BRUSSELS — War rages on its doorstep, the economy is in the doldrums, EU-wide elections appear poised to deal a major blow to the establishment — and the EU is now bracing for what will be his bitterest battle yet: for his sovereignty. finances.
Few things in the 27-nation bloc are as fiercely political as negotiations over its seven-year budget, estimated at around a trillion euros. And with an ever more aggressive Russia and global tensions, from Gaza to Taiwan, eating away at Europe’s sense of complacency, demands are growing that the EU direct its investments in a way that puts it on a war footing. stronger.
“The budget is a costed policy,” said Johannes Hahn, the European commissioner in charge of the process.
And, for now at least, this policy is dominated by war. Russia’s invasion of Ukraine in 2022, a country that wants to join the EU and needs money to defend and rebuild, changed everything. Yet there is no consensus on whether security is the priority the bloc should spend its money on in the first place.
Hahn will kick off discussions expected to last the next three and a half years when he hosts a conference in Brussels on Monday. It will attract leaders and senior officials from across the bloc and beyond.
The questions that need to be answered by the end of 2027 are: How will the money be raised? How much should it be? Who should spend it and for what? Should governments get the money without questions or under certain conditions?
And if all this seems exhausting, those responsible too are already approaching the saga with a sense of weary apprehension. “Let’s not open Pandora’s box and start the discussion already,” said a senior European diplomat, speaking on condition of anonymity like everyone else in this article due to the confidential nature of the subject.
But start it, they must.
Merkel is no more
The budget – or the multiannual financial framework (MFF) in European jargon – is still very difficult to approve because each figure must be approved by all 27 governments. The negotiations, for the period 2028-2034, promise to be even thornier than before – and last time, they culminated with a marathon five-day summit between the leaders, after more than two years of back and forth between the capitals and their representatives in Brussels. .
“The problem is that this time we don’t have (Angela) Merkel,” said one diplomat, referring to the former German chancellor who used to broker hard-fought deals between leaders in Brussels.
What the diplomat might have added is that one of the EU leaders, now the longest-serving in the bloc, is Viktor Orbán, the Hungarian prime minister who, as a friend of Russian President Vladimir Putin has already made himself known. difficult for the EU to agree to send cash to Ukraine and who saw certain funding intended for his country frozen then unfrozen as punishment for democratic indiscretions. This also fuels the debate.
But it’s not just him. The bloc’s energy capitals are deeply divided over what their top priority should be: strengthening their arms industries in the face of an increasingly bellicose Kremlin, or increasing green investments to meet climate goals. That’s not to mention that around two-thirds of the budget is dedicated to subsidizing the bloc’s agricultural industry and infrastructure projects in Europe’s poorest regions.
Then there’s the economic outlook, which can make additional spending a tough sell. Growth has collapsed, in part because interest rates have risen to curb inflation. The economy is expected to grow by just 0.9 percent this year and 1.7 percent in 2025, according to the Commission.
“When there is a very urgent need, like defense in the midst of war in Ukraine, we find the resources, but for other long-term needs that are less visible, like climate change, it is much more difficult to mobilize people,” said Eulalia Rubio. , researcher at the Jacques Delors Institute think tank.
Countries that see themselves as less affected by the war in Ukraine – such as Spain – are opposing a military spending spree.
“Defense cannot be the only priority, we need a balanced approach,” said another diplomat.
Should the EU raise taxes?
And the question arises as to where the money comes from.
The backrooms of the European Commission in Brussels, which traditionally lobbies for more money to be distributed than the bloc’s governments are prepared to provide, are full of lofty talk about the need for a bigger multiannual budget, which currently stands at around 1% of the bloc’s GDP – around 1.2 trillion euros last time – but there is deep disagreement over where to find the extra cash. French President Emmanuel Macron said Thursday he supports doubling the size of the EU’s multiannual budget, but the proposal is likely to face strong opposition.
The default option – member countries shelling out more money for a central pot managed by the Commission, which is how most of the budget is made up – faces opposition from fiscally conservative countries in Southern Europe. North, the so-called frugal.
Other countries are proposing new EU-wide taxes levied by the Commission, including on carbon emissions and multinational profits, to generate tens of billions of euros in additional revenue.
But the decades-old dream of some that the bloc would generate its own revenue to protect its budget from the whims of domestic capital faces opposition from northern and eastern European countries.
“It’s a philosophical question,” said a European official, referring to the stewards. “They don’t want the EU to collect taxes.”
Borrowing to finance defense
It took a global pandemic and major economic crisis in 2020 to persuade Germany and the Netherlands to break the long-standing taboo of issuing joint EU debt to create a separate pool of money from the budget. The move was presented by the Commission as a one-off measure to combat the worst post-war recession – but several states now want to replicate this model to buy weapons from Ukraine.
Baltic countries like Estonia – which until recently would have balked at the slightest mention of joint debt – have supported France’s calls to issue these so-called Eurobonds to bolster kyiv’s defense. But the usual suspects object.
“We are against (Eurobonds for defense). . . because this will result in a transfer of power to Brussels,” Dutch leader Mark Rutte said in March.
Calm down
Even though MFF negotiations have yet to officially begin, national leaders are already engaged in a war game.
“We are planning a clash with the economists (on financing the poorest countries). We are really preparing for it because we have to be ready,” said the EU’s top diplomat.
In addition, the Commission will also need to find new money to repay the interest rates on its post-pandemic common debt and prepare the ground for the biggest wave of enlargement in 20 years.
We’re not there yet. The European executive will present a formal proposal in the summer of 2025, which must be unanimously approved by governments before the end of 2027. Before that, in June this year, there will be an election to the European Parliament in scale of the block which is planned. should cause a shift to the right. Parliament has a right of veto over the budget.
Leaders are already offering ideas on key issues such as the future of the bloc’s agricultural subsidies or the impact of Ukraine’s membership on financing poorer regions.
“The CFP never sleeps,” said a European diplomat.
And soon, the officials responsible for developing it won’t either.
Politices
