Share A LinkedIn icon Share by linkedin An email icon Share by email

KEY POINTS This discussion "will shape up to be a long drawn out bloody fight," one European official, based in Brussels and who did not want to be named due to the sensitivity of the talks, told CNBC Monday.

The remaining 27 EU states are arguing over figures, but also about the process behind actually receiving funds from Brussels.

15 October 2019, Berlin: Chancellor Angela Merkel (CDU) will attend the session of the CDU/CSU parliamentary group in the Bundestag. picture alliance | picture alliance | Getty Images

A fight over money could be about to reach unprecedented proportions at the heart of the European Union. The U.K.'s impending exit means that the bloc will lose one of its key net contributors — when a country's payments into the EU outweigh its revenues from it. This is set to leave a shortfall of about 7.8 billion pounds ($10 billion) every year, in net terms, in the EU's next budget. And the question of who will fill that gap is stressing out several member states. This discussion "will shape up to be a long drawn out bloody fight," one European official, based in Brussels and who did not want to be named due to the sensitivity of the talks, told CNBC Monday. The remaining 27 EU states are arguing over figures, but also about the process behind actually receiving funds from Brussels.

Germany could be asked to pay a bigger bill

Germany's net payment into the EU stood at 13.4 billion euros in 2018, the highest contribution across the region. This also reflects the size of the German economy. Media reports earlier this week suggested Germany's contribution could rise from 15 billion euros in 2020 to 33 billion euros in 2027 and that the Netherlands would also be paying 75% more to the EU, as a result of the U.K.'s departure. However, Daniel Gros, a German economist and director of the Brussels-based think tank CEPS, said that these numbers seem "widely off the mark." "It seems really difficult to get to 33 billion euros net as this would represent close to 1% of German GDP (gross domestic product) and would imply that close to nothing will be spent in Germany," he said via email. The EU's budget is used to finance policies across the bloc, ranging from developing rural areas, security and the promotion of human rights.

Over the last few days some media have been publishing some rather misleading figures, for example saying that there's going to be a doubling in the German contribution to Brussels. Günther Oettinger European Commissioner

"Budget talks are usually difficult. They will be unusually tough in the EU this time," Holger Schmieding, chief economist at Berenberg told CNBC Tuesday. "Germany will not accept paying twice as much as before as its net contribution. It will agree in the end to shoulder a disproportionate share of the U.K. money … But that additional German contribution will be linked to conditions such as a re-direction of funds towards green causes," Schmieding said. According to Gros, assuming that Germany will pay for one third of the U.K.'s previous contribution, then the "German net contribution would increase from 13.5 to 16 billion euros, or from about 0.4 to 0.5 % of GDP." The European Commission, one of the EU's institutions that is part of the budget discussions, held a press conference Wednesday to clarify the media reports on the budget issues. "The expenditure is a matter of great importance, particularly against the background of the fact that over the last few days some media have been publishing some rather misleading figures, for example saying that there's going to be a doubling in the German contribution to Brussels," Commissioner Günther Oettinger, in charge of budget and human resources, told reporters.

'A political exercise'

The EU's budget is "not just a budgetary exercise. It is a political exercise," a second EU official, also aware of the discussions but who did not want to be named due to the sensitivity of the talks, told CNBC Tuesday evening. France, for example, wants to attach conditions to the disbursement of funds. Officials in the country believe that states that do not respect the EU's values should not get any financial help. However, this is a widely unpopular measure for governments in Poland and Hungary, to name just a few. There's also the question of a rebate, which is an adjustment mechanism introduced in 1984 at the request of the U.K. Now that Britain is set to leave the EU, some countries argue that this mechanism should be scrapped altogether. However, Chancellor Angela Merkel of Germany has already made it clear that Berlin will not give up on this mechanism. The second EU official told CNBC that budget negotiations usually create "discontent," but in order to achieve a compromise the level of discontent with the next EU budget needs to be "reasonable." The EU aims to finish budget negotiations in March next year and will be applied between 2021 and 2027.