional but added that he didn’t think it was a good idea to focus only on refugees when it came to making funding decisions. Mr. Kurz, whose own conservative party rules with the right-wing, populist Austrian Freedom Party as its junior partner, is on very good terms with eastern European politicians such as Hungarian prime minister Viktor Orban, who has been staunchly opposed to taking in refugees.

21 p07 Who pays and who collects-01

Under Ms. Merkel’s plan, countries like Hungary that do not take in refugees would be the losers as they would automatically receive significantly less aid from the EU’s reduced structural funds. This would affect the main beneficiaries of the EU Cohesion Fund, which is used to support the poorer regions of Europe, promoting growth and sustainable development. That includes Poland, Hungary, the Czech Republic and Slovakia, all of which receive billions from Brussels. At the same time, these countries have been extremely reluctant to accept refugees.

There is some recognition of the problem from them. “As far as the future budget is concerned, the Slovak government is aware that there are new priorities,” conceded Robert Fico, Slovakia’s prime minister.

The European Commissioner for Budget and Human Resources, Günther Oettinger, will present his draft for the next EU budget framework on May 2. It is not clear whether it will incorporate the link between the structural funds and the refugee crisis. Mr. Oettinger, a member of Ms. Merkel’s Christian Democratic Union, has not announced his intentions so far.

He has however said that European countries need to align with European values in order to benefit from membership of the bloc and it seems he is planning a carrot-and-the-stick approach to the funds.

The carrot goes to those countries that follow the EU’s economic policy recommendations and implement difficult structural reforms. The stick could be applied to countries like Poland, which are seen to be violating basic values of the EU, with recent legislative reforms around local judiciaries. Structural funds would be withdrawn from these countries. If the judiciary is no longer independent and if a government adopts reforms that the European Commission believes are incompatible with the spirit of the EU treaties, this must have an impact on the allocation of EU funds, French President Emmanuel Macron has said.

Mr. Oettinger had already been working on creating a legal structure for linking the EU’s structural funds to the rule of law.

However, it is not certain whether the Commission will actually go through with the highly controversial draft regulation. Commission Vice-President Frans Timmermans and European Commissioner for Justice Vera Jourova have been trying to get Poland to see reason and the country itself has sent positive signals recently.

There are fears that reducing EU funding could start to turn the Polish voters, who are still largely pro-EU, against the bloc. “I do not want a new split in Europe,” Jean-Claude Juncker, European Commission president, said. “We’ve had enough of that.”

Czech Prime Minister Andrej Babis, a multi-billionaire who is currently governing with his populist party but without a majority, has also expressed skepticism. “I believe that the European Commission should be depoliticized,” he argued. Final decisions on the EU budget won’t be made until 2019, senior officials said, and a lot more negotiation will be needed before then. Still, of all the requests made by member states, Mr. Babis’ wish is probably the least likely to granted.

Ruth Berschens heads Handelsblatt’s Brussels office, leading coverage of European policy. Hans-Peter Siebenhaar is Handelsblatt’s correspondent in Vienna. To contact the authors: berschens@handelsblatt.com, siebenhaar@handelsblatt.com

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