The European budget talks: Financial threat to a global Europe

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Although talks on the EU’s next Multiannual Financial Framework (MFF) might appear dull on the surface, we should force ourselves to take notice of them and emphasise the long-term importance of the external tranche of the budget, writes Susi Dennison.

Susi Dennison is a senior policy fellow at ECFR and director of the European Power programme.

The European Union is engaged in quite a few self-defining processes that regularly make the front pages: learning to live with a growing internal faction of nativist, right-wing national governments, preparing for the election of many of their sympathisers to the next European Parliament in 2019, and negotiating the United Kingdom’s departure from the club.

But, far from the headlines, in windowless meeting rooms near the Schuman roundabout in Brussels, the EU began last month a set of negotiations that could be just as critical to its future. These discussions concern the next Multiannual Financial Framework (MFF) – or, in layman’s terms, the EU budget. 

They will decide how EU policies will be financed from 2021 onwards, and how the available funds will be divided up between competing priorities.

The talks will indicate whether member states are willing to invest in the European project – which helps provide EU citizens with the security, prosperity, and managed migration they seem to vote for most consistently in national elections – rather than pursue the short-term domestic victory of gaining more structural funding than their neighbours.

To address the issues its citizens care about, the EU will have to allocate resources to not just projects at home but also external initiatives. Member states can only maintain security in Europe by coordinating their diplomatic, defence, and development capabilities with one another.

They can only pursue prosperity on the continent by facing outwards, to benefit from global digital, economic, and cultural connectivity. In the long term, the EU’s management of migration flows will rely as much on its engagement with source and transit countries as on its border-management, reception, and integration policies.

These interventions will not necessarily pay immediate dividends that are visible to voters, but years of underinvestment in them would diminish national governments’ ability to deliver on the areas voters are focusing on. For this reason, the EU’s budget negotiators cannot afford to ignore the implications of their MFF decisions on the organisation’s role as a global actor.

The external tranche of the EU budget has always been limited in comparison to its internal counterpart. The EU allocated only 6% of its current budget, which runs from 2014 to 2020, to “global Europe” (covering development and international cooperation, humanitarian aid, neighbourhood and enlargement policies, and foreign policy instruments).

The discussions on this portion of the budget are likely to be even tenser this time around, for three reasons. Firstly, the EU has greater ambitions than it did six years ago.

Due to the organisation’s 2016 commitment to a global strategy and member states’ emphasis on contributing to stability in the neighbourhood – both for security reasons, in an effort to dissuade potential migrants from travelling to Europe in search of a better life – expectations for the external part of the budget are higher than ever.

Proposals for adding a defence component to the budget, ringfencing or instead reducing overseas development aid, and focusing on regions that are a source of migration to Europe are all competing with one another other in the negotiations.

Secondly, the EU has fewer resources than it had for the previous budget. This is partly because the UK, the fourth-highest contributor to the EU budget (in absolute terms), will have left the EU by the time the new MFF comes into force.

Although British Prime Minister Theresa May has hinted in recent weeks that the UK will coordinate some of its development aid with the EU budget, the country will not commit to doing so until the exact Brexit deal is settled, after the EU has finalised its post-2020 budget. Therefore, UK funding cannot form part of the assumptions on which member states base the current MFF discussions.

Thirdly, some member states favour a more focused EU that spends less and does less, fearing a “growth budget” that does the opposite. European Commission President Jean-Claude Juncker leads the charge for the growth agenda, but several net contributors from the EU’s core – led by the Netherlands – will resist his efforts.

These divisions reflect differing views of the EU’s evolution: member states who joined the organisation in 2004 took for granted that institutional cohesion, the single market, and access to EU funds for underdeveloped regions were all features of EU membership that were there to stay. For them, some founding member states’ push for a more flexible union with a smaller budget is a threat that they will address in the budgetary talks.

The Commission wants to head off this brewing row. In May, it will present a budgetary proposal for member states to approve as the basis of a framework agreement. The Commission hopes that they will do so by October, well ahead of the next European Parliament elections in May 2019.

In the interests of facilitating a relatively quick agreement, and of avoiding damage to other intra-EU talks, the proposal will likely allocate as much to expenditure on domestic projects as possible, at the expense of the external part of the budget. If the EU sacrifices its potential as a global actor in this way, it will have paid a high cost for a few months of peace between member states in a rocky period.

Although the MFF talks might appear dull on the surface, we should force ourselves to take notice of them and to emphasise the long-term importance of the external tranche of the budget. Doing so could determine whether the EU survives long enough to argue about the next round of budget negotiations.

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