After Brexit, EU faces ‘most difficult’ budget negotiations in history

Representatives from EU countries began debating the EU budget for 2021-2027 on Thursday. One of the biggest issues they face is the fact that the United Kingdom will no longer be contributing to the budget after Brexit, which will leave a huge financial hole in the new multi-annual budget.

Some EU countries are “net payers” meaning they put more into the budget than they receive back from it. Some countries are “net receivers” who put in less than what they receive from the budget.

Of the net payers, there are the “frugal four” who would like to rein in their spending on the budget: the Netherlands, Austria, Sweden and Denmark.

‘Cohesion’ is money meant to assist the EU's poorer regions. The “friends of cohesion”, that is, 15 countries in Central, Eastern Europe and the south “seek at least to preserve current agricultural and infrastructure spending” according to the Guardian.

What the Guardian calls the European Union “budget battle” pits these two groups against each other.

Then there is Germany, the biggest contributor to the budget by the size of the contribution. It aligns with the frugal four in that it would like to curb spending, the BBC reports. Whereas France, the second biggest payer, wants to keep spending on agriculture and expand EU defence funds.

The UK’s departure from the EU will leave a sizeable gap in the budget, to the tune of net $11.6 billion (9 billion GBP or 10.75 billion euros). The BBC arrived at this number by deducting the UK rebate paid to the UK by other member states and spending on EU programmes in the UK, from the UK’s total contribution in 2018 of $22.43 billion (17.4 billion GBP or 20.77 billion euros).

The rebate was first secured for the UK by Margaret Thatcher in 1984, with some other countries following suit, and is, according to the Guardian, “effectively a discount on their EU membership fee.”

The Financial Times has calculated the gap left by the UK’s departure as somewhere between $64.77 to $80.97 billion (60 to 75 billion euros) over the 2021-2027 period. The newspaper has reported a deadlock between EU leaders after lengthy summit talks on Thursday night February 20, 2020.

Because of Brexit, the EU has to balance its budget so that net payers are asked to chip in more –– by receiving less in rebates after their contributions –– while net receivers are asked to do more with less funding.

Neither side is happy with these suggestions which may be why the European Council president Charles Michel had to spend his time holding one on one talks with several national leaders.

Michel has suggested phasing out rebates to the frugal four and Germany, which was rejected. Merkel and other net contributors clearly stated that they expect their rebates to continue.

According to the Financial Times, Michel had suggested a budget with a contribution worth 1.074 percent of the EU’s gross national income (at $1.18 trillion or 1.09 trillion euros), but the frugal states insist on paying one percent of their GDP which was the rate, according to the BBC, that was fixed for the current seven-year period.

French President Emmanuel Macron has conceded that Brexit is an important factor in the new budget negotiations. Yet he added, “it would be unacceptable to have a Europe that compensates for Britain leaving by scaling back its means.”

The FT reported Germany’s Chancellor Angela Merkel as saying her country was not satisfied with the current status of the negotiations, “because we think we don’t yet have an adequate balance among the net contributors to the budget.”

EU spending priorities have changed over the years. For example, agriculture has gone down from 70 percent of total spending in 1986 to less than 40 percent now, with the new proposal for 2021-2027 reducing it to below 30 percent.

The proposal, according to the BBC, sees increased spending on “security, student exchanges in the form of the Erasmus programme, the external border, digital issues and the environment including climate change.”

Poland’s Prime Minister Mateusz Morawiecki said the budget discussions were the “most difficult negotiations in history.” Poland is one of the “friends of cohesion” countries in the EU.

Morawiecki explained the reason for the difficulty is “some of the countries push for new goals, they want to have a new structure of this budget,” adding, “We don’t agree to have a revolution of the structure of the budget and to decrease it.”