EU leaders fail to agree on first post-Brexit budget as divisions grow

European Commission President Ursula von der Leyen and European Council President Charles Michel during a press conference at the end of Special European Council in Brussels on 21 February 2020. [EPA-EFE/OLIVIER HOSLET]

EU countries failed to narrow deep differences over the bloc’s next seven-year budget as a group of net contributors refused to approve bigger spending and instead pushed for big cuts for farmers and poorer regions, in a bid to fill a €75 billion hole left by Brexit.

After more than 27 hours of discussions in every format and almost every possible combination of member states, the summit only reconvened with the 27 leaders at 7 pm on Friday (21 February).

European Council President, Charles Michel shared with the EU leaders a last-minute document drafted by the European Commission with small concessions to each side.

But 25 minutes of discussion in the plenary was enough to see that the EU executive’s attempt to narrow the differences on the multiannual financial framework for 2021-2027 was insufficient.

The differences were too big between the net contributors, named the “Frugal Four” (the Netherlands, Austria, Denmark and Sweden), and a group of 17 countries opposing the cuts to the Common Agricultural Policy and Cohesion.

Michel summarised the efforts of the last two days by saying that “as my grandmother used to say, if you want to succeed, you have to try at least.”

He said EU leaders had been “very committed, very determined”. “But it needs not only efforts, but tenacity, constancy, and determination,” Michel added.

European Commission President Ursula von der Leyen admitted that “we have a long road ahead of us, in order, ultimately, to reach a result.”

But she also warned that if Europe doesn’t complete all the lengthy procedural steps needed by the end of the year, “we will have no budget, we will have no Erasmus program, no resources for research, no resources for regional development or border protection.”

However, Michel did not say when he would convey a new summit to try to reach an agreement among the 27 on the seven-year budget.

Squaring the circle

Leaders struggled to square the circle of including more priorities in a tight budget with fewer funds for the next period.

The EU will lose between €10 and €12 billion annually (€75 billion for the whole period), as a result of the UK’s departure. Still, member states have added the digital agenda, fight against global warming and migration control as new priorities.

But the “Frugal Four” refused to increase their transfers to the EU coffers while the recipients of the main envelopes (Agricultural and Cohesion) did not want to slash more these policies, representing currently around two-thirds of the entire EU budget.

The net contributors succeeded in framing the discussion of the summit, as the negotiation focused mostly on whether more cuts were possible in order to lower Michel’s MFF proposal, worth €1,094 billion (1.074% of EU GDP).

Commission’s attempt “very insufficient”

The Commission included fresh cuts in a technical document, that also included some “goodies” for the “Friends of Cohesion”. The executive’s non-paper contemplated a ceiling of 1.069% or 1.07% of GNI.

The document circulated among member states showed that the baseline proposal would represent a spending reduction of about €10 billion over seven years compared to the original proposal.

It also included several concessions to all sides: while the Frugal Four, plus Germany, would keep their rebates, with Vienna receiving an additional €100 million. The Netherlands, meanwhile, would receive a special exemption, keeping 25% of customs duties it collects on behalf of the EU in 2021-2023.

The Commission proposal also suggested an increase in the share of climate-related expenditure to 27%, which, however, falls short of the Parliament’s 30% ambition.

The proposal also promised more budget for the CAP, with an additional €4.4 billion of funding, divided between €2 billion for direct payments and €2.4 billion for rural development – an increase compared to Michel’s proposal and a possible sweetener for French President Macron.

According to the Commission proposal, Eastern and Southern European member states would receive more cohesion funds and an increased volume of the Just Transition Fund.

However, the proposal included substantial cuts in the Horizon Europe research and innovation program (down to €80 billion) and reduced budget for the EU’s space programme.

Other reductions include the Neighbourhood and Development heading, the International Cooperation Instrument and the defence portfolio, where funds for military mobility, one of the priorities, could suffer the most.

A Spanish diplomat said the small tweaks were “very insufficient”. The national official expressed his discomfort with the big role played by the Frugal Four during the negotiations and warned that the “dynamics are changing”.

The prime minister of Luxembourg, Xavier Bettel, whose country is also a net contributor, criticised the staunch opposition of these four countries to add more money.

“My conception of the European project is different from the one put forward by [Dutch] Prime Minister Rutte, I see the EU as a chance and not as a bill”.

The Commission’s document increased the financial gap in relation to the Parliament’s position, currently at €230 billion.

A top European Parliament official told EURACTIV that “they think the Parliament is bluffing. This proposal has even less figures than the one of Michel”.

The Parliament has to give its consent to the leaders’ deal for the MFF to be ratified.

Failure to conclude a deal will complicate efforts to reach a financial agreement in the near future. Diplomats and EU officials now suggest that the negotiations will likely be concluded during the German presidency of the EU in the second half of 2020.

“It became evident that the differences were too big to reach an agreement, that’s why we cancelled the negotiations,” Chancellor Angela Merkel said.

“We had a first attempt, but we are still early in the year,” she added, not going into the details of how Berlin viewed the proposal.

Speaking to reporters at the end of the summit, Italy’s prime minister, Giuseppe Conte, revealed that the “Friends of Cohesion” group have given a mandate to Italy, Romania and Portugal to elaborate a counter-proposal to respond to the Frugal Four’s demands.

“We are in a good company, with the vast majority of member states,” said Conte, who hinted that a solution to the impasse could lie in scrapping rebates and using own resources.

[Edited by Zoran Radosavljevic]

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