Michel offers flexible EU budget to convince sceptics

European Council President Charles Michel (R) and French President Emmanuel Macron (L) during a European Council summit in Brussels, Belgium, 12 December 2019. [Photo: EPA-EFE/OLIVIER HOSLET]

More flexibility within the Common Agriculture Policy and more money to less developed regions instead of a larger budget is what European Council President Charles Michel will offer sceptical countries to agree on a new EU 7-year spending plan next week.

In order to accommodate the departure of the UK, demands to keep traditional EU policies properly funded, new policy priorities and net payers opposing an increase of the budget, Michel will try to make use of flexibility to find a compromise.

The 2018 European Commission proposed a budget worth 1.11% of EU’s GNI, the European Parliament asked for 1.3% and the net contributors are not willing to go beyond 1%.

Michel proposed on Friday (14 February) to set national contributions at 1.074% of GNI aiming to “strike a balanced proposal,” EU official said during a briefing on Friday following weeks of consultations with EU leaders and Parliament representatives.

“We are not expecting member states to be happy,” EU sources admitted but they would test the mood of leaders at the summit to assess whether a compromise is possible.

The European Council president put the EU’s expenditure ceiling at €1,094 billion, an increase compared to the proposal by Finland’s EU presidency that happens to correspond to the €7.5 billion of ‘fresh money’ the European Commission proposed for the Just Transition Fund, and which Michel includes in his text.

Commission warns of Green Deal failure if Transition Fund not well financed

European Commission President Ursula von der Leyen warned on Wednesday (12 February) that the  European Green Deal would fail if member states declined to provide the necessary funds to workers and regions affected by the climate transition.

Flexibility and transfers

EU officials warned that cuts on Cohesion and Common Agricultural Policy were inevitable.

The correction in Michel’s negotiating box is lower compared to the Finnish presidency proposal, but significant compared to the existing budget, with a cut around 12% to Cohesion and a 14% to CAP.

The key in the new budget is the distribution. The less developed regions (with a GDP per capita less than 75% of the average GDP of the Union) would see their funding increased, while the more developed regions (with GDP per capita above 100% of the average) would lose €7 billion.

Regarding the Common Agricultural Policy, EU officials said member states did not only ask for the farming grants to be protected but for more flexibility in the transfer between the two pillars, hence Michel’s proposal to put them under the same programming instrument to allow for further transfers.

In a bid to assuage the concerns of some member states, Michel would like to see up to 40% of the CAP expenditure dedicated to climate action.

Contentious issues

Michel’s proposal confirms the inclusion of a rule of law conditionality, “to tackle instances of deficiencies which affect or risk affecting the sound implementation of the EU budget or the financial interests of the Union in a sufficiently direct way.”

It would be up to the Commission to propose measures and for the Council to approve them by a qualified majority, but this process will be independent to other mechanisms foreseen in the EU treaties.

On the own resources department, another source of tension, Michel hopes for the plastic tax and the European Union Emissions Trading System to be new resources for the budget and opens the door to discussing the pending digital tax, aviation levy or a Financial Transactions Tax.

According to the negotiating box presented by Michel, the so-called rebates (the money some net payers get back from the budget based on their economic performance) “will be degressive.” A number of member states have long opposed this system and while they welcome the proposal they ask for clarity.

Long nights ahead

Member states will meeting in Brussels for a special summit beginning on 20 February. EU officials hoped for the EU27 to reach an agreement during that meeting but are realistic that the process could be a length one. ”What we know is that leaders have cleared their agendas,” they said.

“It’s difficult to see how this proposal will form a basis for compromise. The ceiling is too high, the modernisation too little. There remains a need for permanent corrections to ensure fair burden-sharing,” an EU diplomat suggested.

Other diplomats are more optimistic about the potential outcome of the negotiation and praised Michel’s work. “There are no drastic changes but significant ones,” another diplomatic source told EURACTIV.

However, on many issues, the same sources admitted, “we are not there yet.”

The European Parliament was not pleased either. President David Sassoli warned EU lawmakers, which consent is required, are ready to bring the budget down.

“It is a proposal that risks leaving Europe lagging not only behind its own objectives, but also other actors on the international scene, such as China and the US,” he said, “it is very far from what we need.”

(Edited by Benjamin Fox)

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