11 June 2018

Fondation Robert Schuman: European Union Budget: which possible compromise is there between France and Germany?

The upcoming negotiation over the MFF comprises specific features, since it will be undertaken without the UK. France and Germany will be on the front in this negotiation which might prove to be the most difficult in the EU's budgetary history.

A - DEBATE OVER THE TOTAL SUM OF THE EUROPEAN BUDGET SEEMS INEVITABLE GIVEN THE NEGOTIATION’S NEW CONTEXT 1. THE UK’S EXIT MODIFIES THE CONTEXT OF THE MFF NEGOTIATION

1.1 The experience of previous negotiations

1.1.1 The European Council’s decisive role

The Multi-annual Financial Framework (MFF) is the keystone to the European budget-ary structure. It expresses budgetary choices and defines how the EU supports some of the policies defined by the treaties. It is adopted according to a special legislative procedure set by article 312 TFEU which takes poor account of the reality of the negotiation. As is often the case in terms of the budget, there is a practice as part of the procedures defined by the texts that is solidly based on the experience gathered over the previous 5 MFF’s.

On 2nd May 2018 the Commission presented its communication on the MFF 2021-2027. This was the starting point for the negotiation. However, although from a legislative point of view the Commission’s power of initiative is decisive, from a budgetary point of view this role is much more formal. The final framework is always significantly different from the Commission’s initial proposal, notably regarding the budget’s final amount. In practice the MFF’s figures – the total amount and the distribution of the various items – covers almost all of the conclusions made by the European Council. For the MFF 2007-2013 the European Parliament’s assessment phase, before its approval, led to a marginal adjustment. Regarding the MFF 2014- 2020, not one single euro was added to the sums arbitrated by the European Council.

1.1.2 The total amount of the budget, the core of the MFF negotiation

The MFF sets ceilings in millions of € in CAs per major spending categories (also called items). These ceilings are rigorous since they strictly frame the amount of appropriations that will be included in the annual budgets adopted by the budgetary authority (Parliament and Council). The amounts budgeted for are necessarily lower than the amounts included in the MFF.

The MFF also sets a total ceiling on the CAs and on Pas, expressed this time in percentage of the Gross National Income (GNI) based on an economic growth forecast and future GNIs. Hence the ceilings defined must also respect the ceilings on own resources set by the Member States in a decision on own funds. Both ceilings have different functions and legal systems. The MFF ceilings are references in a way, whilst the own resources ceiling is final. Over the last 35 years the European budget has stabilised at around 1% of the Union’s GNP. The ceiling has always been a bitterly debated budgetary issue during the MFF negotiation. Given the challenge of European integration, this budgetary negotiation, over thousandths of the GNI is often criticised. But 0.1% of the GNI[6] for the European budget represents additional spending of 15 billion (13.7 billion without the UK).

1.2. After Brexit the EU will lose a significant budgetary partner

• The UK is an important contributor to the European budget with its participation at around 10 billion € per year (7.5 billion net contributions on average per year after the rebate and 3 billion in customs duties).

• The British withdrawal obliges adaptation on the part of the European budget. Both the total budget will decrease to take on board this loss of resources and the distribution of spending (between policies and/or between Member States) must be revised. Or the EU compensates all or part of the reduction in financing to maintain spending at its present level, i.e. it finds new own resources. These options are not mutually exclusive, and a mix is possible.

• The UK has always played a decisive political role in the budgetary negotiation. During the MFF preparations 2007-2013 and 2014-2020, it was the lynchpin in the anti-spending coalitions that formed before the start of any negotiation that was formalised in a kind of framework letter. After Brexit the camp of those supporting a hard budgetary line will lose their central pillar. It is interesting to note that unlike with the two previous MFFs, the Commission’s proposal was not “framed” by a joint letter from a group of Member States calling for a freeze on the budget. 1.3 After Brexit, Germany will lose its best budgetary ally

• Germany and the UK have often fought together in the budgetary area. Their interests were close. For a long time, they were the biggest contributors to the budget and the two leading net contributors. More than half of the movements between net contributors and net beneficiaries depended on these two countries. In other words when Poland or Greece (the leading two net beneficiaries) received 100, 50 came from Germany and the UK. At this level, nothing in the budgetary area could be done without their agreement. And so, nothing was done without their agreement.

• Major budgetary choices have mainly depended on these two countries. This was the case during the MFFs of 2007-203 and 2014-2020. They were on the same wavelength of budgetary rigour, on a different score, but both approaches were perfectly complementary. An obstinate UK, demanding severe cuts in values in the Commission’s proposals, challenged European budgetary policy principles. Germany put forward ceilings that were proportionate to the GNI, thereby avoiding head-on criticism of the CAP and the Cohesion Policy, to prevent friction with its more important partners, thereby delaying the moment it had to take position until the final arbitration. From the budgetary point of view Germany has the final word. Germany has positioned itself on 1% of the GNI. And it is 1%. Once this global figure adopted Germany has always been discreet during the rest of the negotiation. It was not concerned about the size of the items’ respective shares. The main thing was that everything had to fit within the 1%. And everything did fit. Not one euro was added over the limit imposed by Germany. 

For the MFF 2014-2020 the Germany-UK tandem worked perfectly. In the case of the new MFF 2012- 2027 Germany will be losing its best budgetary ally. Debate between the Member States over the budget total seems to be inevitable. [...]

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