BRUSSELS – War is raging on its doorstep, the economy is in recession, a European-wide election is set to deliver a major blow to its establishment – and now the EU is gearing up for its bitterest battle yet: Finance on top of that.
Few things in the Group of 27 are as intensely political as negotiations over its trillion-euro or seven-year budget. And with an increasingly aggressive Russia and global tensions from Gaza to Taiwan eroding Europe’s sense of complacency, there are demands on the EU to conduct its investments on a war footing. .
“The budget is politics thrown into figures,” said Johannes Hahn, the European commissioner in charge of the process.
And, at least for now, war dominates those politics. Russia’s 2022 invasion of Ukraine, a country that wants to join the EU and needs money for its defense and reconstruction, changed everything. Still, there is no consensus about whether the bloc should spend its money on security in the first place.
Hahn will host a conference in Brussels on Monday to kick off discussions that will last three and a half years. It will attract leaders and top officials from across the block and beyond.
Questions that need to be answered between now and the end of 2027 include: How will the money be raised? How much should it be? Who and what should it be spent on? Should governments get cash with no questions asked and no strings attached?
And if all this sounds exhausting, executives are also already approaching this saga with a sense of weary trepidation. “Let’s not open a can of worms and start the discussion already,” said a senior EU diplomat who, like everyone else in this article, spoke on condition of anonymity because of the confidential nature of the issue.
But they will have to start it.
Merkel is no more
Approving the budget – or Multiannual Financial Framework (MFF) in EU-speak – is always so difficult because every figure has to be agreed by all 27 governments. Negotiations for the 2028-2034 period are set to be more thorny than ever – and culminated in a five-day marathon summit of leaders in Brussels last fall after more than two years of back-and-forth between the capitals and their representatives. ,
“The problem is that this time we have no one [Angela] Merkel,” one diplomat said, referring to the former German chancellor who made a habit of brokering hard deals between leaders in Brussels.
What diplomats could add is that the EU still has a leader, now the longest-serving in the bloc, Hungarian Prime Minister Viktor Orban, who is a friend of Russian President Vladimir Putin. I have already made it. It is difficult for the EU to agree to send cash to Ukraine and which has blocked and then unfreezed some funding for its country as punishment for democratic indiscretions. It also encourages debate.
But it’s not just him. The bloc’s power capitals are deeply divided over what should be their top priority: boosting their arms industry in the face of an increasingly belligerent Kremlin, or increasing green investment to reach climate goals. This contrasts with the fact that about two-thirds of the budget is spent on subsidizing the bloc’s agricultural industry and infrastructure projects in Europe’s poorest regions.
Then there’s the economic outlook, which may make additional spending a tougher sell. Growth has declined partly as a result of rising interest rates to curb inflation. According to the commission, the economy is expected to grow only 0.9 percent this year and 1.7 percent in 2025.
Yulia Rubio said, “When there is a very urgent need – like defense during the war in Ukraine – we find the resources, but for other long-term needs that are less visible, like climate change, it is more difficult to mobilize people.” Is.” A researcher at the Jacques Delors Institute think tank.
Countries that consider themselves less affected by the war in Ukraine – such as Spain – are retreating in a military spending spree.
“Defence cannot be the only priority, we need a balanced approach,” another diplomat said.
Should the EU impose taxes?
And the question is where does the money come from?
The back rooms of the European Commission in Brussels, which traditionally insist on handing out more money than the bloc’s governments, are filled with lofty rhetoric on the need for a larger multi-year budget, which currently stands at about one percent. The bloc’s GDP is growing – about €1.2 trillion last time – but there is deep disagreement over where to get the extra cash. French President Emmanuel Macron said on Thursday he supports doubling the size of the EU’s multi-year budget, but it is likely to meet strong opposition.
The default option – member states have to cough up more money for a central pot managed by the Commission, which makes up most of the budget – is opposed by the fiscally conservative countries of Northern Europe, the so-called frugal ones.
Other countries are proposing new EU-wide taxes imposed by the Commission to generate billions of euros of additional revenue, including taxes on carbon emissions and profits of multinationals.
But the decades-old dream of some people generating their own income to protect their budgets from the whims of national capitals has been resisted by Northern and Eastern European countries.
“Their issue is a philosophical issue,” an EU official said, referring to austerity. “They don’t want the EU to impose taxes.”
borrowing money for defense
A global pandemic and a major economic recession in 2020 forced Germany and the Netherlands to persuade Germany and the Netherlands to break a long-standing taboo on joint EU debt issuance to create a pot of off-budget money. The move was sold by the Commission as a one-off to deal with the worst recession in the post-war era – but many states now want to replicate this model to buy arms for Ukraine.
Baltic countries like Estonia – which until recently balked at the slightest mention of common debt – supported French calls to issue these so-called Eurobonds to strengthen Kiev’s defence. But the move is being opposed by the usual suspects.
“We are against[eurobonds for defense], , , Because that would shift power to Brussels,” Dutch leader Mark Rutte said in March.
hold your horses
Although negotiations on the MFF have not yet officially begun, national leaders are already at war.
“We look forward to a confrontation with the thrifty [over funding to poorer countries], We are really preparing for it because we need to be prepared,” the first EU diplomat said.
In addition, the Commission will also have to find new money to pay interest rates on its post-pandemic general debt and lay the groundwork for the biggest wave of expansion in 20 years.
We are not there yet. The EU Executive will put forward a formal proposal in the summer of 2025, which must be approved unanimously by governments before the end of 2027. Before then, in June this year, there will be a bloc-wide election for the European Parliament. Hope to bring about a change for the right. Parliament has the right to veto the budget.
Leaders are already offering views on key questions such as the future of the bloc’s agricultural subsidies or the impact of Ukraine’s annexation on the financing of poor regions.
“The MFF never sleeps,” said one EU diplomat.
And soon, neither will the officials tasked with preparing it.