Based on the non-decision on the MFF at last week's EU summit, it is clear that a deal on the new EU budget will be very difficult to reach in early 2020, which means EU programmes will not start promptly in 2021, as expected. But there's more at stake than wasted time - the EU's institutional functioning and political credibility are on the line.
The European Council of December 2019 ought to have been the last inconclusive summit on the next Multiannual Financial Framework (MFF), the seven-year EU budget. Learning from past MFF experiences, it is clear by now that EU programmes will not start promptly in 2021 as expected, and that their implementation will be delayed. However, this time around, consequences of a deal in late 2020 will go much further: the EU’s institutional functioning, political credibility, and economic and investment conditions are at stake.
Impasse ahead
The MFF must be agreed unanimously by the European Council and approved by the European Parliament, thus effectively assigning veto power to each member state. With the incentive of holding negotiating positions for as long as possible and stark differences between national positions, an agreement is still not in sight. The situation will become even more complex if the Brexit transition period is extended beyond December 2020 – in which case, the financial obligations of the UK will have to be determined before the final figures of the MFF can be approved.
The current MFF (2014-20) was agreed upon in February 2013, and the implementation of programmes delayed in 2014. This time, an agreement in February 2020 appears ambitious. The second half (or possibly the end) of 2020 could be the moment for a conclusive discussion, inevitably leading to delays in 2021 or even 2022. This means that the programmes will not be promptly implemented, nor will the EU make any new commitments for about a year. It is also possible that the leaders will not reach a deal before the deadline. In this case, the Treaty provisions that the 2020 annual budget shall be continued in 2021 (Article 312.4 TFEU), but it is unclear how that will be possible in light of Brexit. The risk of a complete shutdown of the EU institutions and programmes is becoming conceivable.
On the surface, the national governments are disagreeing about ‘numbers’: programme budgets, the contributions of member states, the size of rebates. In essence, however, the causes behind this dispute run deeper. Member states disagree on what the priorities of the EU should be and how they should be addressed by the EU and the common budget, if at all. Furthermore, they clash on the values and goals that the EU budget should support: the rule of law, solidarity, climate neutrality, innovation, macroeconomic stability, competitiveness and more. The inability to agree on these fundamental matters has serious consequences that exceed the delayed start of programmes.
Hindered interinstitutional collaboration
Unanimity is at the heart of the impasse within the European Council, while it simultaneously creates power struggles among the three EU institutions. EU leaders have unanimously nominated von der Leyen as European Commission President, whose priorities are very much in line with those of the Council’s Strategic Agenda. However, the very same European Council is now failing to provide adequate financial resources to the Commission’s proposed programmes for delivering those promises. Additionally, the Parliament’s approval of a deal made between member states is somewhat taken for granted, leading to its position essentially being ignored. Internal dynamics in the European Council have the power to hamper cooperation among institutions. The European Council’s incapacity to reach an agreement reveals the flaws of the EU interinstitutional collaboration process.
Damaged political credibility
If there is a very late agreement – emphasis on if – on the next MFF, this is clear evidence of the EU’s struggle to identify and address current challenges. Or, of its hesitancy to fund the programmes addressing them adequately. The consequences for the EU’s political credibility and power are twofold.
Citizens at home may feel that the EU is failing to address emerging challenges and new priorities. Expectations on what the EU can achieve are arguably already too high, given how extremely small its budget is in comparison to those of national governments. By underfunding new priorities, the impression that the EU is underachieving may be exacerbated. The Finnish Presidency’s negotiating box, which proposes smaller budgets to programmes related to the likes of defence, digitalisation and border management, seems to be going down this path.
Globally, the impasse on the MFF is evidence of the lack of unity within the EU. While there have been many ‘non-decisions’ about both domestic and international matters in the past, the disagreement on the common, internal working plan and priorities shows the seriousness and depth of the disunity. Vis-à-vis international partners, the EU should present itself as a block of countries on the same page. Failing to do so can deeply damage its perceived reliability and capacity to act.
Increased economic uncertainty
The EU budget is a substantial investment tool. Despite its relatively small size, it mobilises hundreds of billions of euros and leverages additional private and public investment. Additionally, its medium-term timeframe is praised for ensuring investment stability and predictability. Failing to have the programmes in place in 2021 would compound the current economic slowdown and uncertainty caused by rising trade tensions. This uncertainty would also spread to the operations of the European Investment Bank, many of whose instruments rely on a guarantee from the EU budget.
Furthermore, the EU budget provides a vision of future investment needs and direction for regulation and support. Economic actors, including industry, rely on information from the political leadership to guide their investment decisions. In particular, the transition to the green economy as well as new sectors and technologies will require massive amounts of investment and certainty of the regulatory framework. Delays or failing to agree on the MFF will lead to uncertainty in the business environment, which could hamper investment growth.
In the longer term, the rigidity of national positions in MFF negotiations could be overcome by fostering financial instruments and national co-financing in support of EU priorities, a comprehensive system of new own resources, and a less restrictive view of the benefits of EU membership. In the short term, however, compromise is necessary. A middle ground could be found, for example, by keeping (some of) the existing rebates while setting the overall MFF size and programmes’ funding close to the Commission’s proposals. Reaching a deal on the MFF in February 2020 must be a priority if the EU wishes to limit the consequences of delays and demonstrate that its institutional and political process is not dysfunctional.
The support the European Policy Centre receives for its ongoing operations, or specifically for its publications, does not constitute an endorsement of their contents, which reflect the views of the authors only. Supporters and partners cannot be held responsible for any use that may be made of the information contained therein.