A deal on the next EU budget is highly unlikely in the current crisis. An emergency plan is needed: extend the current MFF to 2021

Up until a month ago, the next Multiannual Financial Framework (MFF) was the top priority on the agenda of the European Union (EU). Since then, an unprecedented health crisis has hit the world and, rightly so, the MFF negotiations have effectively been put on hold. However, the consequences of postponing the agreement remain: a delay to the implementation of EU programmes next year or, even worse, no agreement on the MFF before December.Ideally, member states would agree on the MFF quickly, but this is highly unlikely. It is time to recognise that the COVID-19 crisis makes it impossible to conclude the MFF negotiations in the foreseeable future and that a ‘second-best’ contingency plan is needed. Thus, to avert these risks, a coordinated inter-institutional effort, led by the presidents of the EU’s three main institutions, should call on member states to postpone the negotiations and extend the current MFF by one year.[1]EU leaders and institutions do not have the time nor necessary political energy to discuss the Union’s next multiannual budget amid the health crisis, quite literally. The months after the extraordinary European Council summit of February 2020 should have been dedicated to finding a compromise on the upcoming MFF. Instead, the COVID-19 crisis that has hit all member states in March has now become the number one priority of national governments and EU institutions, and rightly so.A coordinated EU response to the crisis and its multiple (potential) consequences requires extensive discussion between Europe’s leaders, including ongoing negotiations on the introduction of new (fiscal, budgetary) instruments. All political capital is currently being spent on responding to the health crisis; the MFF has understandably been put to the side. Even if the latter remains of utmost importance, leaders unfortunately do not have the political capital to finalise the negotiations.Even if leaders did find the time, it is no longer possible for EU leaders to physically meet to negotiate. Online meetings would hardly be successful, given that the final stages leading to MFF deals – especially overcoming the final hurdles – tend to depend greatly on informal, face-to-face discussions between EU leaders.In addition, time to find an MFF agreement is running out, as the deadline has not moved: December 2020 is rapidly approaching, and, so far, no adequate progress has been made to reach a compromise on time. The failure that was the February Summit revealed how far apart national positions still are. Additionally, given the unpredictable consequences of the COVID-19 crisis, there is no certainty about the socioeconomic conditions of member states in the coming months. Even if the immediate health threat is contained, economic recovery will be highly challenging and the main concern at both the national and European levels. There is thus a significant risk that even when the MFF deadline approaches, member states will still not be able to find a compromise.The health crisis requires the full attention of member states and EU institutions. At the same time, the risk of not having an MFF in place next January must be avoided at all cost. In the case of non-agreement, EU functioning would be reduced significantly as most programmes would not even ‘exist’ in 2021. This would have distributional consequences, as member states relying on EU funds (e.g. Cohesion Policy) would lack significant public investment. Similarly, EU support for research and innovation would stop, and the European Investment Bank’s investment, which is dependent on the EU budget, would be impacted. This scenario would require political time and capital from EU leaders and institutions that may be focused on more pressing issues instead. Flirting with a recession, Europe needs economic stability, thus it cannot afford to lack the common investment framework.Given the new situation in times of COVID-19, MFF negotiations should be postponed to when leaders will have the time as well as the political energy and capital to engage adequately. The existing MFF should be extended by one year to allow the negotiations on the next multiannual budget to be concluded at a later point in time. This needs to be a common goal: EU institutions must recognise the current, dire circumstances and urge EU leaders to agree on an extension to 2021.The presidents of the three main EU institutions – the European Council, European Commission and European Parliament – should call on national governments to swiftly agree to a postponement. This would resemble the contingency plan proposed by the European Parliament to avert the risk of non-agreement, which would extend the existing programmes’ legal basis to 2021.[2] The Treaty already allows for the automatic application of the 2020 budget ceilings to 2021 (Article 312.4 TEU), but an amendment to lift the time limits is needed.This solution is not optimal but remains the best option under the new circumstances. The ‘emergency’ 2021 budget would not include any of the newly proposed programmes (e.g. Just Transition Fund). Nevertheless, a postponement would allow the EU and its member states to focus on the short- and long-term challenges of the COVID-19 crisis without incurring the serious consequences of not having an MFF in place in 2021. It would also buy time to effectively negotiate the MFF under more ‘normal’ conditions and take into account any consequential modification to the design of the programmes due to the crisis. Member states should accept it as an emergency measure, agree to put aside their MFF differences (e.g. on size and policy priorities) for now and postpone the discussion.However, two outstanding issues need to be addressed, which would require flexibility. First, the Brexit gap. Assuming the UK does not extend the transition period, it will not contribute to the 2021 EU annual budget. While the ceilings for 2020 would still apply, its commitments would have to be at a lower level if the remaining 27 member states maintain the 2020 level of contributions. Deciding the policy allocations might be contentious but, importantly, the annual budget is voted in the Council by a qualified majority and only lasts a year.Second, it may be the case that some member states, heavily impacted by the negative consequences of the pandemic, are unable to pay their contribution. For example, Italy and Spain, the two member states with the highest number of COVID-19 deaths, contributed €12 billion and €8 billion respectively to the 2018 EU budget.[3] It is possible that they will not be able to pay a similar amount in a few months. Ways to soften the bill would have to be explored, like ad hoc discounts or a common pay-in. Countries most hit by the health crisis could have part of their contribution to the 2021 budget waived, as a one-off discount or eventually in exchange for larger contribution in the following years. Conversely, countries that did not face serious public health crisis could increase their contribution for 2021 voluntarily.In the context of Brexit, the EU has acknowledged that the various challenges related to the COVID-19 crisis require full attention and is thus supporting an eventual extension to the transition period. Carrying out proper Brexit negotiations in these conditions would be impossible, and the risk of not having a deal would add to the economic difficulties arising from the health crisis.[4] The same logic should be applied to the MFF.Ideally, member states would agree on the MFF as swiftly as possible. However, as this appears highly unlikely, more time is needed. A coordinated proposal by the presidents of the EU’s three main institutions should call on member states to postpone the MFF negotiations and put in place an ‘emergency’ 2021 annual budget that is based on a continuation of the current one. This solution would buy time to focus on the health crisis, which is now the most important task, and avoid the negative financial consequences of not having a new MFF in place in 2021.

Marta Pilati is Policy Analyst of the Europe’s Political Economy programme.