The always complicated negotiations are made even more difficult by the 75 billion euros that the United Kingdom is no longer contributing to the negotiations.

ANALYSIS / Pablo Gurbindo Palomo

The negotiations for the European budget for the period 2021-2027 are crucial for the future of the Union. After the failure of the extraordinary summit of February 20-21, time is running out and the Member States must put aside their differences to reach a agreement before December 31, 2020.

The negotiation of a new European Multiannual Financial framework (MFF) is always complicated and capital as the ambition of the Union depends on the amount of money that Member States are willing to contribute. But the negotiation of this new budget item, for the period 2021-2027, has an added complication: it is the first without the United Kingdom after Brexit. This complication does not lie in the absence of the British in the negotiations (for some that is more of a relief) but in the 75 billion euros they have stopped contributing.

What is MFP?

The framework Multiannual Financial Framework is the EU's long-term budgetary framework and sets the limits of expense of the Union, both as a whole and in its different fields of activity, for a period of not less than 5 years. In addition, the MFF includes a number of provisions and "special instruments" beyond that, so that even in unforeseen circumstances such as crises or emergencies, funds can be used to address the problem. This is why the MFF is crucial, as it sets the political priorities and objectives for the coming years.

This framework is initially proposed by the Commission and, on this basis, the committee (composed of all Member States) negotiates and has to reach a unanimous agreement . After this the proposal is sent to the European Parliament for approval.

The amount allocated to the MFF is calculated on the basis of the Gross National Income (GNI) of the member states, i.e. the sum of the remuneration of the factors of production of all members. But customs duties, agricultural and sugar levies and other revenues such as VAT are also part of it.

Alliances for war

In the EU there are countries that are "net contributors" and others that are "net receivers". Some pay more to the Union than they receive in return and others, on the other hand, receive more than they contribute. This is why the positions of the countries are flawed when they face these negotiations: some want to pay less money and others do not want to receive less.

Like any self-respecting European war, alliances and coalitions have been formed beforehand.

The Commission 's proposal for the MFF 2021-2027, made on May 2, 2018, already made many European capitals nervous. The proposal was 1.11 % of GNI (already excluding the UK). It provided for budget increases for border control, defense, migration, internal and external security, cooperation to development and research, among other areas. But, on the other hand, cuts were foreseen in the Cohesion Policy (aid to help the most disadvantaged regions of the Union) and the Common Agricultural Policy (CAP).

The Parliament presented a report provisional on this proposal in which it called for it to be raised to 1.3% of GNI (corresponding to a 16.7% increase from the previous proposal ). In addition, the parliamentarians asked, among other things, that the funds for cohesion and agriculture be maintained as in the previous budget framework .

On February 2, 2019, the Finnish presidency of committee proposed a negotiation framework starting at 1.07 % of GNI.

This succession of events led to the emergence of two antagonistic blocs: the frugal club club of the frugal and the friends of cohesion.

The frugal club is composed of four northern European countries: Sweden, Denmark, the Netherlands and Austria. These countries are all net contributors and advocate a budget of no more than 1 % of GNI. On the other hand, they ask that cuts be made in items they consider "outdated" such as cohesion funds or the CAP and want to increase the budget in others such as research and development, defense and the fight against immigration or climate change.

Austrian Chancellor Sebastian Kurz has already announced that he will veto on committee any proposal that exceeds 1 % of GNI.

The friends of cohesion include fifteen countries from the south and east of the Union: Spain, Bulgaria, the Czech Republic, Cyprus, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia and Slovenia. All these countries are net recipients and demand that CAP and cohesion policy funds be maintained, and that the Community's budget be based on between 1.16 and 1.3% of GNI.

This large group met on February 1 in the Portuguese town of Beja. There they tried to show an image of unity before the first days of discussion of the MFP, which would take place in Brussels on the 20th and 21st of the same month. They also announced that they will block any subject cuts.

It will be curious to see whether, as the negotiations progress, the blocs will remain strong or whether each country will move towards what suits it best.

Outside of these two groups, the two big net contributors stand out, pulling the strings of what happens in the EU: Germany and France.

Germany is closer to the frugal by wanting a more austere budget and allocating more money to more modern items such as digitalization or the fight against climate change. But first and foremost it wants a agreement to be reached quickly.

France, for its part, is closer to the friends of cohesion in wanting to maintain a strong CAP, but also wants a greater expense in defense.

The problem of "rebates

And if all these variables were not enough, it is necessary to add the figure of compensatory checks, or "rebates". These are discounts to a country's contribution to budget. This figure was created in 1984 for the United Kingdom, during the presidency of the conservative Margaret Thatcher. For the "Iron Lady", the amount contributed by her country to budget was excessive, since most of the amount (70%) went to the CAP and the Cohesion Funds, from which the United Kingdom hardly benefited. It was therefore agreed that the United Kingdom would have certain discounts on its budgetary contribution on a permanent and full basis.

These compensatory checks have since been provided to other net contributor countries, but these had to be negotiated with each MFP and were partial on a specific area such as VAT or contributions. An unsuccessful attempt was already made to eliminate this figure in 2005.

For the frugal and Germany these checks should be maintained, on civil service examination to the friends of cohesion and especially France, who want them to disappear.

Sanchez seeks his first victory in Brussels

The Spanish Prime Minister, Pedro Sánchez, is staking much of his credibility both in Europe and in Spain on these negotiations.

In Europe, for many he failed in the negotiations for the new Commission. Sánchez started in a position of strength as the leader of the fourth Economics in Europe, after the exit of the United Kingdom. In addition, he was the strongest member of the Socialist parliamentary group , in the doldrums in recent years at the European level, but second force in the elections to the European Parliament. Therefore, for many, the election of the Spaniard Josep Borrell as High Representative of the Union for Foreign Affairs and Security Policy, with no other Socialist in key positions, was seen as a failure.

Sánchez has the opportunity in the negotiations to show himself as a strong and reliable leader so that the Franco-German axis can count on Spain to carry out the important changes that the Union has to make in the coming years.

On the other hand, in Spain, Sanchez has the countryside up in arms over the prospects of CAP reduction. And much of his credibility is at stake after his victory in last year's elections and the training of the "progressive coalition" with the support of Podemos and the independentistas. The Spanish government has already taken a stand with the farmers, and cannot afford a defeat.

Spanish farmers are highly dependent on the CAP. According to the Ministry of Agriculture Fisheries and Food: "in 2017, a total of 775,000 recipients received 6,678 million euros through this channel. In the period 2021-2027 we are playing more than 44,000 million euros."

These CAP subsidies are of two different types:

• Direct aid: some are granted by volume of production, by crop (called "coupled"), and the others, the "decoupled", are granted by hectare, not by production or yield, and have been criticized by some sectors.

• Indirect subsidies: these do not go directly to the farmer, but are used for the development of rural areas.

The amount of aid received varies depending on the sector, but can amount to up to 30% of a farmer's income. Without this aid, a large part of the Spanish countryside and that of other European countries cannot compete with products coming from outside the Union.

Failure of the first budget summit

On February 20 and 21, an extraordinary summit of the European committee took place in order to reach a agreement. Things did not start well with the proposal of the president of the committee, Charles Michel, of a budget based on 1.074% of GNI. This proposal did not convince anyone, neither the frugal for being excessive, nor the friends of cohesion for being insufficient.

Michel's proposal included the added complication of linking the submission of aid to compliance with the rule of law. This measure put the so-called group of Visegrad (Hungary, Poland, Czech Republic and Slovakia) on guard, since from the west of the Union they question the rule of law in some of these countries. So, another group is now in the limelight.

The Commission's technical services made several proposals to try to please everyone. The final one was 1.069 % of GNI. Closer to 1%, and including an increase in the "rebates" for Germany, the Netherlands, Sweden, Austria and Denmark, to please the frugal and attract the Germans. But also an increase in the CAP to please the friends of cohesion and France, at the cost of reducing other budget items such as funds for research, defense and foreign affairs.

But the blocs did not budge. The frugal remain entrenched at 1%, and the friends of cohesion in response have decided to do the same, but at the 1.3% proposed by the European Parliament (even if they know it is unrealistic).

In the absence of agreement Michel dissolved the meeting; it is expected that talks will take place in the coming weeks and another summit will be convened.

Conclusion

The EU has a problem: its ambition is not matched by the commitment of its Member States. The Union needs to reinvent itself and be more ambitious, say its members, but when it comes down to it, few are truly willing to contribute and deliver what is needed.

The Von der Leyen Commission arrived with three star plans: the European Green Pact to make Europe the first carbon neutral continent; digitalization; and, under Josep Borrell, greater international involvement on the part of the Union. But as soon as the budget negotiations began and it became clear that this would lead to an increase in the expense, each country pulled towards what was most convenient for them and this subject of proposals were the first to fall into cuts due to the impossibility of reaching an understanding.

A agreement has to be reached before December 31, 2020, if there is to be no money for anything: neither for PAC, nor for "rebates" nor even for Erasmus.

Member States must understand that for the EU to be more ambitious they themselves have to be more ambitious and willing to be more involved, with the increase in budget that this entails.