Leaders from the 27 nations are gathering in Brussels on Thursday to pore over the budget of more than 1 trillion euros ($1.08 trillion) for 2021-2027. The bottom line: are they ready to put their money where their mouths are when it comes to European policy ambitions?
With Britain gone from their ranks, the leaders want to prove that Europe can still forge ahead toward brighter horizons and confront major challenges like climate change and an ever-evolving digital economy driven by new technologies and new ways of doing business.
But Brexit has left them with a sizable budget hole; a funding gap that runs to 10-12 billion euros a year, or about 75 billion euros over the seven-year period. The leaders’ challenge is to set aside enough funds to achieve lofty European ideals while defending spending decisions in Brussels to taxpayers back home. Slick number crunching, creative accounting and what one senior EU official called “voodoo statistics” are sometimes employed to make the sale.
It’s not just about convincing reluctant member countries to stump up funds. The European Parliament must also ratify any final budget agreement and the EU lawmakers are not happy. “At the moment, we remain €230 billion ($248 billion) apart," European Parliament President David Sassoli said Tuesday, after his latest round of discussions with EU Council President Charles Michel, who will chair the extraordinary budget summit. “We are still far from an acceptable proposal.”
After a series of tete-a-tetes with national leaders in recent weeks, some lasting three hours, Michel proposed last Friday to set the budget at 1.074% of EU gross national income. The parliament wants 1.3%, while the EU’s powerful executive arm, the European Commission, prefers 1.11%.
In a scathing indictment, Sassoli said the proposal "risks leaving Europe lagging not only behind its own objectives, but also other actors on the international scene, such as China and the U.S.” He urged EU leaders to improve the offer “because otherwise the parliament will not be able to accept it.”
In the great scheme of things, it’s not a big slice of national income. The EU budget is supplemented with customs revenue and money from antitrust fines — and the EU has levied billions worth of those in recent years. So, individually, countries are paying less than 1% of their annual earnings.
The commission says budget spending should be seen as a contribution fee to one of the world’s biggest wealth-generating organizations. It says the advantages that countries get back as members of the largest trading bloc on the planet are worth about 6% on their gross national income.
Still, at over a trillion euros, it’s not exactly pocket change. Ahead of the negotiations, the 27 member nations are roughly divided into two main camps. The so-called “Frugal Four” of Austria, Denmark, the Netherlands and Sweden versus the “Friends of Cohesion,” a group of mainly central and eastern European nations who like to see their contributions return home in the form of “cohesion funds” that help develop Europe’s poorer regions.
Ahead of the summit, the frugal four, who would like the budget to drop as low as 1%, rejected Michel’s offer in a Financial Times newspaper op-ed, saying that in light of Brexit “we simply have to cut our coat according to our cloth.”
“The financial burden of the union is increasingly being put on the shoulders of a small number of member states, including ours," the four leaders wrote. So, the scene is set for a tense and drawn out summit. Michel’s people say that “leaders have cleared their agendas” so they can stay the weekend. The Brussels transport system is warning of summit-related traffic disruptions until Saturday.
Some officials say the time is not ripe and that the leaders may have to do it all over again in coming months. In any case, a solution must be found. Unlike national budgets, the EU’s spending plan cannot be temporarily rolled over based on the terms of the previous seven-year package. The budget’s legal basis would evaporate without an agreement.
From next year, cohesion funds would disappear and five countries that currently receive rebates — a return on their funds because they contribute more than they receive — would lose that money, and their contributions would “skyrocket,” EU officials say.
Chancellor Angela Merkel said that Germany, which gets a rebate, has an “elementary interest” in the impasse being resolved soon. But she said: “We find that in many places our concerns have not yet been sufficiently taken into account, so I see very hard and difficult negotiations in front of us.”
Geir Moulson in Berlin contributed to this report.