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The EU's future budget: plugging the Brexit hole

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The EU's future budget: plugging the Brexit hole

The EU's future budget: plugging the Brexit hole
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The European Union is gearing up for negotiations that will determine the bloc's next long-term budget after 2020. The EU Commission launched a series of public consultations on the priorities of the EU before discussions officially begin in May.

EU Budget Commissioner Günther Oettinger warned, "All programmes will have to tolerate certain cuts, even large ones like cohesion, agricultural policy and rural development." He added that programmes will be assessed based on their "true European added value."

Only two are exempted from cuts — the Erasmus+ educational programme and the Horizon post 2020 research programme.

After the UK leaves the EU, a budget hole of between €12 billion and €15 billion a year will have to be plugged. But where will the money come from? Euronews explains.

The 1% cap

At the moment the EU can only spend a budget of up to one percent of the bloc’s economic output. It has committed itself to a budget of €160.1 billion for 2018.

To find more money for the pot, Oettinger wants to raise revenue from the EU27 member states by getting them to contribute at least €16 billion more per year to the forthcoming budget.

However, this would involve scrapping the one percent cap – something that is likely to be fiercely contested in some European capitals, not least in Berlin. Germany is the EU’s largest net contributor to the budget. France and Austria have also objected to contributing more.

Commission President Jean-Claude Juncker has said one percent is the price of coffee for the taxpayer, and “Europe is worth more than one cup of coffee a day”.

Agricultural subsidies and cohesion funds

There will be cuts across the board, including in agricultural subsidies, which at around €58 billion a year make up around 40 percent of the EU’s budget. Together with cohesion funding for poorer states, the spending amounts for some 70 percent of EU cash.

France, a farming heavyweight and traditionally tough opponent on this subject, has signalled that it may be open to compromise under President Emmanuel Macron’s new government.

Farming is set to receive less funding under EU plans/ Reuters

A leaked government letter in December revealed that Paris was urging Brussels to carry out “deep” reforms of the EU’s oldest policies, including on agriculture – although it stopped short of explicitly endorsing budget cuts.

The EU’s Common Agricultural Policy (CAP) has long been criticised for being inefficient and expensive, distributing the majority of its funds directly to the owners of agricultural land. Its defenders point out that around half the EU’s land is farmed, and that agriculture supports other economic sectors.

The UK has plans for an overhaul of farming payments post-Brexit, but wholesale reform of the EU system still seems unlikely: Juncker opposes “drastic” cuts to the programme.

Oettinger speaks of reductions in both CAP and cohesion funding that are “as moderate as possible… not 15 or 30 percent, but below their current amount”.

Shifting priorities

New priorities like migration, defence and border control will get an earmarked budget rather than ad hoc money taken from other areas. Two programmes will be exempted from any cuts: Erasmus+, the student exchange programme, and Horizon post-2020 focused on research.

Oettinger wants another €10 billion – over and above the €6-7 billion member states may be asked to cough up to plug the revenue gap left by the UK’s departure – to fund new European projects to deal with refugees, fight terrorism and to coordinate military, security and defence policy.

Out of the EU’s 2018 budget of €160.1 billion, nearly €4.1 billion is dedicated to managing migration and tackling security.

No more rebates

The rebate involves a complex calculation based on the premise that countries like the UK, Germany, Austria and Denmark make large contributions without getting much back. Oettinger wants the mechanism scrapped.

The British rebate was secured in the 1980s by former Prime Minister Margaret Thatcher who complained the UK was paying too much into the EU budget.

But opposition in the EU is widespread. “This expression ‘we want our money back’ is an expression we no longer want to hear,” says the French Minister for European Affairs, Nathalie Loiseau, who told the French parliament in November that France supported the abolition of “all the cheques and rebates from which some contributors benefit”.

Plastic tax

The EU also wants to reduce the quantity of plastic used in Europe/ Reuters

“We produce and use too much plastic which, despite recycling efforts, becomes rubbish,” Oettinger says. He plans a new tax on plastic across the EU, but the details will have to be worked out.

How much would that cost consumers? Or would the levy be incurred on the producers of plastic? Would there be exemptions? That’s all up for discussion.

Income from emissions trading

The Commission is keen for Europe to “preserve its leading role on the global stage… as a leader of the fight against climate change”. It describes the Emissions Trading System (ETS) as a cornerstone of EU policy and a key tool for reducing greenhouse gas emissions cost-effectively.

Within a cap set on emissions, companies can receive or buy allowances to trade with one another as needed.

Companies that use less than their emissions quota can sell these carbon credits via the system. Income from that currently goes to the national budget.

Oettinger proposes channelling money from the ETS system straight to the EU budget, meaning that “money is also there, where the legislation is”.