The ongoing negotiations for the next Multi-annual Financial Framework (MFF) has taken the shape of a never-ending saga, amplified by COVID-19 and an ongoing dispute over the rule of law. At the heart is a discussion over the value of cohesion spending and which level of government should be most involved.

Agreement on the EU’s next Multi-annual Financial Framework (2021-2027) remains at a stage of work in progress. This is due to multiple reasons.

First, the departure of the United Kingdom – the second largest net contributor – leaves the dent of about 10 billion euros per year. Because the long-term EU budget is by design one without a deficit, this requires changes in the programmes.

Since the start of the negotiations, member states that are net contributors have called for a smaller budget saying that taking the burden to fill the UK’s void is not possible.

Second, the economic recession caused by COVID-19 will most likely make this problem greater. State budgets are depleted and expected inflows much smaller. Hence the propensity to contribute more is diminished even further.

Third, net recipients expect larger contributions to the MFF to maintain the current level of spending or even a larger budgetary framework to fight the effects of the pandemic. Piotr Arak indicates that cohesion spending is no charity but good business for the entire EU and of importance for the post-COVID-19 recovery.

Ongoing cohesion benefits all regions of the EU by means increased consumption, investment and improvement of human capital – which is available to all member states.

Yet, finding a compromise has proven to be difficult. It resulted in the current stalemate of never-ending negotiations that are still ongoing due to the COVID-10 crisis. Talks about the size and nature of a Recovery Fund as well as the Green New Deal have only complicated the matter.

Cohesion in times of crisis

It appears that the discussion should be broadened so it is not just about the sheer amount of money in the long-term EU budget or as part of the Recover Fund in order to reach a compromise.

Before the COVID-19 pandemic, a step in the right direction was the presentation of Scenarios for cohesive growth, prepared by Visegrad Insight and CEPS to discuss possible alteration to cohesion spending as part of the next MFF.

Ideas ranged from linking spending with the efficiency of the cohesion process, funding the green revolution, financing innovative infrastructure and investments in R&D and security.

Since then, the scale of the challenge has only increased. Much of the stimulus packages the EU is preparing to counter the economic recession could be focused on the eurozone and hence applies only to Slovakia and the Baltic States in this region.

Perhaps this will mean an impulse for countries like Bulgaria to accelerate the accession and benefit from the additional stimulus and the ECB’s role as a lender of last resort.

At the same time, Poland’s opt-out of EU climate policy and carbon neutrality goals exposes it to a greater reduction in cohesion spending – although it may largely benefit from the Recovery Fund.

The pandemic also shows the need for more coherent EU policies in the areas of healthcare and resilience against crises. The EU’s passivity during the initial stages of the outbreak arose from a lack of mandate and decisions at the national level to close borders without prior EU0consultation.

While critics may be aiming at the EU because of some weaknesses, in fact, arguments point towards deeper integration and a strengthening of the EU institutions in the aftermath of COVID-19.

In truth, within its mandate the EU reacted faster and better than member states that were struck with the crisis but resorted to doubtful methods, hiding the severity of the problem or blocking shipments of essential gear and equipment to affected zones.

The EU forced some of the countries to roll back decisions – which went against the spirit of European solidarity and EU law – and coordinate the reopening of national borders.

Protection of the legal order

One aspect which has been somewhat overshadowed in recent months is the rule of law criterion that will have an impact on the receipt of EU-payments. In case of severe violations, spending could be cut. Countries that are currently the biggest net benefactors, such as Hungary and Poland, could be hit the hardest.

Implementing such a measure is sometimes seen as a way to ease budgetary tensions – contrary to stated purposes. However, it is hard to determine what will be the exact future of such criteria because implementation requires setting clear conditions and assuring an impartial process.

The Commission remains keen to play its role as guardian with regard to the rule of law. Also, the outbreak was used by governments in Poland and Hungary to strengthen their grip on power. Opposition parties and civil society were struggling to muster protests or delay an election (in the case of Poland) due to measures that were supposed to crease the transmission of the coronavirus.

This came on top of the ongoing conflict over the brute force deployed by Poland in its remaking of the judiciary system. While the European Court of Justice has sought to limit the damage, the upcoming months will be crucial for the independence of Polish courts.

Punitive measures against states that continue to implement doubtful reforms are not out of the question and the Commission may launch consecutive infringement procedures.

Local governments to the rescue

A lot of hope and responsibility rests on the shoulders of regional governments in Central and Eastern Europe, especially large cities governed by pro-democratic forces. Capital cities were never in the hands of populists – in Poland, they are largely outside of the reach of PiS – or were recently won over by the opposition – demonstrated in Budapest.

The opposition’s victory in Budapest had implications for the oligarchy created by Victor Orbán – derived from public procurement. Immediately after Fidesz lost Budapest, the stock price of companies controlled by Lőrincz Mesarosz (an Orbán-created oligarch) plunged because a significant chunk of their most profitable projects was derived from the capital city.

Populists tend to consolidate their power on the state level. They fight local governments mostly by starving them – cutting local taxes and expanding duties at the same time. Without proper funding, local governments lose their independence to shape policies.

This ties together with the question of cohesion policy because the required contribution is often too big a burden for local governments. Often they were aided by the central government, through various programmes which are now being cut or replaced by discretionary programmes that are aimed at benefitting government-loyal municipalities.

After local elections in Poland, in the region of Silesia, the opposition’s majority was broken because the ruling party swayed a single member of the local parliament. Robert Kałuża, a member of the opposition party, was given a high office but also the promise of larger contributions from the central government to the region. This was the main reason for him to switch sides from the liberal to the conservative part of the political spectrum.

Rule of law conditionality could lead bring limitations to cohesion funds which in turn may also punish local governments. Without EU funds, they would have fewer means to protect their independence from populists at the state level.

Free cities joining forces

In order to prevent that scenario, the majors of the V4 capitals: Zdeněk Hřib (Prague), Karácsony Gergely (Budapest) and Matúš Vallo (Bratislava) Rafał Trzaskowski (Warsaw)  signed Free Cities Pact in December 2019. Trzaskowski is currently running as a candidate to become the next Polish president.

The Free Cities Pact is a platform of regional cooperation opened to other cities, for the promotion of policies aligned with EU priorities including climate change, human rights and rule of law. The V4 mayors want to convince European bodies to send a part of the funding directly to municipalities – and bypass the central government.

This actually is an idea that could be more damaging to populists than the outright cutting the cohesion funds for violations of the rule of law. Clearly, such a move would limit the control of the central government over the cities and strengthen their position as an element of liberal democracy’s check and balances.

Currently, the share of the capitals in total EU funding is at the level of a few per cent. However, if more cities join then the total spending directed towards municipalities could become a significant amount. Such an approach could help in achieving a more targeted approach to make sure the funds go towards places that need them the most – in response to COVID-19 – while conforming to European values.

It would be an impulse to prevent the proliferation of recent examples of LGBT-free zones, which now cover about a third of Poland. However, it should be noted that existing programmes direct at cities remain largely underutilised in the region.

For example, the Urban Innovative Action has zero applications from Poland and Slovakia, only one from Czechia and two from Hungary.

This casts a doubt whether such decentralised funding would be efficiently utilised outside of the largest cities since options that are currently available fail to attract enough attention.

 

 

This article is part of the #DemocraCE project.

#DemocraCE Fellow. Vice President of the Res Publica Foundation, economic editor of Res Publica


Eastern European Futures

In 2009, the European Union and six of its Eastern neighbours launched the Eastern Partnership (EaP) with the stated aim of building a common area of shared democracy, prosperity, stability and increased cooperation. A decade on, however, progress has been mixed.

Visegrad Insight is published by the Res Publica Foundation. This special edition has been prepared in cooperation with the German Marshall Fund of the United States and supported by the International Visegrad Fund.

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