EU Budget negotiations: the ‘frugal five’ and development policy

EU Budget negotiations: the ‘frugal five’ and development policy

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In December 2018, the ETTG published a paper comparing emerging Member State positions for the financing of the EU’s external action under its next Multiannual Financial Framework (MFF), covering the period 2021-2027. Its first observation that negotiations are moving slowly unfortunately still holds today. 

Apart from the slow pace of negotiations, the past twelve have brought some considerable changes. Among these changes were the European Parliamentary elections characterised by strong voter turnout in most Member States, followed by a European Council package deal on the next EU leadership at the expense of the so-called Spitzenkandidaten system. This in turn resulted in the – not unrelated – delayed start of the von der Leyen Commission in December 2019, a month also characterised by national elections in the United Kingdom that resulted in a majority backing to the EU Withdrawal Agreement. 

The same month also saw the distribution of a new MFF ‘negotiating box’ to the EU Member States, produced under the leadership of the Finnish Presidency that also managed to secure an important deal on the Union’s annual budget for 2020. 

As far as the MFF is concerned, the Finnish presidency had no easy draw. First, the proposed MFF compromise reached a much broader audience than intended after being informally shared with journalistic platforms, particularly after Politico Europe uploaded the document onto its website

Overall, the negotiating box proposed the next MFF to represent 1.07% of the 27 Member States’ gross national income, a considerable reduction from the Commission’s 1.114% proposal made in May 2018. Given this reduced ceiling, the negotiating box proposed changes to the individual headings compromising the budget, which in turn reflects the general political value attached to each. With most Member States strongly pushing for retaining current levels of either agricultural or regional development spending, the reduction of the ceiling puts strong pressure on the EU’s budget for external action. The Finnish negotiating box proposed to reduce the Commission’s proposed €123 billion for the external action down to €103 billion, with a notable reduction of funds earmarked to Sub-Saharan Africa from €32 billion to €27 billion.

Reflecting the strong polarisation over the size and distribution of the MFF, the Finnish proposal was universally rejected though for completely different reasons. The European Parliament, on one end of the spectrum, considered the proposed budget wholly inadequate for delivering on the EU’s ambitions, with its rapporteur Jan Olbrycht (EPP, Poland) observing that on this basis “the programme presented by the European Commission will be impossible to implement.” On the other end, the so-called ‘frugal five’ group – consisting of Austria, Denmark Germany, the Netherlands and Sweden – argue that a shrinking EU of 27 member states should be reflected in a smaller overall budget, which in their view should be limited to around 1% of the EU’s GNI. To a degree their position is understandable: in the case of Germany a 1% ceiling would in a Union of 27 Member States still mean a considerable increase to its MFF contribution. Yet if the frugal five would have it their way, then each budget heading may be further reduced to fit within the new ceiling, resulting in an EU budget that is inadequate across the board. Their call for a small overall budget is moreover inconsistent with their positions on individual headings, with Germany for instance calling for an increase in resources for cooperation with Africa. 

Given the likelihood of a reduced budget, innovative finance instruments such as blending are considered to become increasingly important. The EU with the help of its national and multilateral development finance institutes can use public money to mobilise additional private investments. To do so most effectively, the European external financial architecture in place needs to become more coherent, rallying all European stakeholder behind one common set of goals. 

To protect the EU’s external budget from further cuts, invested Member States and the EU institutions need to offer a convincing narrative that demonstrates the importance of the EU’s external action and international cooperation to both international and domestic audiences. Already today some Member States have embraced the idea of development cooperation being a soft power tool in the service of hard power goals. While one might question the moral ground on which this argument stands, there is no denying that it might help underline the importance of the proposed budget heading 6 (“Neighbourhood and the World”). According to such an interest driven narrative, the EU’s own interests are best served if it continues to actively shape tomorrow’s world. 

A potential big leap in this direction is the European Green Deal that the Commission revealed in December. The Green Deal has the potential to respond to the EU’s aspiration of becoming a global leader in climate action. Yet, for this to happen more resources need to be dedicated to the external dimension of climate action. In Africa, 450 coal-fired power plants are currently in the process of being planned or built. If the EU does not succeed, together with its African partners, to steer the continent away from fossil based energy sources towards renewables, its own climate ambitions become obsolete. 

Other problems are still looming on the horizon. Beyond the reputational risk of being a geopolitical Union that operates on a shoestring budget, the continued hardening of positions may also mean that negotiations – which will now be led by the new European Council President Charles Michel – could even end up in a ‘no deal’ situation by the end of the year. The European Parliament has already hinted at such a possibility, with an October 2019 resolution requesting to make arrangements for extending the current MFF if no agreement is reached in time. The Commission has already pointed out that the current MFF minus the United Kingdom would represent 1.16% of EU collective GNI, which would be far from a frugal outcome. More importantly though, extending the current MFF would result in a strong mismatch between the EU’s ambitions and means, including in the area of development cooperation. Despite these alarming conditions, it is to be hoped that all involved stakeholders will continue to engage on negotiating an MFF that although making no one individually happy can be seen as reflecting the Union’s overall satisfaction and ambition.

Author: Benedikt Erforth & Niels Keijzer (DIE).

Image courtesy of airpix via Flickr.

 

The views are those of the author and not necessarily those of ETTG.

 

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