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27/08/2016

Midterm EU budget review falls victim to UK referendum

UK & Europe

Midterm EU budget review falls victim to UK referendum

EXCLUSIVE / British Prime Minister David Cameron can already claim a victory ahead of the referendum, because the major event in the calendar of the Juncker Commission, the midterm review of the European Union’s 7 year budget, has been effectively cancelled.

EU officials are too scared to come up with policy recommendations to recalibrate the €960 billion EU budget until 2020 by mid-summer, as such proposals would most likely coincide with the Brexit referendum expected in June, EurActiv has learned.

The slimmed down, long-term EU budget, also known as Multiannual Financial Framework or MFF, has already been a victory for Cameron, who has held out for sharp reductions in spending at time when most national governments are producing austerity plans.

>>Read: EU budget hawks succeed in €960-billion cap

The midterm review was seen as the biggest chance for the Commission to make changes to the budget, which was proposed and adopted under the previous EU executive, led by José Manuel Barroso.

The Juncker Commission, which calls itself “more political”, took office by adopting 10 priorities, some of which require substantial financing. Moreover, the Commission’s overarching priority is to get Europe growing again, by restoring investment levels, via instruments such as the European Fund for Strategic Investments (EFSI), also known as the Juncker Plan. It also seeks to boost investment to move forward with projects such as the Energy Union, which requires many billions to build new infrastructure.

The website of the European Commission still says that the midterm review of the Multiannual Financial Framework, scheduled for the end of 2016, should be used to orient the EU budget further towards jobs, growth and competitiveness.

However, an EU official who asked not to be named told EurActiv that the executive will hold its fire, and basically do nothing, because any new proposals would provide ammunition for the camp campaigning against UK’s membership in the European Union. Things can get out of hand especially in the European parliament, which is likely to put forward proposals which would antagonise London.

Reforms postponed for next MFF

The narrative of the European Commission will be to say that no major changes to the budget are necessary for the midterm, that the new MFF is flexible enough, and that the political thinking would have as a horizon the next financial perspective for 2020-2027.   

The major reforms for the next MFF would be sought in identifying new sources, and new “own resources” for the financing of the EU budget. The Financial Transactions Tax (FTT) has been most often cited as a new source of revenue for the EU budget.

But the official said that the biggest reform for the next MFF would be to replace the current system of grants with innovative financing based on guarantees for innovative projects, which would otherwise struggle to attract funding. Such financing lies at the heart of the Juncker Plan.

It is, however, unclear if such a proposal could pass, because the net beneficiaries of EU finance prefer the grant system, and see its replacement as a curse.

The official quoted Germany’s Minister of Finance, Wolfgang Schäuble, as saying that if the EU wanted to change the priorities of its budget, it first needed to change the sources of budget financing.

Although the EU budget is under pressure because of the refugee crisis, the official said that the current MFF margin of €12 billion should suffice, and that the increased spending should be secured by tweaking the existing budget headings. An example cited was to allocate more money to deal with refuges using the existing social funds, instead of seeking new budget lines.

Real reform would come with setting up a separate budget for the eurozone, but this is also part of the plans for the most distant future, the official said.