First Outline of the EU’s Multi-annual Financial Framework

Rarely has any piece of news attracted as much attention as the recent proposal by the European Commission for the EU’s Multiannual Financial Framework (MFF). This is a budgetary proposal intended to cover the period from 2028 to 2034. Its adoption would not only ensure the smooth functioning of the Union but also define the Union’s political priorities for almost the entire coming decade. In a recent article, it was already highlighted that this proposal places emphasis on the rationalisation and de-bureaucratisation of the MFF, as well as on prioritising the rule of law. Nevertheless, what draws the most attention is the fact that it is the most ambitious budgetary proposal to date. In order to assess the prospects of this proposal, we will now move beyond the numbers and instead focus on mapping the reactions of the member states – upon which, ultimately, the course and conclusion of the arduous negotiations on this matter will depend.

Several Hurdles

Germany was the first to publicly voice skepticism regarding the proposed MFF. Although the President of the Commission is German and comes from the ranks of the ruling Christian Democrats, this was not sufficient reason for Berlin to adopt a more conciliatory position. On the contrary, Germany made it unequivocally clear that fiscal discipline must remain the cornerstone of the EU’s budgetary policy. In essence, Germany was speaking on behalf of several other Member States when it stressed that an overall increase in the EU budget is unacceptable at a time when all Member States are making considerable efforts to consolidate their national budgets. This position was openly endorsed by countries such as Austria, the Netherlands, and Sweden – states that belong to the so-called “frugal” group, traditionally inclined towards a more cautious approach on budgetary matters.

In addition to its traditional opposition to a budget increase, Germany also rejected the possibility of introducing additional taxes on profitable European companies. As a means for the Union to fill its “budget gaps”, the proposed tax was supposed to apply to companies with revenues exceeding €100 million. According to the Commission’s estimates, it was expected to generate an additional €50 billion for the EU budget over the course of the next MFF. German Chancellor Merz firmly warned that such a method was “out of the question” –  unsurprising given his affiliation with a party known for its fiscal conservatism. This position reflects the assumption that further tax burdens could undermine the competitiveness of the European economy, particularly at a time when both Germany and the EU are facing the pressures of global economic uncertainty and growing industrial competition from China and the United States.

Moreover, Merz emphasised that the EU should not become accustomed to the idea of “joint borrowing”. This stance contrasts with the Commission’s proposal to establish a €400 million “crisis fund” modelled after the NextGenEU. Berlin, however, maintains that it had accepted the notion of joint borrowing strictly as an exception, that is, as an extraordinary measure to alleviate pressure on Member States during the pandemic. Given that turbulence has now become the “new normal”, Merz argues that the mere occurrence of new crisis situations does not constitute anymore sufficient grounds for “normalising” further joint borrowing. Considering that Germany is the largest net contributor to the EU budget, it becomes immediately clear why both its government and citizens are wary of attempts to make joint borrowing a standard fiscal instrument of the Union.

Finally, it should not be overlooked that certain member states will also be influenced by the positions of powerful individual interest groups. Among these, European farmers have been the most vocal. Faced with a planned reduction of agricultural funds by more than 20% – as a response to the need to place greater emphasis on defense, security, and competitiveness – farmers were the first to voice their discontent. In fact, they went to the streets of Brussels in protest, arguing that the proposal amounted to a “declaration of war”. Considering that, for example, in 1980 agriculture accounted for as much as 70% of the EU budget, while it now stands at 25% and would drop further to just 20%, such a strong reaction is hardly surprising. Farmers are, however, not alone in this struggle – France has made it clear that it will fight “to the last cent” to preserve funding for this sector. This is a country that has not only shaped the EU’s Common Agricultural Policy for decades, but also remains today a cornerstone of a highly organised sector with substantial political influence.

A Glimmer of Hope?

Reaching an agreement on the next MFF will be a difficult process that is expected to last for the next two years. What is already clear is that almost all member states that joined the Union since 2004 support increasing the budget. Among the most positive reactions were those coming from Warsaw. According to their calculations, Poland would be the largest beneficiary of what would be the EU’s biggest budget, with additional funds for security, cohesion, and innovation. This view was repeated by Polish Commissioner Piotr Serafin, who – coincidentally – is responsible for developing the Union’s budget. Since Poland and other Central and Eastern member states are net recipients, it is not surprising that they would welcome higher EU investments in cohesion, competitiveness, and joint defense – especially as such increased contributions would mainly be paid by the larger member states, namely the net contributors like Germany.

Among the larger member states, a glimmer of hope for the Commission’s proposal comes from Paris. According to their Minister of Foreign Affairs, an ambitious MFF is necessary to reflect the EU’s ambitions and plans to address the threat from Russia in the east, as well as the uncertain and increasingly distrustful relations with the United States. If needed, France is prepared to support the introduction of additional own resources, including new taxes on companies. Although clear positions from all member states are still awaited, Spain has joined France as a strong advocate for doubling the current MFF and for further exploring the option of joint borrowing. Given that both Paris and Madrid are positioning themselves as leaders in determining a new European direction, their stance could play a decisive role in shaping the final compromise.

Previously published on EUpravozato.