OPN N200227 EU headquarters-1582795289484
European Union flags flap in the wind outside EU headquarters in Brussels, Friday, February 21, 2020 Image Credit: AP

Money. You can’t live with it, can’t live without it. And it’s the biggest source of concern in relationships and families. Who gets and who gives?

Now imagine trying to figure out the finances of the European Union. So far, despite months of background preparations, weeks of planning and a couple of days of hard bargaining between the 27 heads of government and their top officials along with the top echelon of European officials, the EU can’t reach an agreement on its finances.

And there’s a huge gaping hole in the purse. That little matter of Brexit has left Brussels trying to fill a €75 billion (Dh300 billion) shortfall on its financial plans between 2021 and 2027.

As things stand right now, some 70 per cent of the budget comes in contributions from the 27 member states — the balance from customs duties on goods coming into the European Union from third countries as well as VAT receipts and money from fines the European Union levies for infringements

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The poorer nations of Europe are demanding more while their frugal peers are intent on reining in spending.

The European Union has always had difficulty in reaching an agreement on its budgets and indeed, part of the reason why they are set out for six years at a time is recognition that the task is onerous and time consuming, so better then to do it for as long a period as is practicably possible.

With the Brits now gone and taking their contributions with them, the European Union is facing new challenges in the form of climate change, migration and the shift to a digital economy.

The stand-off has also exposed rifts between countries in the north and south, between east and west, and between more developed and less advanced economies.

Frugal four

As things stand right now, the so-called “frugal four” of Denmark, Sweden, Austria and the Netherlands are standing firm that the budget through to 2027 must be capped at 1 per cent of the EU’s economic output. Doing that would mean deep cuts to areas of EU spending that benefit poorer nations who receive generous handouts to development aid and farming subsidies. Drive on any EU road and you’ll notice big signs celebrating that the work has been funded by specific EU programmes.

Health and social care programmes are subsidised, too, meaning Greek seniors or Portuguese cancer patients can enjoy a better quality of life thanks to the budgetary support from Brussels. And cutting that regional development funding and farming subsidies make for a hard political sell in nations that benefit from the handouts.

The feud also underlined the fact that, following the turmoil of Brexit that brought them together, the bloc still has many issues that divide it.

“These divisions are there. We don’t need Britain for that. They were playing out during the financial crisis a decade ago, during the migration crisis, we’re now seeing them on budget issues,” French President Emmanuel Macron said.

When EU leaders gathered in Brussels for a couple of marathon sessions, they failed to reach an agreement on a proposal that would set the EU budget at 1.074 per cent of the bloc’s gross national income, equating to €1.09 trillion. They also discussed another blueprint that would be based on 1.069 per cent — but ultimately failed.

That frugal four opposed the scheme because it would set one-third of the budget for regional aid and another third to assist farming. Macron is backing it, however, because French farmers are notorious for their political actions that have scuppered more than one French leader since the phrase “the peasants are revolting” was ever uttered.

And Germany, always the nation that pays the most, is irked that it is being asked to make up most of the shortfall caused by the Brits upping and leaving.

Funding model

Charles Michel, the new European Council president, is trying to find some way of making the numbers add up, but his proposal of 1.074 per cent means that the bloc faces €230 billion in cuts to its spending. Officially, the budget is called the Multiannual Financial Framework (MFF), and the frugal four are determined to hold the spending line at 1 per cent of GNP.

As things stand right now, some 70 per cent of the budget comes in contributions from the 27 member states — the balance from customs duties on goods coming into the European Union from third countries as well as VAT receipts and money from fines the European Union levies for infringements.

Even then, because of the way the aid and rebate system works across the bloc, member states receive aid and grants on social spending and farming subsidies.

The long-term thinking is that the whole funding model needs to be reformed, with less of the money coming from national governments, more coming from direct sources. And as things stand now, member states send 80 per cent of customs revenue on third country imports back to the EU budget and keep the remaining 20 per cent.

If that figure handed to Brussels was increased to 90 per cent — as the European Commission, the cabinet-like structure responsible for the day-to-day running of the bloc has suggested — a lot of the contentious budgetary issues would be resolved. Michel has suggested the level be adjusted to 87.5 per cent as part of the current talks — but there’s long way to go right now.