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An opportunity to improve the MFF permanently

Marta Pilati

Date: 18/06/2020
The European Commission’s latest MFF proposal promises more money for regular EU budget programmes targeting urgent priorities such as climate action, the digital transition and strategic investment. But most of these budget increases are only temporary – they don’t have to be.

Will the need for a green and technological transition disappear in four years’ time? Will strategic investment be superfluous after 2024? Most likely, the answer to these questions is no. Then why should budget increases to EU programmes targeting these very issues be only temporary?

The European Commission’s May 2020 proposals for the 2021-2027 Multiannual Financial Framework (MFF) and a recovery package, ‘Next Generation EU’, are a step in the right direction. They will inject a much-needed investment stimulus in the EU member states. But while there is some progress towards making the MFF fit for today’s challenges by increasing the budget of programmes that tackle, for instance, climate change and the digital transition, the underpinning structure remains largely unchanged. There is a risk that, after the temporary increases will run out, the MFF will revert back to the pre-COVID status quo, meaning that it will once more be inadequate to deal with future challenges. Instead of being time-bound, the reforms to EU budget programmes targeting new and relevant priorities should be made permanent.

Hints of modernisation

The May 2020 MFF proposal is mostly similar to European Council President Charles Michel’s negotiating box of February 2020. The European Commission took the opportunity to suggest increases of a few billion to programmes that Michel had suggested to cut, for example, the Digital Europe Programme, Erasmus+, border management, military mobility, and the European Defence Fund. Although a €2 billion increase to direct payments under the Common Agricultural Policy (CAP) was also proposed, the revised MFF proposal shows hints of modernisation, boosting the resources of programmes that target new priorities related to the green and digital transitions and external action. These changes, however, account for only a small fraction of an otherwise unchanged EU budget.

Instead, new money for these priorities is mainly channelled through Next Generation EU, and targets vulnerable countries and sectors through the Recovery and Resilience Facility, a new Solvency Support instrument, and ReactEU, a temporary €50 billion ‘top-up’ to Cohesion Policy. Interestingly, however, the proposal also includes a €30 billion increase in InvestEU (although the net increase is €20 billion since the budget in the MFF structure is cut by approximately €10 billion compared to Michel’s negotiating box) and around €83 billion of additional funding to new and/or existing future-oriented EU budget programmes. These include the Just Transition Fund, which supports the energy transition in fossil fuel-dependent regions; Horizon Europe investment in research and innovation; rural development, with an emphasis on greening practices and biodiversity; a new health programme; humanitarian aid; and neighbourhood development and cooperation. The strengthened InvestEU would also include an additional window for strategic European investment, which would specifically target strategic sectors such as technologies for the energy transition, batteries, artificial intelligence, and supercomputers.

Time-bound reforms

Next Generation EU only lasts for four years (2021-2024). This means that the additional budget that it brings to EU programmes will need to be committed before the end of 2024. Afterwards, its operation will be limited to ensuring the payment of previously committed amounts over the period 2025-2027.

The temporary logic fits well with the purpose of the Recovery and Resilience Facility, ReactEU and the Solvency Support Instrument, which are special instruments intended to deal with a unique, time-limited crisis. Once the crisis is over, the need for this exceptional investment stimulus should disappear.

This logic, however, is less applicable to the regular EU budget programmes that are boosted by Next Generation EU. Challenges and priorities related to the green and digital transition, innovation, and international cooperation will still be there after 2024, and will require a permanent modernisation of EU spending. But in 2025-2027, these programmes will have a drastically reduced budget. Many new projects will effectively be unable to start given the lack of Next Generation EU funding. For example, the Just Transition Fund commitments for the last three years of the programming period are only €1.4 billion per year. Allocating less money to these types of investments in the EU budget after 2024 would make little economic or political sense.

Do not waste this opportunity

MFF negotiations have always been tough, and path dependency is strong: it is extremely difficult to change existing programmes because national interests are hard to trump. But now there is a real opportunity to start making the EU budget more fit for purpose.

If these budget increases are only temporary, negotiations on the 2028 MFF are likely to take the pre-COVID expenditure structure as a starting point, ignoring the positive changes brought about by Next Generation EU. Member states will push to further reduce European spending, given the debt repayment burden created during the COVID-19 crisis. The future MFF might thus even be less future-proof than the one that was in place before the pandemic.

This scenario must be avoided. The stronger political will that exists today should be used to boost these EU programmes and make the changes permanent. Countries that are in favour of a more modern EU budget should throw their full weight behind it. While the funding comes from Next Generation EU, to avoid increasing national contributions in the short term, the increase in programme ceilings should be entrenched in the MFF structure, to remove this separation in the future. If this were the case, path dependency would be useful, as cutting back the programmes’ budgets in 2028 would prove difficult. Exploiting today’s window of opportunity could help to ensure that crucial priorities will receive a (more) appropriate level of funding in the future.

EU leaders should capitalise on the current political momentum to agree swiftly on the next MFF and Next Generation EU. Finding an agreement in July 2020 is crucial to ensure that EU support to the hardest-hit countries and sectors is deployed as soon as possible. Additionally, the window of opportunity mentioned before is likely to close in the autumn, when the economic impact of the crisis will be more evident and limit EU leaders’ room for manoeuvre. They should exploit this moment of crisis now, not only to get the MFF and the new instruments in place quickly, but also to provide an impetus to ensure that future EU spending is better and, more importantly, permanently focused on today’s and tomorrow’s challenges.

Marta Pilati is a Policy Analyst in the European Political Economy programme at the European Policy Centre

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