It might not be the sexiest debate but how the EU will look in the next seven years will depend on the outcome of one of the toughest upcoming fights in 2020: the negotiation over the bloc’s next long-term budget.

The European Parliament agreed on a negotiating position during the previous mandate and the new chamber confirmed it again in October 2019. However, three presidencies have failed to reach a compromise at the Council and the talks have not even started yet.

Member states and EU lawmakers will need to sit down and figure out how much and where to put all the money. And they will need to do it as soon as possible as they are running out of time. The next programming period, 2021-2027, starts only next year.

European Council President Charles Michel has taken over the negotiation, with a potential extraordinary summit in February on the horizon. But he will only call it when and if he sees enough progress to close a deal.

Michel admitted the negotiation will be “extremely complex” and “the most difficult one ever in EU history because of the Brexit gap” he added. The European Commission has calculated that budgetary hole at around €13 billion per year.

The president will launch a round of consultations with member states as early as in January, aimed at understanding the different positions around the Council table and then working to find an acceptable compromise for the EU27. But it will not be easy.

While the decision on the budget remains in the hands of the member states that have to vote by unanimity, the European Parliament must also give its consent. And EU lawmakers have warned that they will not accept a ‘take it or leave it’ from the Council.

Michel has started contacts with the co-rapporteurs in charge of the file in the Parliament and will work with them to make sure that whatever the compromise at the Council, it is acceptable for EU lawmakers too.

MEPs ready to fight against member states on EU budget The European Parliament will not accept a “take it or leave it” agreement on the EU’s next long term budget (2021-2027), co-rapporteurs Jan Olbrytch and Margarida Marques have told EURACTIV.

Frugal five vs cohesion friends

The European Commission presented a proposal back in 2018, where it laid out the long-term EU budget whose size would be 1.1% GNI (gross national income).

The UK’s departure and the leaders’ decision to include new policy priorities such as better managing migration, boosting investment in research and innovation, strengthening the EU defence and security systems or keeping up the fight against climate change, resulted in important cuts for Cohesion Policy (7%) and Common Agricultural Policy (5%).

To this moment, both the size of the blueprint and the way to allocate the money remain a major source of division among member states.

The so-called ‘frugal five’ – Austria, Germany, the Netherlands, Sweden and Denmark – advocate for a reduced budget of 1%GNI for a smaller EU, given the departure of the UK, the second biggest contributor to the pot.

But these countries also prioritise investment in new priorities, at the expenses of traditional ones.

In the other corner, the ‘Friends of Cohesion’ – Spain, Portugal, Greece, Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia and Slovenia – have defended the need to keep Cohesion Policy fully funded, therefore asking for a more ambitious budget.

Some of these countries consider that even the Commission proposal is not enough for the EU to achieve its policy objectives. And the Parliament, which has constantly asked for a budget of at least 1.3% GNI, seems to agree with this assessment.

EU faces budget deadlock as national positions drift further away The Commission’s proposal for the EU’s new long-term budget has been caught in the crossfire as net contributors criticise the idea of having to pay more while a number of southern and eastern member states have joined forces to oppose planned cuts in traditional policies.

The new unknowns

The Commission proposal was presented in May 2018, under the leadership of Jean-Claude Juncker. His successor, Ursula Von der Leyen, has brought in her political programme a set of measures that require funding but no new budget proposals.

While von der Leyen admitted being concerned over the “severe cuts” proposed by the Finish presidency ahead of the December summit, she showed no intention to modify the proposal put forward by her predecessor, which means having to find funding for her initiatives within the already tight existing proposal.

One of her main milestones is the Just Transition Mechanism she intends to set up to support regions lagging behind in the transformation towards a climate-neutral economy, including the creation of a so-called ‘Just Transition Fund’.

The Commission will unveil the details on 14 January but it already announced that it aims to mobilise up to €100 billion and that the Transition Fund would fall under the Cohesion Policy stature and leverage resources from the European Regional Development Fund and the European Social Fund+.

This will most likely open a new battle with opponents – regional leaders, the ‘cohesion friends’ and the Parliament, who don’t want regional funding to suffer as a result.

The so-called ‘Cohesion Alliance’, which gathers representatives of regional organisations under the umbrella of the European Committee of the Regions, already warned that any new instruments such as the Just Transition Fund and its budgetary allocations should be “additional to the existing European Structural and Investment Funds.”

While the reform of the Common Provision Regulation that governs Cohesion Policy is on track as Council and Parliament reached a provisional agreement on an important part of the file in December, the reform of the Common Agricultural Policy will most likely not be finished by 2020 though the outcome of the negotiation over the budget will most certainly impact it.

Another question mark over the EU’s long-term blueprint is the so-called Budgetary Instrument for Competitiveness and Convergence for the eurozone, whose details member states still need to finalise.

According to the proposal made by the Finnish Council presidency, which ended in December, it could go up to €12.9 billion, far from “several points” of the region’s GDP envisaged by France. Although member states could add provide additional funds outside the MFF.

Whether member states could opt for new own resources if they still refuse to increase their national contribution to the budget is another open question. On the table is a potential tax on non-recycled plastics or the carbon border adjustment mechanism.

Eurozone 2020: The race against the clouds After seven years of growth, the eurozone’s outlook is deteriorating. There is a risk of a recession if the trade war with Washington worsens, while member states continue to disagree over the completion of the economic and monetary union that would help them cope with a downturn.

The calendar

Charles Michel will start bilateral meetings at a technical and political level with the member states and the European Parliament, aiming to reach an agreement “within the next few weeks or months.”

The idea of an extraordinary summit in February was sounded among the member states in December but it can only take place if and when it is realistic to reach an agreement. But the decision cannot be postponed much later than March.

In April, the Commission is expected to present its draft budget proposal for 2021, already part of the next programming period.

If there is no agreement by then, the Parliament has urged the EU executive to put forward alternative arrangements to ensure there is clarity for the beneficiaries.

Because for the new budget to enter into force, the regulation governing the different programmes needs to be finalised and for that, both Council and Parliament need to agree. Dozen of pieces of legislation are still pending, as there is no figure for the blueprint yet.

The clock is now ticking.

Parliament puts its trust in Michel for progress on EU budget As European Council president Charles Michel takes over the negotiations on the EU’s long-term budget, the Parliament hopes this will give a new impetus to the slow-moving talks, lawmakers in charge told a press briefing on Wednesday (11 December).

[Edited by Zoran Radosavljevic]