The discussions about the next EU long-term budget 2021-2027 are taking place at a historic junction. Europe is not only facing demographic challenges and instability in its hinterland; there are many other pressing issues that transcend national borders. However, this also creates opportunities to take a more positive agenda forward to achieve progress for Europe, for its citizens, and for resolving the Union’s challenges.
Europe’s next long-term budget, or MFF, which stands for Multiannual Financial Framework, is a powerful tool to enable this. The MFF is the EU’s spending plan, setting priorities based on policy objectives, generally spanning over seven years. It provides the structure within which annual EU budgets are set, defining spending parameters for each category of expenditure.
The ongoing negotiations should, therefore, be understood as a discussion about policy choices, expressed in budgetary resources. The next EU budget will focus on investing in areas where EU funding can be more effective than public spending at the national level – where it can bring real European added value.
A critical moment
The Commission proposed a seven-year budget of a total of 1,279 billion euros for the period 2021–2027. This represents around 1.11 per cent of the EU-27 gross national income (GNI), and as such is a very modest budget compared to the size of the European economy and to national budgets.
For every 100 euros generated in the EU, the Commission has proposed that only 1 euro and 11 cents will go to the European budget.
The next long-term budget has to modernise policies in order to increase their effectiveness and respond to the emerging challenges that we have to address at the European level. It also comes at a critical moment because the UK’s withdrawal from the EU leaves a significant gap in the budget. Moderate reductions in expenditure on cohesion and common agriculture policies were, therefore, necessary to achieve a balanced package.
At about one-third of the EU budget and with an envelope of 373 billion euros in current prices over the seven-year period, Cohesion Policy (CP) will still reduce economic, social and territorial disparities within member states and across Europe. The overall cut to the CP is around six per cent in current prices, compared to 2020 levels with the UK allocation excluded.
The cohesion national allocation is the maximum amount of funding provided over 7 years (2021–2027) to support investment and projects in a given country. In the Commission’s proposal, the national allocations for Visegrad Group countries are reduced in comparison to the 2014–2020 period.
The main reason behind these reductions is that economic disparities in the Union have diminished.
Many countries have caught up significantly in their economic growth, hence a decrease in the allocation for certain member states is a natural consequence of the strong convergence of these member states’ regions with the EU average prosperity over the current MFF period of 2014–2020.
The allocation method has no East versus South bias, but it will provide a balanced and fair distribution of cohesion funds so that support goes where it is needed the most.
Solidarity in practice
Cohesion Policy is designed with the aim of closing the gap between poor and rich European regions. Consistent with this policy, the main principle underpinning allocation is that resources are directed towards the poorest countries and regions. However, as in previous periods, for the 2021–2027 EU budget, richer regions will also benefit from cohesion funding for a focused number of priorities (mainly innovation and green investment). The criterion having the biggest effect on how much member states and regions receive remains relative wealth – as well as its evolution over time. Other criteria such as unemployment and education are also used in the allocation process.
For the 2021-2027 period, the Commission proposes to add migration flows and greenhouse gas emissions as marginal additional criteria to reflect these new long-term challenges.
Putting the solidarity principle into practice is the essence of Cohesion Policy, and this is why 75 per cent of cohesion funding will ultimately be directed to the less developed regions and member states.
Cohesion Policy will keep investing to help low-growth and low-income regions in the South and East of Europe (as well as outermost regions) catch up, but also to address pockets of poverty in richer member states.
When we turn to the Common Agricultural Policy (CAP), the Commission wants to introduce a more flexible system, simplifying and modernising the way the CAP works – such as encouraging EU countries to do more at national level, for example through more flexible rules on taxation and inheritance, or to improve access to land for young farmers. The new delivery model will, therefore, better help member states to improve the effectiveness of the policy and to be able to more easily monitor its results.
The Commission also proposes increased flexibility for member states to shift up to 15 per cent from direct payments to rural development and vice-versa. The overall cut to the Common Agricultural Policy budget is around five per cent, in current prices, compared to 2020 levels with the United Kingdom allocation excluded.
The EU budget 2021–2027 must also rise to challenges such as digital transformation, migration, border protection, defence, research and innovation while taking into account the shortfall in contributions resulting from the withdrawal of the UK.
Investment at European level is essential, especially in the light of the current weakening economic climate. A timely agreement is important for citizens, business and industries, so that the programmes can start immediately on the first of January 2021.