Reflecting on the dosh

In its White Paper on the Future of Europe, published in March, the European Commission promised to bring out a series of ‘reflection papers’ on specific topics, the last of which, on the future of the EU’s finances, has now been released. While its main purpose is to inform public debate on how the EU budget should evolve during the next multi-annual financial framework (MFF), due to start in 2021, it also highlights a number of tricky issues deriving from the exit of the UK.

Jean-Claude Juncker, in his preface to the new paper, makes the telling observation that ‘the withdrawal of the United Kingdom will signify the loss of an important partner and contributor to the financing of EU policies and programmes’. Ever the optimist, he goes on to say this ‘presents an opportunity’ for modernising the budget, ironically something the UK pressed for repeatedly in advance of previous rounds of MFF negotiations.

The paper tries to offer an answer to a question often posed by eurosceptics: what is the EU budget for? It suggests that European added-value stems from worthwhile spending unlikely otherwise to be undertaken or which complements what national, regional and local governments do, adding the possibility of EU spending enabling other levels of government to avoid costs. It also mentions expectations of action by the EU it is currently unable to meet because of a lack of resources.

An accompanying blog by Commissioners Oettinger and Cretu, respectively responsible for the budget and one of the EU’s most costly spending programmes (regional policy), also refers to the gap that will be left by the UK’s departure and notes the likely new demands on the EU budget, notably to deal with security threats and the aftermath of the years of economic crisis.

Like the other reflection papers, the new one on financing is a mix of explanation of the current state of play – useful for anyone seeking a succinct and well-presented explainer of the EU budget – and a wide-ranging overview of options for what happens next. The paper is disappointingly neutral and does not make any firm proposals for reform, other than standard calls for simplification, efficiency and flexibility. Who could object?

Instead, it links possible changes to the budget to the broader scenarios set out in the White Paper. Nevertheless, a further irony for British readers is that the paper explicitly mentions the possibility of national co-financing of the Common Agricultural Policy, a change which could reduce its cost substantially.

A plus for the negotiations on the future budget, according to the paper, is that the departure of the UK will mean an end to the UK rebate and its knock-on effects for some of the other net contributors, several of which have rebates on their ex-ante contributions to the UK rebate.

This is pretty unrealistic for a very simple reason: without the UK net contribution of some €10 billion, today’s other net contributors would have to pay even more to maintain the current mix of EU spending. After all, Austria, Denmark, Germany, Sweden and (even more so) the Netherlands already have a variety of rebates which they are unlikely to forgo.

Intriguingly, there is no mention of possible future UK contributions, although it would be premature to infer that the EU is not anticipating future UK involvement in EU spending programmes or revenue-raising. This would distinguish the UK from Norway, which makes a sizeable payment every year, and Switzerland, paying less, but still a significant amount.

Nor does the Brexit ‘divorce bill’ feature, despite the obvious effect it might have on the difficult issue of how to finance the EU budget. Quite simply, unless the major net contributors, notably Germany, agree to pay more, the net recipients are bound to receive less.

Right at the end of the reflection paper is a sentence UK negotiators should note and mark in their diaries. It reveals that the Commission plans to publish its proposals for the next multi-annual financial framework around the middle of 2018. By then, if (and it is a big ‘if’) Brexit remains on track, the toughest issues are likely still to be on the table at a time when the infighting over the future MFF among EU member states will be intensifying.

Two conclusions can be drawn about what all this means for Brexit:

  • First, reading between the lines, losing the UK may force the EU to be more radical in how it approaches the budget. If so the supreme irony, as discussed previously in relation to the White Paper itself, is that the EU is being pushed by Brexit to make changes that would have been welcomed by Britain and might have forestalled a ‘leave’ vote.
  • Second, given the hard choices the EU has to confront on the budget, some contribution from the UK would make finding a solution easier. Those viscerally opposed to any payments to the EU will complain loudly, but whisper it, we might just have a useful bargaining chip.

By Professor Iain Begg, Senior Fellow at The UK in a Changing Europe

Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of the UK in a Changing Europe initiative.

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