In-Sight: EU at a crossroads over its future spending because of Brexit

They call them the frugal four: Austria, the Netherlands, Sweden and Denmark, the largest four net payers into the EU budget, per capita. In the ongoing budget fight ahead of a special EU summit on Thursday, these are the ones who insist on more responsibility. The quartet believes future long-term contributions should remain stable at one per cent of the bloc’s gross national income. In other words, each country should keep paying the same proportion of its GNI into the Brussels coffers. But the Brexit budget hole — €75 billion less over the next seven years — leaves the EU at a crossroads: either pay for the British loss or slash its spending. Reluctant to give away more of their taxpayers’ money, the frugal camp wants to tighten the belt. And they insist on maintaining their rebates, a sort of cash-back programme for the top net payers.

“The rebate is an absolute pre-condition for Austria,” Karoline Edtstadler, Austria’s minister of European affairs told, arguing that it “should compensate for the gap between our higher financial contribution and the lower return.” “Austria has become the third-largest net contributor. We need to try to reduce this gap. And that’s why we are demanding a substantial rebate for Austria.”

The frugal four have a traditional ally: Germany, the biggest EU economy. But this time, Berlin has adopted a softer stance. The Merkel government has indicated it might be willing to pay more than the one per cent if the new budget plan focuses more on “modern policies” like the digital economy and climate change. A bigger budget yes, business as usual no. “If we don’t get substantially more funding, we won’t be able to tackle new challenges without cutting in traditional fields. And that’s the so-called cohesion policy and the agricultural policy,” Niclas Herbst, vice chairman of the budget committee of the European Parliament told. “We need to decide: Do we want a future-oriented budget or do we want a budget that simply keeps on doing what we always did.”

Yet, how much Germany is willing to pay more for climate change and the digital economy is part of Merkel’s negotiating chips. But her argument seems to have some swaying power among the frugal four. Most recently, Austria’s conservative-green coalition government has signalled some “flexibility”. The Frugal Four are, however, opposed by a group of 15 countries who have dubbed themselves the Friends of Cohesion. These member states — Bulgaria, the Czech Republic, Cyprus, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia, Slovenia and Spain — were net beneficiaries of the budget in 2017. It means that they received more from the EU than they paid in.

At a meeting in Portugal earlier this month, they reaffirmed their commitment to fight so that the bloc’s Cohesion funds remain level in the next budget. These funds have been given to less-developed areas to boost infrastructure. They argued that disparities between member states in the level of development “are still substantial” and that for this reason “no member state should suffer a sharp and disproportionate decrease of its Cohesion allocation”.

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