The #NextGenerationEU budget negotiations: a historical event?

, by Alejandro Rico Freeman

The #NextGenerationEU budget negotiations: a historical event?

There was not much sleeping taking place in Brussels last weekend. The 27 heads of government, the President of the European Council Charles Michel, the President of the European Commission Ursula Von der Leyen, along with their teams, a horde of journalists, MEPs and European affairs geeks stayed up to follow the negotiations that would determine the EU budget for the 2021-2027 period.

In the end, after 4 days and over 90 hours of tireless negotiations, the 27 managed to agree on a compromise deal that will set the Next Generation EU budget at €1.074 trillion and the creation of a new ground-breaking European recovery fund of €750 billion. However, this summit has not come without considerable clashes between the Member States and some major setbacks for those aiming for stronger integration. That is why, while some are talking about a “historical date”, others do not seem so optimistic about a summit that showcased the two faces of Europe.

Frugal or tight-fisted?

Negotiations were expected to be tense. Four self-proclaimed “frugal” states - Austria, the Netherlands, Sweden and Denmark, supported by Finland, announced that they came ready to prevent this new budget and recovery plan put forward by the Commission back in May and widely supported by France, Germany and southern Member States, notably Spain and Italy, from passing without major changes.

The goal of the frugals was two-fold: to spend as little as possible and to gain opinion points with their national audience by appearing to take a strong stance in the face of Europe. The result of this stance? The total amount (€750 billion) stayed the same but its composition changed: grants were lowered from the €500 billion initially proposed to €390 billion and an “emergency-brake” governance mechanism was added, to prevent countries that, in the frugals’ view, are not fiscally responsible, from misusing the funds. Moreover, the budget for EU4Health was set at €1.7 billion and the main research program of the EU, Horizon Europe, was given €81 billion against the €9.4 billion and €94.5 billion put forward by the Commission, respectively.

This result makes a mockery of the European Commission proposal back in May, which specifically mentioned the goal of strengthening the health and research sectors. Also, if we consider that the overall EU budget is just 1% of the total GDP of the European Union, we can fully understand what this “frugality” really means.

The traps of unanimity

However, the most outrageous thing about this summit is the fact that only 5 member states out of 27 could hold an agreement on a new Multiannual Financial Framework (MFF), Europe’s multiannual budget, hostage in such a crucial moment as the present one. This could only have taken place because of the infamous unanimity rule and these negotiations showcased why the European Union must reform its governance mechanism towards majority decision-making. Supporters of the unanimity rule usually argue that it allows everyone to have a voice no matter how small you are, preventing just a few of the bigger players from taking all the decisions. In this sense, the frugals took the stance of not allowing Germany and France to strong-arm everyone into getting behind their proposal.

Regardless of this ever having been the case, this time it was not only Germany and France that agreed with the proposed budget by the Commission. In fact, according to the statistics, the “frugal 4” along with Finland only amount to 9% of the population of the EU, 21.6% of the territory and 16% of the total GDP. So, by any account, less than one fifth of the Union can, under the current system, veto anything the other four fifths agree on. This is undemocratic; and it is a flawed decision-making process anchored in a past of distrust and suspiciousness.

Is the European Parliament open?

Building on the shortcomings of the European system, we should also be asking ourselves: Where was the European Parliament this last weekend? We should keep in mind that the European Parliament is the only institution within the framework of the European Union that is directly elected by its citizens. However, in such an important matter as determining the EU budget for the next 7 years, neither the President of the Parliament nor the MEPs had a say in the matter.

Some will say that the European Parliament does have a role; that of voting the agreed upon budget. And yes, this is true, but it is nothing else than a symbolic role as the “main players” have already decided and unless a general spirit of defiance and revolt suddenly overcomes the chamber, the MEPs will not go against their own governments and risk another endless summit - which could have the same result, or worse.

Therefore, to create a truly democratic and just Union, the European Parliament must have a say in fundamental policy from the get-go, it must be able to speak and determine if it wants to invest more in health and research, if it wants grants or loans and if an “emergency brake” system is the best governance option. The European Council represents the states and the European Parliament represents the citizens, a compromise between these two spheres must take place, favouring democracy and legitimacy over mistrust and veto-powers. A historical agreement, nevertheless

Having said all this, yes, the #NextGenerationEU budget is a historical agreement. For the first time in the history of the European Union there will be a joint recovery fund that will be directly managed by the EU. On top of this, the fact that it is worth €750 billion -regardless of the distribution between grants and loans- is an enormous step towards further integration. It will also be the first time that the EU will buy debt jointly - the famous Eurobonds that seemed so far away just a few months ago.

Moreover, this agreement has exemplified a strategic change from the situation that developed in the aftermath of the economic crisis of 2008. This time not only 22 member states were on the same page, but among them the 5 major economies of the Union - Germany, France, Italy, Spain, and Poland. This is unprecedented, as the UK, who until Brexit was the second economy of the EU, usually had a confrontational position against federalist wishes.

So, even though the EUCO summit was not without its ugliness, this could be the time to move towards a federal system. If the united front that most states presented at the summit stays united, there is no excuse not to remove unanimity and favour the citizens’ wishes. This seems to be a shared opinion in the European Parliament, so maybe national leaders should start listening closely.

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