Finns make no friends with budget ‘compromise’

The Finnish presidency of the European Union is between a rock and a hard place. Ahead of the EU summit next week, it is expected at least to point towards a possible landing zone for the bloc’s fraught 2021-27 budget talks. Its latest effort fell wide of the mark.

The European Commission's wildly optimistic idea had been to have the whole budget – known as the Multiannual Financial Framework (MFF) – agreed ahead of the summer's European Parliament elections. It was not to be and the gap between member state aspirations is wider than ever.

This is horrendously complex, a game of snakes and ladders in four dimensions where every moving piece interacts with every other and unanimity allows every player to block any movement. The quintessential nothing-is-agreed-until-everything-is-agreed negotiation

On Monday the Finns circulated their latest “negotiating box”, an attempt to suggest figures for overall EU spending which, however unacceptable, can be reconciled with each other – they add up – and which the presidency hopes could take the discussion to the next level. Agree the overall spend on, say, farming, and at the next summit the leaders could get to grips with divvying it up between priorities and the member states.

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Unfortunately, by Tuesday, almost no one was happy. For one thing it is impossible to agree a spending ceiling without also agreeing a revenue model.

The starting point of the discussion is the commission’s proposal, a seven-year total planned spend of €1.13 trillion or 1.1 per cent of total EU gross income (GNI). But the commission, like the European Parliament which wants the EU to commit 1.3 per cent of GNI, does not have to raise the money, the member states do.

Every 10th of 1 per cent of European GNI represents over €10 billion

And the big contributors – the frugal five, Austria, Denmark, Germany, the Netherlands and Sweden – have said "we will stick with the current ceiling", 1 per cent and not a penny more. Eighteen states, on the other hand, mostly net recipients of EU funding, have declared for a budget in excess of 1.1 per cent.

Splitting the difference, the Finnish “box” suggests €1.087 trillion, or 1.07 per cent of GNI – small beer of a difference, you might say. What’s all the fuss about?

Well, every 10th of 1 per cent of European GNI represents over €10 billion. The gap between the Finns and the 18 is some €40 billion, which someone would have to fork out.

‘Must have’ list

The problem is that the leaders also keep adding new items to their “must have” list – billions on climate change,  defence, a European coastguard to deal with migrants, investment in the digital economy, expanding the Erasmus student exchange programme. And then there’s the €12 billion-a-year hole to be left by Brexit.

The result is an inevitable squeeze on traditional programmes such as agriculture and the cohesion/structural funding aimed predominantly at the poorer states. The Finnish box proposes to cut the latter to €374 billion from the commission’s suggested €391 billion, itself a 10 per cent cut on the current programme.

Member states will likely focus on key grievances only

Unsurprisingly, the “cohesion” countries are up in arms, their problems compounded by other issues such as a proposed EU-wide emissions trading tax, which tends to favour the more developed countries who have become less dependent on fuels such as coal. Ireland is among those to oppose this measure.

Or some are caught by apparently logical proposals from the Finns to update cohesion eligibility reference periods – countries such as Croatia and Portugal find themselves bounced out of the most generous funding categories for the least developed through the "misfortune" of particularly strong economic growth over the last three years.

Abrupt cuts

Member states across the board are demanding that any new funding formula incorporates mechanisms that mitigate abrupt cuts in payments they have become used to from the current programmes. For some of the richer states that means also defending the domestically politically sensitive budget rebates that were supposed to disappear with the British departure. The Finnish box leaves the issue unresolved.

Tactically, because of the convoluted nature of the talks, member states will likely focus on key grievances only, and Ireland will be particularly concerned about maintaining agriculture spending, some 80 per cent of its EU receipts, 80 per cent of which are in so-called pillar 1 direct payments to farmers. Pillar 2 reflects rural development and environmental payments.

The commission proposed cuts of the order of 3 per cent to 5 per cent on the current programme but the then agriculture commissioner Phil Hogan spread the cuts between the pillar 1 (a nominal increase of between 0.5 per cent and 2 per cent) and pillar 2 (a severe reduction of between 17 per cent and 19 per cent) budgets.

From an Irish perspective the emphasis on cuts in pillar2 is certainly preferable. Ireland will also want to ensure that the Finnish reference to €100 million for Northern Ireland and cross-Border peace funding remains untouched.