EU Budget for 2014-2020 – continuity or change?

By Krystyna Gurbiel, Member of the Management Board of PSDB – a WYG Group policy research company in Poland.

Two and a half years before the starting date of the new financial perspective of the European Union, official discussions regarding the new Multiannual Financial Framework (MFF) have started with the publication of the European Commission’s proposal in June 2011.

The proposal is called A budget for Europe 2020, the title pointing clearly to the Europe 2020 Strategy, approved by the Heads of States and Governments of EU countries in June 2010. The future EU budget should be therefore seen as an instrument directly and actively supporting the goals of the EU 2020 strategy. This direction is heavily stressed in the documents accompanying the budget proposal, presenting key points concerning the main EU policies and the background underpinning the Commission’s approach to the new financial framework of the EU. This would indicate a change in the approach to budget planning: the EU budget for 2007 – 2013 has not really been linked to the Lisbon Strategy, which was at the time of its construction the main strategic document at EU level.

However, when looking at the proposed figures, they rather indicate continuity both in terms of size and construction of the budget.

The Commission proposes a financial framework with 1.05% of GNI in commitments and 1% in payments from the EU budget and additionally 0.02% in potential expenditure outside the MFF and 0.04% in expenditure outside the budget, which gives a total figure of 1.11% of GNI.

As of today, the main policies financed through the budget will be the Common Agricultural Policy with a proposed allocation of 37.4% of the budget (decrease from the present 42.3%) and the Cohesion Policy at a proposed level of 36.7% of the total budget (an increase from 35.7% in the present budget).

No major modifications of the CAP are recommended although some proposals are worth mentioning, such as ensuring that 30%

of direct support is conditional on "greening" (aimed at engaging farmers in environmentally supportive practices), capping the level of direct payments by limiting direct income support for large agricultural holdings and progressive leveling of direct support per hectare among Member States.

A new result-oriented approach in the Cohesion Policy is recommended to ensure its strong link to the EU 2020 objectives, as well as to sound economic governance in the Member States. It consists mainly of linking financial transfers to a number of conditionalities, concerning on one hand macro-economic requirements and on the other hand sector-specific conditions, both ex ante and linked to the achievement of results.

A new instrument in the Cohesion Policy is also proposed: a Connecting Europe facility for transport, energy and ICT priority infrastructures of EU interest. This would be centrally managed and funded by a dedicated budget and through ring fenced amounts for transport in the Cohesion Fund.

The European Social Fund will remain within the Cohesion Policy with its position strengthened by introducing a new requirement of its minimum share of 25% of the total allocation.

Worth mentioning is also a new stress on financial instruments which will be promoted as a method of financing interventions, which will to some extent replace grants, which have so far been the dominating form of support.

In conclusion, the Multiannual Financial Framework drafted by the European Commission already looks more like a result of compromise rather than a starting point for a debate and dispute. Apparently the Commission decided that instead of presenting a really innovative proposal which would indeed translate the priorities of EU 2020 into new (or modernised) budget lines and an emphasis on the strong role of the community level in bringing the EU 2020 strategy into life, it is more prudent to formulate a document which will serve as a reasonable reference point and which possibly - certainly after a lot of heated discussions and strongly formulated positions by some Member States, especially net payers - may be more easily accepted as a continuation of the status quo. Indeed perhaps as the only real option which will be on the

table, ready to be adopted with some modifications to satisfy the most prominent disputants.

Such an outcome is quite probable when looking at the political calendar of those Member States who are the key players in elaborating the final result of the budgetary debate: France and Germany. Both face elections - in France the presidential elections will take place in May 2012, in Germany the new parliament will be elected in 2013, probably in September. Quite possibly the final decision concerning the budget will not be reached before the election in Germany. If this proves correct, there will be very little time left before the beginning of the new financial perspective – and the European Commission proposal may have been prepared with this in mind.

For Poland, the proposed EU budget is certainly satisfactory and Poland will be among its strongest supporters, even more so because Janusz Lewandowski is the Commissioner responsible for the budget and the promoter of the June proposal. The estimates of the Polish Ministry of Foreign Affairs indicate that under the Cohesion Policy, the most important policy regarding socio-economic development, Poland would be eligible for 80 billion euro of financing, an amount higher than the present 67 billion funding. Therefore defending the Commission’s proposal is one of the key priorities of the present government and certainly will remain so regardless of the results of the upcoming parliamentary elections. Up until the end of this year Poland is holding the EU Presidency and therefore the government is not in a position to actively seek alliances in the budgetary disputes, but when the obligations of the Presidency are over, we should see Polish officials involved in discussions: on the one hand with the net payers, to convince them of the benefits of the continued Cohesion Policy not only for the poor, but also for the rich European countries; and on the other hand with those countries who benefit most from the Cohesion Policy, in order to create a strong group which will speak the same voice and hence be able to play a more important role in the difficult discussions ahead.