The next EU budget: a test of Europe's ambition

This article is part of a series putting forward bold ideas for how the EU’s next Multiannual Financial Framework (MFF) could look.

The European Commission will present its new long-term budget proposal for the period 2028 to 2034 on 16 July.

For the 2021–2027 period, the Multiannual Financial Framework (MFF) set a spending ceiling of €1,074bn (in 2018 prices), covering, as in previous MFFs, seven key areas: the single market; innovation and digital (€132.8bn); cohesion, resilience and values (€377.8bn); natural resources and environment (€356.4bn); migration and border management (€22.7bn); security and defense (€13.2bn); neighborhood and the world (€98.4bn) and European public administration (€73.1bn).

This followed the MFF’s traditional structure and was finally approved after negotiations with the European Parliament (EP), the consent of the EP and the agreement at the European Council. As European Parliament MFF co-rapporteur, I had to keep in mind that the European Commission’s proposal could be increased by €16bn, of which €11bn represented fresh money from fines resulting from the violation of EU rules regarding competition and state aid.

Moreover, the EU budget increased significantly with the creation of Next Generation EU (NGEU), the first recovery fund financed by common EU debt, which continues to fund the National Recovery and Resilience Plans.

The MFF is more than figures

The Commission proposal will be put on the table this month, and within roughly a year, negotiators will need to reach the agreement needed. But this agreement will not be based on figures alone; the deal must also reflect policies, strategies and priorities.

Defence, strategic autonomy, competitiveness (as highlighted in the Draghi report), the internal market (see the Letta report), multilateralism or enlargement – these aren’t new priorities, but they are becoming increasingly important and the EU budget must provide more room for manoeuvre to reinforce them.

We can’t say that figures do not matter – they do. The budget must be strong enough to give the EU and member states the capacity to deliver on shared priorities – but the MFF is more than just figures.

Take these two figures: 5% of GDP in defence, yet 1% of GNI in the EU budget. How to deal with these two figures in the framework of the EU budget?

Defence is an important pillar regarding EU strategic autonomy. It is a priority for the EU, to protect citizens, democracy and EU institutions. Just last month, the EU created new mechanisms and new financing instruments to increase EU defence capacity in the framework of the current EU budget, by reorganising budgetary lines, using unused money or via EU debt.

Now is the time to integrate all these instruments into the EU’s long-term budget. For of transparency reasons, for of the unity of the budget and to uphold EP’s role as budgetary authority. This is the only way to ensure democratic accountability.

At the recent NATO Summit in The Hague, the NATO General Assembly decided to demand to members states raise defence spending targets from 2% to 5% by 2035. In light of this new reality, it is important to clarify the role of the EU budget: to coordinate and increase the EU’s collective defence capability as a whole – this could be the first step toward a stronger, and perhaps toward building the political will among members states to share more its sovereignty in defence. Given that almost all EU member states are also NATO members and are already committed to increasing national spending on defence, the EU’s defence budget does not need to mirror NATO’s ambitions but should be complementary to it while matching the EU’s needs in this area.

We must also be clear that increased defence capabilities cannot come at the cost of social policies. Likewise,  it cannot mean downgrading our ambition on digital or climate action. New priorities require new money. This time, reorganising the budget will not be enough.

This will be a challenge now more than ever. The European Commission is often very creative about reorganising the budget, most of the time finding appropriate solutions – but this time, that will not be enough! The Danish Prime Minister, Mette Frederiksen, clearly said when presenting the priorities to the Danish Presidency of the Council of Ministers of the EU: more money is needed for the EU budget. Coming from a traditionally frugal country, this is a good signal.

Building EU investment capacity

Strategic autonomy and competitiveness are key priorities for the future of the EU – one is not separated from the other.

Before the EP, President von der Leyen promised the creation of a Sovereignty Fund. In the end, however, this fund was not created. Instead, what was created was a “Strategic Technologies for Europe Platform” (STEP). But was the STEP programme a step toward a true Sovereignty Fund? And how should this ambition be reflected in the next MFF?

Should Europe now create a Competitiveness Fund? If so, how should it be financed? Through fresh funding or by reallocating resources from various budgetary lines that directly or indirectly support competitiveness – such as Horizon Europe or InvestEU – while ensuring that the specific rules and identities of each programme are respected?

To understand the scale of public and private investment required, we must revisit the Draghi report on competitiveness. Mobilising this investment capacity means creating an EU investment capacity. This discussion must take place in the framework of the broader debate and negotiations surrounding the next long-term EU budget.

Lessons learned from the Recovery and Resilience Facility

The Recovery and Resilience Facility (RRF) was created to relaunch EU economies after the COVID-19 pandemic. For the first time, this was a facility based on EU common debt. Anchored on the EU budget, a dedicated debt line was created in the EU budget to finance the cost of the debt.

The national plans under the RRF were based and monitored through reforms, targets and milestones, and the financing was provided to member states when results were achieved.

Could this mechanism become a blueprint for the next MFF? Yes, but adapted to the MFF’s unique specificities and set of actors.

To access RRF funds, member states had to present and negotiate national plans with the European Commission, aligned with the EU priorities, after taking into account the views of regional authorities, social partners and national parliaments.

Can this method become a blueprint for the next MFF? Not entirely. A national plan alone is not enough. What is needed are regional plans that align with national coherence – as is already the case in some instances. Regional authorities and social partners must be genuinely involved and have effective powers to decide, within the framework of national rules and regional structures.

Direct management versus shared management

As we know, EU programmes like Horizon Europe are managed directly by the Commission; whereas cohesion and agriculture are managed by both the Commission and member states – what we call shared management. The determination of the ‘national envelopes’ is based on a distribution grid composed of social and economic indicators.

This method of national envelopes and shared management must be maintained for the next MFF. While the Commission very much preferred direct management for the RRF, the “reforms, targets and milestones” model is in fact more compatible and adaptable with shared management.

Defending the EU’s Cohesion Policy’s identity

Cohesion Policy is loved by some, hated by others. The duality between net contributors and net beneficiaries is, in fact, a fallacy. The numbers show that the so-called net contributors are the ones who benefit the most from the proper functioning of the internal market. Cohesion Policy was created by the Treaty of Rome and its identity is clear: to reduce geographic inequalities and promote regional cohesion. That means helping less developed regions to become more developed.

Until now, Cohesion Policy has had a strong role in promoting regional development and job creation, but also innovation, digitalisation and fighting climate change. For example, an important part of Portugal’s energy transition was financed by cohesion funds. Today, Portugal is one of the more advanced countries in its use of renewable energy. The successive Cohesion Policy reports show the critical role of Cohesion Policy for the regions, Europe and Europeans.

Cohesion money was key during the COVID-19 pandemic. With strong support for the European Parliament, cohesion money was used by all the member states to support citizens, families, firms, jobs and to finance health solutions. As always, citizens came first. Fighting COVID-19 and saving lives were the priorities and we were able to be flexible to mobilise cohesion money for these purposes. The same was true after Russia’s invasion of Ukraine.

We must look for a new generation of Cohesion Policy. A new era demands new approaches. As said before, we can draw lessons learned from NGEU now – but not all lessons apply and some must be adapted. One thing is clear: we can’t lose sight of the Cohesion Policy’s identity, as this is defined by the Treaties. Because still today, geographic inequalities do persist in the EU.

New own resources are needed in the EU budget

It’s clear that 1% of GNI is not enough to finance the EU priorities. Furthermore, beginning in 2028, the EU will have to start reimbursing the NGEU. This reimbursement cannot come at the expense of EU policies, or the EU budget, or by penalising European citizens.

Back in 2020, the European Parliament, the Council and the Commission signed an interinstitutional agreement (binding) while negotiating the 2021-27 MFF. This agreement defined not only which new own resources should be created, but also a timeline by which all the new EU own resources should be brought into force. Where do we stand now regarding the repayment of the NGEU? Far from the interinstitutional agreement’s initial ambition.

The Commission must be more effective in the proposals and encourage member states to approve them. Yet, this process takes time; after approval at the EU level, each one must be ratified by almost all the national parliaments.

So, it is urgent to address the issue now, and it must start as soon as possible and be on the table in the framework of the next MFF negotiations.

The European Parliament must remain where the Treaties are

The roles of the EU institutions are clearly defined by the Treaties. This balance must be fully preserved. Under no circumstances should the role of the EP be weakened.

Indeed, any financial instrument that may be created has to be created within the EU budget. Proposals – whether from member states or the Commission – to create instruments or mechanisms outside the EU budget undermine the role of the EP as budgetary authority and fragilise EU democracy as a whole. And that is not acceptable.

The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.