WhatsEUp? The new EU budget proposal’s impact on the usual political divides

With the Commission’s proposal now on the table for some time, the traditional negotiations are underway, and the Council and the Parliament are preparing their respective positions.

However, the €2 trillion proposal has altered the usual institutional equilibrium. The proposal’s profound revision of long-standing EU policies – namely the Common Agricultural Policy and the cohesion policy– has shuffled the cards, offering new political divides between and within the Parliament and the Council, while traditional fault lines have resurfaced as well.

Where are the big debates? What are the negotiations focusing on? Energy Cities breaks it down for you.

Once again, the Council is divided between bigger or smaller budget

As imaginable, one of the biggest battles concerns the total envelope of the budget. Frugal countries are opposing an augment of the budget, while others are defending the proposal citing the new challenges the EU is facing – such as accelerating the energy and digital transition and navigating international instability.

However, it is important to put the envelope in comparison to the EU Gross National Income: the proposed volume is equal to 1.26% of the GNI, but 0.11% is for the repayment of the NextGenerationEU. Thus, the real augmentation in about 0.03% of the income.

In any case, to supply the bigger budget, the Commission is proposing to increase its own resources, notably by introducing or amplifying a series of measures to directly finance the EU budget without increasing national contributions. Specifically, the Commission foresees to increase the revenues from the EU carbon trading system ‘Emissions Trading System and from the tariff on carbon intensive products ‘EU Carbon Border Adjustment Mechanism ‘. Alongside these revenues, the Commission proposes to increase or create new taxes on e-waste, tobacco and corporate turnovers, as well as handling fees.

At the moment, the discussions are stuck in the Council, and an informal session on the 24^th of April should unblock them, so that the total and sectorial figures can be determined.

Excellency or geographical representation?

Another topic on which the Council has been divided is the issue of the fund allocation criteria for the European Competitiveness Fund (ECF).This Fund includes under one Rulebook all programmes focusing on improving European competitiveness, going from research, through scale-up and industrial deployment. The idea is to have a huge pocket of money with big flexibility to implement the recommendations fixed by the Letta and Draghi reports.

Indeed, for some countries (Austria, Denmark, Finland, France, Germany, Ireland, Luxembourg, The Netherlands, Spain and Sweden), the Competitiveness Fund “must support and finance the best projects, regardless of their origin,” as summarised by Thomas Steffen, German Secretary of State for the Economy.

For other Member States (Romania, Estonia, Lithuania, Greece, Croatia, Malta, Czech Republic, Bulgaria), instead, “reducing innovation disparities between regions is not a matter of cohesion policy, it is a necessity for competitiveness,” as summarised by the Croatian Minister of Economy. For this reason, they are pushing for a “fair” geographical distribution of the funds.

After months of negotiations, thirteen Member States (Bulgaria, Czech Republic, Greece, Croatia, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovenia and Slovakia) have recently called for a reinforcement of the pan-European dimension of the fund, while safeguarding the excellence principle.

As they explain in the informal note, in case two projects have the same score, the one that “fosters links” between most developed and less developed regions should be favoured.

However, Cyprus, which currently holds the Council presidency, appears to support the position of the first group. Indeed, Cyprus is proposing that the Fund prioritise the excellence criteria, whilst ensuring equal opportunities across the European Union.

Preserving once cornerstone programmes or embracing the novelties

On the Parliament side, the absorption of the LIFE programme into the EU Facility and the Competitiveness Fund has captured most of the attention. However, the Parliament has been battling internal fights for months regarding what were once EU flagship’s programmes, in particular the European Regional Development Fund and the European Social Fund. These two programmes are supposed to be merged into the National and Regional Partnership Plans (another pillar of the proposed budget). 

The European Regional Development Fund – the EU cornerstone programme for the redistribution of resources from richer to poorer regions – still has its own regulation as mentioned in the Treaties, but its budget has been merged into these broader National Partnership Plans. The Regional Development (REGI) committee of the Parliament is pushing for it to be a stand-alone programme with its own budget and specific objectives. However, it’s facing severe resistance, and it’s highly unlikely that the Council will accept the proposal.

On the other hand, the European Social Fund – the EU main instrument to support employment in poorest regions as a mean to reduce regional disparities -is slowing down the internal parliamentary debate on the EU Budget proposal. In particular, the European Popular Party (EPP, right wing) and Socialists and Democrats (S&D, left-wing) groups in the Parliament (and thus the two co-rapporteurs of the interim report that will define the Parliament’s position) have held lengthy discussions about the fund’s budget.

For this reason, the vote in the Budgetary committee of the Parliament was postponed, which significantly limited Parliament’s manoeuvre margin before the April plenary, where the interim report will be adopted.

The S&D group redline for a housing earmarking in the National and Regional Partnership Plans

During the negotiations, the S&D group came forward in the discussions with a redline regarding an earmarking for housing in the national plans. Specifically, the group is asking for 25 billion earmarked for housing. Considering what is already earmarked for Home Affairs, agriculture and Less Developed Regions, this would mean almost 10% of the not earmarked resources, which would roughly correspond to a part of current funds for the cohesion and the rural development.

Meanwhile, the MEP Ehler (Germany, EPP) – both rapporteur for the Industry, Research and Energy Committee of the Parliament for Horizon Europe and co-rapporteur for the Competitiveness Fund – proposed an earmarking as well for housing.

Specifically, in its draft report for the Horizon Europe programme, he suggested to include a specific window (a chapter in the Regulation with its own budget line) for the New European Bauhaus (NEB) and other societal challenges. The NEB is the EU flagship initiative for housing.

Given Ehler’s role as co-rapporteur for the Competitiveness Fund, it is possible it will ask for it also in the Fund, pushing for EU funds for housing in both pillars 1 (National and Regional Partnership Plans) and 2 (Competitiveness Fund and Horizon Europe).

The Parliament’s fear of being sidelined by the Council and the Council’s concern of a power-hungry Commission

The last important battle in the Budget discussions is regarding the role of the European Parliament and the Council in steering the budget, fixing priorities and deciding on work packages.

In particular, the European Parliament is afraid that it is being sidelined in this proposition, as the National Plans will be decided between Member States and the Commission, while the Competitiveness Fund has a special steering role for the Council. The Council, on its side, is afraid that the Commission will have too much power in the adoption and amending procedures of the National Plans, as well as in activating the budgetary reserve the Commission proposed to have in case of crisis.

What now?

The next few weeks will be crucial for the future negotiations.

Indeed, by the end of the month, the European Parliament will approve its interim report on the overall EU budget proposal. While non-legislative, the report will be crucial to understanding the direction of the negotiations: the Conference of the Presidents of the political groups has decided that it will define the Parliament’s position in its negotiations with the Council.

For this reason, the Parliament’s position on the sectoral regulations of the Budget (such as the National and Regional Partnership Plans or the European Competitiveness Fund) will need therefore to be “consistent” with this horizontal report. On the Council side, instead, as previously mentioned, the important date will be 23-24^th of April, as there will be an informal discussion on the total envelope of the budget, feeding the Council Presidency’s proposal on the total and sectoral envelopes that – in theory – will be voted in June.

A call for action

Check out our Mobilisation Kit and our National factsheets to discover how the proposal could impact your local budget, and what you can do about it.

Register now for the next episode of our The MFF & You webinar series, focused on the positions of the Parliament and the Council. The webinar, taking place on the 8 June from 14.00 to 15.30 CET, will be held in collaboration with other five networks of the Local Alliance, and it will have French interpretation as well. You can register here.