26 September 2019
This year the negotiations about the next Multiannual Financial Framework(MFF) will enter a critical moment. In the face of an imminent Brexit and the fallout from global turmoil, the EU has to reflect on its guiding principles and take decisions to fulfil the promise of a united Europe.
For the last 30 years, the EU has been delivering an unprecedented degree of liberty and prosperity to all the nations on the continent. Yet, complacent optimism about the next decade would be largely misplaced. The block needs to find strategies for uncertain times concerning the liberal world order, the climate crisis, the digital
age and social solidarity.
In the European #Futures series, we are looking at scenarios that go beyond the current status quo. In November 2018 the fist Central European Futures report was released jointly with the German Marshall Fund of the U.S. Th report explained how global trends, amplified in the region, could play out and define the future shape of Europe.
Fostering cohesion is one of the main aims of the European Union. A notable part of the EU’s budget is thus devoted to Structural Funds, the purpose of which it is to provide poorer regions and countries with the means to catch up with others.
New Europe has benefited from substantial allocations of Structural Funds since they joined in 2004 and 2007. This applies in particular to the Visegrad Four (Czechia, Hungary, Poland and Slovakia) which have received between two and three per cent of their GDP in cohesion funds. This allocation has contributed greatly to the catchup process.
In principle, EU regional support is destined mainly for “lagging regions”, defied as those with a GDP per capita at PPP below 75 per cent of the EU average. Transition regions, with a GDP per capita between 75 and 90 per cent of the EU average, can also benefit but not to the same degree.
The strong growth performance of the Visegrad Four (V4) has already ensured that for two of them, Czechia and the Slovak Republic, the national average is above 75 per cent (80 for SK and 90 for CZ). This implies that most of the regions inside these countries are, or soon will become transition regions. By contrast, the GDP per capita of Poland and Hungary is still somewhat below the 75 per cent threshold, although the capital cities are already above.
The budget of the European Union is determined by two major mechanisms, which give a differing, and at times contradictory, picture. The starting point is the Multi-annual Financial Framework (MFF) which, in principle, provides an overall cap to spending (usually expressed as a per cent of EU GDP) for the next seven years and indications of the spending by broad overall categories.
However, actual spending is then determined by the annual budgets, which sometimes diverge substantially from the patterns laid down in the MFF some years earlier. This has been the case over the last couple of years when emergencies led to a redirection of funds not yet spent from the 2014-2020 MFF, which is still in force.
The variability of actual spending relative to the one foreseen in the MFF is particularly pronounced for the Structural Funds or, more generally, for cohesion spending. The reason for this is that disbursement under the Structural Funds requires the presentation of detailed projects followed by the implementation at the regional level. However, the planning, approval and implementation of projects take years to accomplish. EU budget expenditures are authorised only at the very end.
This implies that actual cohesion spending is rather variable and often extends beyond the end of the MFF. Under the so-called N+2 rule funds can be disbursed up
to two years later.
Actual cohesion spending has increased from about 25 billion euros per annum in the early 2000s – just before enlargement – to about a peak of close to 60 billion euros in 2012-2013 but has since fallen back to below 30 billion euros in 2017, the last year with comparable data available. However, these absolute values are misleading since the budget has increased and the EU has enlarged from 15 to 28 members.
The chart below provides an overall view in terms of the shares of EU spending (not the sums allocated under the MFF). It shows that the share of spending on agriculture has declined over the last decades from about 50 to 40 per cent of the total, whereas spending on Research and Development has increased from 4 to 8 per cent of the total.
Cohesion spending has been more volatile. For about the fist ten years (2000- 2011) it remained roughly constant at slightly above 30 per cent of total EU spending. This was followed by a peak towards the end of the last MFF (2013) when cohesion spending reached 40 per cent of the total, and then a fall to below 30 in 2017. It remains to be seen whether cohesion spending will pick up towards the end of the current MFF (2020).
The 2014-20 MFF had foreseen that each year between 2014 and 2017 the commitment appropriations should be higher for cohesion spending than for agriculture. However, this has not materialised so far.
Overall, if one analyses actual spending as opposed to official plans, it appears that cohesion funding has de facto maintained a roughly constant share of total EU spending (a bit below one third). The decline in the share of agriculture has been matched by an increase in other areas. R&D spending has roughly doubled its share, but it remains, at below one-tenth, much smaller than cohesion spending.
With this background in mind, we may consider the scenarios developed in this report.