Brussels opens Pandora’s box with €100 billion budget top-up request

The budget for the 27-member bloc is approved for a period of seven years to guarantee long-term predictability and avoid the perennial back-and-forth between the capitals and the institutions.

Mask-clad EU leaders approved in 2020 a €1.074 trillion budget coupled with an extraordinary €750 billion plan to help member states recover from the COVID-19 pandemic following a marathon five-day summit that exposed deep rifts among member states.

But after a succession of crises, most notably a brutal war raging at the bloc’s doorstep, Brussels feels this number no longer reflects the economic reality.

That’s why the European Commission has proposed a review worth almost €100 billion, to support Ukraine, manage migration, cope with natural disasters and foster cutting-edge technologies.

“We are in a completely different world compared to 2020,” European Commission President Ursula von der Leyen said in June when she first unveiled the proposed overhaul. “This also shows in our budget – this world of multiple crises. We have been using this budget more than ever to be part of the solution (to) these crises.”

The Commission wants the top-ups to be approved before the end of the year, portraying the fresh money as a must-have to make the common budget flexible and resilient again.

Member states, however, are not buying it – at least not fully.

A meeting of the European Council in October, during which leaders did not mince words about their feelings for the proposed review, laid bare the uphill struggle that von der Leyen faces.

Cash under the mattress

Here’s what the EU executive is actually asking for:

• €50 billion for the Ukraine Facility, with €33 billion in low-interest loans and €17 billion in non-repayable grants to be doled out between 2024 and 2027. The financial aid would help fill the gaps in the Ukrainian budget, sustain essential services, rebuild critical infrastructure, attract private investments and speed up key reforms. 
• €15 billion for migration management, including €3.5 billion for supporting Syrian refugees in Turkey and €2 billion for the Western Balkans.
• €10 billion to create the Strategic Technologies for Europe Platform (STEP), a common pool of money to promote EU-made cutting-edge technologies. 
• €18.9 billion to repay the debt issued to bankroll the €750-billion recovery plan, which is now subject to much higher interest rates as compared to its launch in 2020.
• €3 billion to reinforce the Flexibility Instrument and cope with unforeseen crises.
• €1.9 billion to cover administrative costs.

Of this eye-popping €98.8 billion bill, €65.8 billion would have to be directly footed by member states. (The €33 billion in loans from the Ukraine Facility would be borrowed from the capital markets and repaid by Kyiv at a later stage.)

In the midst of an economic slowdown, steep energy prices and tighter monetary policy, the proposal has been met with suspicion and perplexity by most EU leaders.

“I think that the priorities defined by the European Commission (…) are the right ones (…) they are useful. The amount proposed today seems too high to me and therefore we have asked for a reduction,” French President Emmanuel Macron said at the October summit.

To get themselves off the hook, heads of state and governments quickly clung to the idea of re-deployment, i.e. using funds already approved but not yet spent under the 2021-2027 budget to pay for the proposed top-ups.

“For many member states, Germany included, it’s not understandable that we should always increase the budget. It is essential that we look at the available fund and how it can be reallocated or used differently,” said German Chancellor Olaf Scholz.

“What we’re saying is: reprioritise, reprioritise, reprioritise,” declared Dutch Prime Minister Mark Rutte, who famously led the “Frugal Four” coalition during the 2020 negotiations.

His Belgian counterpart, Alexander De Croo, said “What’s on the table is not acceptable for us” and warned his country might violate the bloc’s deficit rules if it were to pay up.

“It’s the (same) way the Commission looks at our budget. If we have too much deficit, they ask us to reprioritise and see if certain things can be done in a more efficient way. I think that also applies to the EU institutions,” said De Croo.

Von der Leyen conceded the final outcome would likely be a “mixture” of national contributions and redeployment but pointedly added this would result in “trade-offs” – code for programmes that could be chopped.

A non-paper drafted by Spain, which currently holds the EU Council’s presidency and moderates the talks, estimates that financing the entire review through redeployments would lead to a “general cut” of more than 30% in well-known programmes such as Erasmus+, Horizon Europe, EU4Health and humanitarian aid.

STEP things up

But it’s not all dark clouds on von der Leyen’s horizon.

Her €50-billion Ukraine Facility has received a near-unanimous warm welcome from EU leaders, who see it as a valuable tool to make the bloc’s support for the war-torn country more predictable in the long run. (And also because the Facility would make them cough up just €17 billion for the grants.)

Only Hungarian Prime Minister Viktor Orbán has publicly come out against the proposal, while Slovakia’s new premier, Robert Fico, has asked for additional safeguards to protect the cash from Ukraine’s high levels of corruption.

“The Commission wants more money so that they can give it to the integration (of migrants) and to the Ukrainians,” Orbán said. “We do not support any of them, the professional and political arguments are lacking. We will reject them.”

The other envelopes are proving to be a harder sell.

While governments agree more money for migration is required, particularly in the context of relations with countries of origin and transit, the majority has not shown a clear willingness to underwrite the €15-billion top-up.

This is worrying Southern nations whose asylum systems are often overburdened and under-resourced. During the October summit, Italian Prime Minister Giorgia Meloni told reporters that migration is “for us a priority.”

STEP, meanwhile, has ignited much less enthusiasm.

As the current budget already earmarks several initiatives for the digital transition, the appetite to add an extra €10 billion for homegrown tech is low, even if governments frequently complain about the EU’s entrenched reliance on foreign-made imports.

Portuguese Prime Minister António Costa is among the few vocal advocates for STEP, arguing having a collective pool to bankroll new tech is “important” to mitigate “asymmetries” posed by the uneven distribution of industrial subsidies, which are heavily concentrated in Germany and France, and be able to compete with the US and China.

Regarding the €19.8 billion requested to pay for interest costs, countries do not question the necessity in itself – as this is imposed externally by the capital markets – but some wonder if the money could be found somewhere else in the existing budget. 

The €1.9 billion for administration appears dead on arrival. “The majority of member states reject the Commission’s proposal,” reads the non-paper of the Spanish presidency.

The budget review needs 1) the unanimous approval of all 27 member states and 2) the consent of the European Parliament. MEPs have asked for an extra €10 billion on top of the Commission’s €100-billion review, exposing the vast distance in the thinking of the three EU institutions.

Acknowledging the diverging views around the table, European Parliament President Roberta Metsola said the fraught negotiations were a “natural, traditional dilemma” for the bloc and warned against cutting popular programmes like Horizon Europe and Erasmus+ in the run-up to the EU elections in June.

“We absolutely cannot tell our citizens that, on the one hand, we’re willing not to spend anymore but, at the same time, we cannot find a solution to pay because we are, let’s say, over-extended in terms of our debt,” Metsola said after taking part in the October summit.

“I don’t see a way out yet.”