Cheat sheet: Everything you need to know about the EU budget battle

The European Commission’s much anticipated long-term EU budget plan, unveiled yesterday, was described by Ursula von der Leyen as “the most ambitious ever proposed”.

It was also, by far, the most confusing. Indeed, even the Commission president herself was unable to explain how her “simplified” budget – otherwise known as the Multiannual Financial Framework (MFF), which will run from 2028-2034 – added up to the claimed €2 trillion.

“On the details of the figures, I think the technical briefing will bring you what is necessary there,” she told reporters.

The subsequent briefing, however, only further confounded reporters. EU officials – who themselves were clearly bewildered by what the Commission chief had just presented – asked journalists to only pose questions about the so-called “Heading 1” of new MFF (see below), which amounts to less than half of the planned new cash pot.

In other words: The Commission was only prepared to explain what it was proposing to do with less than half of the €2 trillion in taxpayers’ money it wanted to spend.

We think we can do better. What follows is a cheat sheet on the most important questions surrounding the mammoth proposal.

Did the budget actually increase?

Technically, yes. The total proposed amount of just under €2 trillion is larger in both nominal and real terms (i.e. when you take into account inflation) than the current budget, which in today’s prices amounts to roughly €1.3 trillion.

A better way to compare budget figures, however, is as a share of the EU’s gross national income (GNI), or the total income earned by European citizens each year.

In terms of GNI, the new proposed budget is 1.26%, up from the current 1.13% - well below analysts’ hoped-for increase to 2%, but a significant hike nonetheless.

Are there any size-related snags?

There are several.

First, roughly 0.1% of EU GNI, or around €25 billion per year, must be spent on paying back the ‘NextGenerationEU’ pandemic recovery fund, which is financed through common EU debt. Repayments of both the interest and principal of the €650 billion fund are set to begin in 2028 – the same year that the new MFF is due to enter into force.

In effect, this means the Commission’s proposed MFF amounts to 1.15% of GNI – just 0.02 percentage points more than the current budget, if you strip out the debt service.

Second, we should remember that we are comparing the Commission’s proposal to the already agreed current MFF. During the next two years of negotiations, however, the planned budget – which requires the unanimous support of all 27 EU member states – is overwhelmingly likely to become smaller.

In fact, we estimate that the Commission’s original proposal for the current MFF ended up being 0.06 percentage points smaller in terms of GNI than the one that was eventually agreed.

If history were to repeat itself, this would mean that the total (effective) size of the next MFF would fall to 1.09 (= 1.15-0.06), which is below the current 1.13%.

This figure would, by our calculations, still amount to around €1.7 trillion, which is roughly €400 billion larger than the current budget. But this “increase” would overwhelmingly result from the fact the EU’s economy has grown over the past few years. (Incidentally, it is also why GNI is a far better way of comparing EU budgets.)

I’m confused again. Can you sum up?

In short: the EU’s post-2027 proposal is larger than the current budget, both in terms of GNI and in real terms (i.e. inflation-adjusted prices), even if you factor in the need to repay NextGenEU.

However, if you account for the fact that the budget’s size will almost certainly be negotiated down over the next two years, the next MFF will likely be smaller in terms of GNI but will likely still be larger in real terms.

Are there any other size-related issues I should know about?

Yes.

The Commission also proposed two other funding schemes that are not, strictly speaking, part of the next MFF.

These are:

• A €150 billion “Catalyst Europe” loan scheme. Here, the Commission will use its ability to borrow cheaply on capital markets to provide loans to member states that otherwise would have to pay higher rates of interest. These loans will then be used by national capitals to boost investments in energy infrastructure, strategic technologies, defence, and other critical sectors. (For policy nerds: Catalyst Europe is somewhat similar to the €150 billion “SAFE” facility, but with less of an emphasis on defence and joint procurement.)
• A €100 billion ‘Ukraine Reserve’. This, von der Leyen said, will “feed in” to the already existing “Ukraine Facility” to support the war-torn country’s reconstruction.

How is the budget structured?

The budget has been “simplified” in various ways. Arguably the main way, however, is that the number of “headings”, or broadest categories of funding programmes, has been slashed from seven to four.

We’ll ignore the fourth, “administrative” pillar here, which is used to pay out staff members and is virtually identical to the current MFF’s.

The other three headings are genuinely new, although they also subsume many existing funding schemes.

• Heading 1: €865 billion National and Regional Partnership Plans. These will merge the so-called Common Agricultural Policy (CAP), which provides subsidies to Europe’s farmers, and so-called Cohesion Policy, which is intended to boost development in Europe’s poorer regions. Instead, the Commission will provide each of the bloc’s 27 member states with country-specific payment plans that will be linked to reforms and respect for the rule of law. (For policy nerds: this scheme will be somewhat similar to NextGenerationEU, except it won’t be funded by common debt and regions will be more involved – or so the Commission claims.)
• Heading 2: €410 billion Competitiveness Fund. This, von der Leyen said, will be used “to secure supply chains, scale up innovation, and lead the global race for clean and smart technology” – in other words, to boost the bloc’s faltering economy and avoid being left behind by China and the US.
• Heading 3: €200 billion Global Europe Fund. This Fund which will include humanitarian aid and support for reforms and investments in countries seeking accession to the EU.

What are the biggest stumbling blocks?

There are four; two of them concern the national and regional partnerships.

First, CAP and cohesion have been drastically cut. CAP has arguably suffered the worst, having had its value in real terms slashed by around 30%. Overall, CAP and cohesion each account for roughly a third of the current MFF. At €865 billion, the national and regional partnership plans represent less than half of the proposed new MFF.

The proposal to cut CAP has, obviously, enraged the bloc’s farmers (especially in France) as well as major recipients of cohesion funds, such as Poland.

Second, the attempt to link funds to specific reforms is seen by many as an attempt to “renationalise” the MFF and centralise power in Brussels.

Indeed, these criticisms are even made by members of von der Leyen’s own centre-right European People’s Party political family.

“We, the [European Parliament], cannot accept that the budget of the European Union becomes the sum of 27 national, eventually conflicting different agendas,” Siegfried Mureșan, the EPP’s lead rapporteur for the MFF, wrote on Twitter yesterday.

Third, it is highly unlikely that Germany and the Netherlands will agree to a steep increase in the MFF’s GNI without a fight – even if it used to refund NextGenEU. In fact, Dutch Finance Minister Eelcon Heine already warned that the Commission’s proposed MFF “is too high” and that “difficult choices” (i.e. cuts) must be made.

The fourth and final issue involves Global Europe. Hungary, in particular, is concerned that Fund will be used to largely support Ukraine’s accession, which it vehemently opposes.

“EU Commission’s budget proposal isn’t just unfair, it’s not even fit to be negotiated,” premier Viktor Orbán wrote on Twitter. “Hungary stands firm, we'll always put our families first - Brussels must be stopped!”

The budget, in short, is not just ambitious and highly confusing. It might also be dead on arrival.

(mk)