With Brexit, Europe needs to get its books in order
No debate over cooperative finances is ever easy, but the European Union is mired in negotiations so complex that a stalemate almost seems inevitable. A once important member is leaving and taking its checkbook with it and others are recalcitrant on a range of issues. It is no surprise that the deadline for approving the EU budget for 2019 passed without agreement last week. The European Commission, the bureaucracy that administers the bloc, must now submit a new proposal. Talks between the commission and negotiators from member states are expected to resume either later this month or early December. If they too result in an impasse, the EU will operate on a month-tomonth basis until a formal budget for the year is finally approved. Looming over the entire process are issues of Brexit, a rebellious Italy, and elections next May that could significantly alter the 751-member EU parliament.
The budget includes agricultural subsidies, support for poorer regions, research and education programmes. Most money flows back to member states. With the UK in the throes of a divorce, its net contribution of around €10 billion a year is gone, yet the proposed budget for next year advocates a two per cent increase in spending. The EU has new tasks to pay for, such as external border management, common defence and the integration of refugees.
The parliament wants to see more spent, yet some members including Austria, Sweden, Denmark and the Netherlands are more austere. But the stalemate doesn’t seem to be solely about austerity. The parliament rejected proposed cuts to growth and job-creation initiatives and wants an additional €362 million for the Erasmus education programme as well as €347 million for boosting youth employment.
The budget approved by member states found some “relatively significant” savings by cutting administrative costs, but the parliament called for a budget of €149.3 billion, more than the €148.2 billion that member states want. “The parties have agreed to continue the dialogue in order to achieve the best possible budget that meets the expectations of Europeans in 2019 — research to prepare for the future, Erasmus, the youth employment initiative, support for SMEs and tackling migration,” said Jean Arthuis, a parliamentary member from France and chairman of the budget committee.
A measure of the difficulty was an earlier statement by European Budget Commissioner Günther Oettinger, who tried to sound optimistic as he said he sees a “50-50” chance of the EU reaching a long-term budget deal before European Parliament elections next May. The commissioner added that he hopes a December European Council summit will also address the so-called Multiannual Financial Framework (MMF), which sets a seven-year plan for EU budgets. He said that would open the way for intensive negotiations up to Easter.
The commissioner said if the MFF is blocked, new challenges won’t be addressed, including strengthening the border agency Frontex, boosting defence spending, and more investment in research and development. EU spending currently totals about one per cent of the bloc’s economic output. Oettinger is calling for an increase to 1.13 per cent, while the European Parliament wants an increase to around 1.3 per cent. As small as the differences look, they represent billions of euros. Blocking the long-term budget “is in the interest of no member state,” Oettinger said.
Italy has threatened to use its member state veto on the budget if the EU makes good on threats to punish it for its own budget, which the commission says violates debt guidelines. Both sides currently remain steadfast in their divergent positions, with Italy facing a possible fine of 0.2 per cent of GDP, monies that would be withheld from EU programmes that flow back to the country. Such a sanction has never previously been enforced on a member state.
And continued discord over budgets could be a sign that the EU is simply too complex to really work. According to researchers at the Bruegel think-tank based in Brussels, “the EU has reached the limits of what it can sensibly achieve within the framework of the current treaty order”.
Their view is that the current EU institutional structure is “too rigid to be sustainable in the long term”. They call for restructuring “to prevent internal stalemate and articulate the EU political will effectively at the global level”.
The position paper also notes “the growing heterogeneity of views among EU countries on the direction — and even on the principle — of further integration”.
Behind the scenes, even stalwart EU members are admitting there are serious structural problems. According to a German government study obtained by the Handelsblatt newspaper, higher contributions alone are by no means sufficient to offset both the Brexit-related shortfall and the cost of new activities. Costs must also be lowered. “The impact of the United Kingdom’s departure should be seen as an opportunity to put EU finances to the test and focus them on the common challenges currently facing the EU,” said the government study.
In the modern parlance, some institutions are termed “too big to fail”. In the case of the EU, it could simply be too big to work.
Italy has threatened to use its member state veto on the budget if the EU makes good on threats to punish it for its own budget