It’s the end of the EU budget as we know it (and Brussels doesn’t feel fine)

European Commission President Ursula von der Leyen will defy fierce opposition to propose an EU budget overhaul on Wednesday that includes her €200 billion competitiveness 'superfund', which she argues is essential to keeping up with China and the US.  

Von der Leyen is expected to formally present her superfund, accompanied by a massive revision in how the bloc's finances are controlled and structured, several people close to the process told Euractiv. If she succeeds, which is still far from certain, Europe's budget will never be the same.

At present, the bloc's €1.2 trillion seven-year budget – known in Brussels-speak as the multi-annual financial framework, or MFF – is split between three major parts: farmers, poor regions, and research, diplomacy and administration.

Von der Leyen has long advocated adding a fourth major budget category: a "European Sovereignty Fund” in response to America's 2022 investment spree under President Joe Biden and China's big-ticket industrial policy. EU member states, however, refused to go along.  

With Europe now facing economic stagnation and a precarious security environment, von der Leyen, who first proposed the fund in 2022, is seizing her chance to try again.

Going forward, the EU funds will be divided into "national plans", compressing more than 500 smaller cash pots into just 27, one for each country in the bloc.

Her presentation to the bloc's 26 commissioners on Wednesday will set that structure in stone, leaving bureaucrats to hammer out a technical proposal to be presented to EU countries and MEPs in July, said officials close to the process. 

More than a year of negotiations on the budget will follow.

So far, countless Council and European Parliament declarations have rejected both changes, but von der Leyen's superfund appears unstoppable for the moment. 

Pitchforks at the ready

The budget plan has caused significant discomfort across the bloc.

The current EU budget includes €379 billion in farmers' subsidies, under the Common Agricultural Policy (CAP), and €382 billion in regional 'cohesion' funds, often used to fund trains and transport infrastructure. The idea of merging both into a single, centrally-controlled pot has caused a stir in Brussels and across the capitals. 

Farmers fear that national plans threaten the EU's long-standing farming subsidies, which could more easily be diverted once swallowed by the larger envelope. In response, they will bring their tractors to Brussels on 20 May to protest the “dissolution of the CAP into a single fund,” the lobby said on Tuesday. 

Also threatening von der Leyen's plan is that 26 of 27 EU agriculture ministers have rejected the consolidation of funds, calling for a standalone CAP. 

Cohesions funds have their own defenders.

Vasco Cordeiro, who hails from major beneficiary Portugal and handles cohesion policy at the EU’s regional representation body, rejected the plan despite its "natural temptation" based on the bloc's principle of local control, known in EU circles as "subsidiarity".

National plans risk “weakening European solidarity, undermining policy coherence, and creating implementation disparities across regions,” said conservative MEP Siegfried Mureșan, the Parliament's lead budget negotiator.

MEPs, along with all 27 EU research ministers, also rejected von der Leyen's superfund. But experts warn their opposition to date shouldn't be taken too literally.

“It’s a positioning exercise,” explained Andrea Renda from the Centre for European Policy Studies (CEPS). However, few non-binding statements survive the drawn out budget negotiations. 

Von der Leyen’s competitiveness superfund is swallowing funds not protected by powerful farmer and region subsidy lobbies.

The successor to Horizon, the EU’s €96 billion research fund, will be subsumed into the new superfund, despite resistance from the bloc’s research commissioner.

Academics, who benefit from the bloc's research pot, fear support for basic science will have to yield to short-term political priorities as a result.

The superfund “is a killer of fundamental research,” said Conny Aerts, a member of the Horizon review expert group, when academia first rallied against von der Leyen’s fund. "We don't want to be told top-down what to do,” she said. 

Other multi-billion existing programmes face similar fates. 

A table from the budget commissioner’s office, shared with Euractiv in March, sees all defence, space, health and clean transition programmes, totalling over €200 billion, slotted into the new fund.

Political legroom

The EU's two most important countries aren't opposed in principle to the move.

Berlin's new government wants to "modernise the [long-term budget and make it] ... simpler, more transparent and more flexible”, while France wants to move from a “programme-based” to a “policy-based” budget.

Both see the need for fresh cash for defence and companies, but are constrained by the bloc's tight next budget. Repayments of a €806 billion COVID-19 loan loom, coming it at upwards of €25 billion per year at least.

“The working assumption is we might need to do at best with the status quo in terms of amounts, but probably less,” Florentine Hopmeier, deputy head of the budget commissioner’s cabinet, said at an event recently.

One solution could be to place existing cash into von der Leyen's more flexible fund and national plans, and then smuggle the money towards defence later.

Either way, von der Leyen is on the cusp of achieving the hitherto unthinkable: a €200 billion fund to conduct industrial policy, a luxury previous Commission Presidents could only dream of.

Magnus Lund Nielsen and Thomas Moller-Nielsen contributed reporting.

(jp/om)