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Vulcan Insight | EU reaches deal on long-term budget

For the past ten weeks, negotiators from the European Parliament and Council have been embattled over finding a compromise on the EU’s next seven-year budget. On Tuesday, the two institutions’ delegations reached a political agreement, almost sealing the deal on the roll-out of the €1.8 trillion package aimed at financing the COVID-19 economic recovery through additional funding for future jobs and competitiveness, as well as leading the EU’s green and digital transformation.

Compared to the momentous agreement reached by the European Council on 21 July, this week’s agreement sees an increase of the budget by €15 billion stemming primarily from competition fines imposed by the bloc. The additional funding will feed into key EU funding programmes in the area of health (EU4Health), research (Horizon Europe), and education (Erasmus+). In an effort to boost Europe’s resilience, negotiators have also agreed on increasing the EU budget resources which can be flexibly used to address future unforeseen needs.

Crucially, Parliament and Council negotiators agreed on a mechanism to foster the green transition, by pledging that 30% of the EU’s budget must be spent on climate change fighting measures.

The European Parliament also succeeded on getting the German Presidency of the Council of the EU to agree to a legally binding roadmap on the introduction of new EU own resources in order to increase the bloc’s own financial resources. While Heads of State and Government had agreed on new own resources in their July deal, there remained deep division among member states on their timeline and use, with many arguing for their sole use to finance the repayment of the joint debt assumed for the €750 billion Recovery Fund.

Under the agreed roadmap, the Commission will put forward proposals on a carbon border adjustment mechanism, a digital levy and a revised and expanded Emissions Trading System by June 2021. This is in line with the Commission’s recent 2021 Work Programme. A Financial Transaction Tax, a financial contribution linked to the corporate sector, or a new approach to a Common Corporate Tax Base, mentioned in the European Council deal, are not mentioned in the Work Programme but might also be put forward by the Commission in the coming years. Yet, the introduction of new own resources would require the consent of national parliaments, a crucial hurdle that will likely raise discontent.

Lastly, to ensure that EU funding will be protected, including preventively, against generalised deficiencies in the rule of law and the respect of fundamental rights, for the first time the agreement foresees a rule of law mechanism, linking EU funds to the respect of the rule of law and fundamental rights such as freedom of the press, independence of the judiciary and equality. Indeed, member states that don’t comply with fundamental values will be prevented from receiving any funding from the EU budget.

In commenting on the achievement, the EU Commissioner for Budgetary Affairs, Johannes Hahn, stressed the importance of the additional funds, as well as the introduction of the rule of law conditionality mechanism and a clear roadmap for the introduction of new own resources. Likewise, most of the political groups in the European Parliament welcomed the agreement, calling it a “win-win result”. Nonetheless, MEPs also called for a swift implementation of the budget, so as to meet the needs of the people and the economy.

However, the saga isn’t over, with the agreement still to receive the green light by both the Parliament’s plenary session and Council. The latter’s requirement for unanimity is likely to add fuel to the fire as Hungarian Prime Minister Viktor Orbán has already threatened to block both the long-term budget and the recovery fund over his disagreement with the rule of law mechanism. In parallel, work will continue towards a final adoption of all other elements of the package, including the sectoral legislation and the own resources decision.

Compliments of the Vulcan Consulting – a member of the EACCNY.