European Commission proposes increase in EU spending after 2021

The European Commission has proposed a moderate increase in European Union spending for the next seven-year budget period in a package approved on Wednesday.

The EU’s trillion-euro budget, the Multiannual Financial Framework, would see “commitments” rise between 2021 and 2027 to €1.27 trillion, in current prices, That increase is to be funded in part by cuts in both agriculture (-5 per cent) and cohesion funding (-7 per cent).

The commitments would translate into 1.11 per cent of the gross national income (GNI) of the 27 EU states, roughly a 10 per cent increase on the last budget round.

That will mean the contributions from net contributor states such as Ireland will also need to increase by, on average, about 10 per cent. And despite the budget's moderation, it will prove difficult to secure the unanimous approval required.

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Talks with member states are expected to be prolonged. The commission had hoped that agreement would be reached ahead of next May's European Parliament elections, but few expect that deadline to be met, even though a number of states, Ireland included, have already indicated a willingness to raise their contributions subject to reforms of the budget.

The “new” EU states are already engaged in a battle to defend cohesion and farm spending. They, like all the 27 – the UK is not party to the discussion – can each veto a final deal. On Wednesday, both Austria and the Netherlands announced their total opposition to paying any more.

Brexit

The imminent departure of the UK – creating a potential, but still uncertain, €94 billion hole – and the prioritisation of new budget lines for defence, border controls and the digital economy, leave a big spending gap to be bridged.

And inevitably the two major areas of EU funding – the Common Agriculture Policy (CAP) and cohesion and structural funding, representing 72 per cent of the budget – will face a squeeze down to about 60 per cent of the total.

Between them, they cost €775 billion in 2014-2020, and the proposed savings represent about €40 billion for other programmes.

Ireland will be particularly concerned about farm payment cutbacks, although it is expected that the commission will propose that cuts to direct payments to farmers be made progressively by capping the payments to larger farmers.

The budget also proposes a 40 per cent increase in research funding, and a virtual doubling on the Erasmus student programme. Some €700 million is to be spent on free Interrail tickets for young people.

Border protection and immigration measures will take up €35 billion. A border force of up to 10,000-strong is proposed.

The commission has backed off demands from some member states for political "conditionality", measures that would cut financial contributions to those states which refused to show "solidarity" by sharing resettlement of refugees or where there was substantial erosion of the rule of law. Poland and Hungary were being targeted.

Instead the budget package proposes stricter “financial management” rules that allow funds to be cut off to countries where an erosion of the rule of law threatens the ability to police EU spending controls. It’s not about “values,” but “sound financial management”.

To sweeten the pill on migrant resettlement, the commission proposes additional payments to those states willing to participate.

The commission is suggesting raising the legal amount it can ask member states contribute to the budget – from 1.2 per cent of GNI to 1.29 per cent – in order to provide a safety net for borrowing on the markets for a “fiscal stabilisation mechanism”.

The idea would be to borrow on the international markets against the promise that member states would guarantee repayment of funding to assist states facing asymmetric economic shocks.

The commission compromise proposal means member states would not have to pay in to a "rainy-day insurance fund", a prospect on which Germany and other fiscal conservatives were particularly chary.