The EU Budget Trilemma

The impossibility of reconciling the competing positions of EU member states for the next long-term EU budget has deep-seated consequences. The upcoming negotiations are mainly about the bottom-line of each member state instead of the most effective public spending priorities.

The Multiannual Financial Framework (MFF) is invariably one of the most hotly contested negotiations on the EU’s agenda, yet is usually resolved by concessions amounting to a small fraction of a per centage point of GDP, whether of the EU as a whole or of individual member states. This apparent paradox reflects two main factors, both of which recur with disconcerting predictability when (as is expected in the course of 2020 for the 2021-27 MFF) each seven-year wrangle reaches its conclusion.

Fostering brinkmanship

First, the main decisions are, despite the formal role of the European Parliament in settling EU expenditure (though not revenue-raising), ultimately taken mainly by the European Council. Every member state has a veto which smaller states, in particular, are able to exploit to their advantage. Second, every national government has ‘red lines’ it claims to be unwilling to cross, fostering brinkmanship in reaching an agreement, with each head of state or government determined to portray the result domestically as a testament to his or her negotiating skills.

Brexit introduces a further complication because it means the loss of a substantial net contributor to the EU’s finances. Although the “divorce” bill agreed as part of the withdrawal agreement will mitigate this loss, because a sizeable proportion of the payment will occur in the early years of the next MFF, the UK hole in the EU’s revenue has further polarised positions.