09 April 2024

CER's Begg: Dilemmas and challenges around the EU budget

The EU budget needs extensive reform both to resolve longstanding shortcomings and in anticipation of a further enlargement of the Union.

The EU budget has long been among the most contested and acrimonious issues in the European Union. From Margaret Thatcher swinging her handbag to demand her money back, to Viktor Orban blocking proposals for a ‘Ukraine Facility’, national politicians have used it to grandstand for domestic audiences. In the past, the main disputes were about how to maximise receipts and (for richer member-states) to reduce their net contributions, and often wasteful spending programmes such as the Common Agricultural Policy or regional development. Latterly, new means of funding EU policies outside the standard budget architecture and procedures have become a new source of concern. The EU budget process needs to be reformed to cater for changing spending demands and a prospective enlargement with new member-states including Ukraine, Moldova, and countries in the Western Balkans.

Both old and new tensions were evident in the recent mid-term review of the 2021-27 MFF, which concluded at the beginning of February. The review was intended to allow adjustments to reflect new challenges since member-states agreed the MFF, such as support for Ukraine, industrial policy, migration, and a higher interest rate burden on EU debt. But the changes were quite limited. One much touted programme – the Strategic Technology for Europe Platform (STEP), a potential response to the US Inflation Reduction Act – was severely pared back, and the €1.5 billion agreed for it was accompanied by a €2.1 billion redeployment (read ‘cut’) in the budget for the Horizon research programme. There is renewed support for industrial policy by member-states and the EU alike, but frugal member-states like Germany and the Netherlands oppose pooling resources at the EU level to do so.

The review’s main positive outcome was agreement on the Ukraine Facility, worth up to €50 billion over the period to the end of 2027, after Orban was persuaded to drop his veto. It is composed of €33 billion for loans to support the country’s public finances and €17 billion in grants. It is not entirely ‘new’ money because support had already been programmed for Ukraine under existing EU programmes, but it is a vast amount that has been welcomed in Kyiv.... more 

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