The Union’s next Multiannual Financial Framework (MFF) will have to play a central role in economic recovery and the Commission has done well to announce a revision of its original proposal to take into account the impact of the current crisis and the scale of future challenges, according to the Eurogroup conclusions of Thursday 9 April, dedicated to the European economic response to the Covid-19 pandemic. The Commission’s intention to revise the MFF proposal had already been made public the week before by President Ursula von der Leyen, who made the evocative proposal for a “Marshall Plan for Europe” with a “new and strong EU budget” at its heart.
What is the MFF and how could it play a central role in Europe’s response to the Covid-19 crisis? The Multiannual Financial Framework is the Union’s long-term budget, that sets the EU spending limits for a seven-year period – as a whole and also for different areas of activity (common agricultural policy, cohesion policy, research and innovation, security and defence, etc.) – and determines the general criteria for the allocation of funds. The proposal for the 2021-2027 MFF, presented almost two years ago (May 2018) by the Commission, provided for a total allocation of €1279.4 billion, equal to 1.11% of the gross national income (GNI) of the EU 27 member states. This is a figure that is certainly significant in absolute terms, but relatively small when compared to the size of the public budgets of single countries.
Since the Commission’s initial proposal, very little progress has been made in the negotiations. However, it should be remembered that the negotiations are made particularly complex by the approval procedure. This involves the MFF being adopted unanimously by the EU Council (requiring the consent of all MSs) after the green light from the European Parliament, which must simply approve or reject “en bloc” the agreement reached by the MSs without any possibility of amendments. The last compromise proposed by the President of the European Council, Charles Michel, at the extraordinary summit of EU leaders in February has broken down because of the strong internal splits in the Council, divided between the so-called “frugal” countries (Austria, Denmark, Finland and Holland) – which support a budget limited to 1% of the Union’s GNI – and the 17 countries “friends of cohesion” (including Italy) – in favour, albeit with different nuances, of a more ambitious budget.
This happened before the outbreak of the crisis, and the Commission is now preparing to update (it should do so on 29 April) its initial proposal. The project, as EU Budget Commissioner Johannes Hahn told the Financial Times, should provide for a temporary increase in the own resources (EU’s revenue) ceiling set by the MFF 2021-27, from 1.29% of EU GNI initially proposed to a maximum of 2% for the first four years of the budget. This margin (the May 2018 proposal, instead, had set the spending limit at 1.11%) would allow the Commission to raise money on the financial markets at limited interest rates (similarly to what was agreed for the establishment of the unemployment fund SURE), and use it to support MSs in their economic recovery. This involves investments of up to €1,500 billion for the first three years of the MFF being mobilised, according to initial calculations by the EU government.
We are at the beginning of a game that will be played out in the coming months (largely under the German Presidency of the EU Council) and which, in Europe’s economic response to the crisis, is only one piece of a larger picture. First of all, the details of the Commission’s new proposal remain to be seen once it is put in writing at the end of the month. Secondly, the relation that the new budget should have with the new Recovery Fund announced on 9 April by the Eurogroup is still unknown (a decisive step in this direction will be the next European Council scheduled for April 23).
For the time being, the evocation of the Marshall Plan may well be useful for von der Leyen in conveying the scale of the challenge facing Europe, however, the comparison between the extraordinary plan financed by the United States to support European recovery after the Second World War and a very limited European budget, largely devoted to the financing of existing programmes and too tied up with the old logic of allocating funds, remains decidedly out of place.