Budget battle as EU chiefs meet to thrash out long-term spending plans

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By Alice Tidey  & Stefan Grobe
European Council President Charles Michel.
European Council President Charles Michel.   -  Copyright  AP Photo/Francisco Seco   -   Francisco Seco

European leaders are gathering in Brussels on Thursday to reach a budget deal but red lines already drawn out by different factions promise that reaching compromises will be difficult.

EU Council President Charles Michel released his latest proposed deal last week but it was swiftly condemned by the frugal four: Austria, Denmark, the Netherlands and Sweden.

In a joint statement published in the Financial Times earlier this week they wrote that "the financial burden of the union is increasingly being put on the shoulders of a small number of member states, including ours" and that Brexit had emphasised that "we simply have to cut out coat according to our cloth".

Brexit is to result in the budget being cut by up to €75 billion over the next seven years. 

The four countries are net contributors to the bloc's Multiannual Financial Framework (MFF), meaning that they pay in more money than they receive. They want the EU's budget to be capped at 1% of gross national income (GNI).

They also want more EU funds to go towards the fight against climate change, the digitisation of the economy and innovation while cutting cohesion funds, which less developed areas of the bloc receive to bridge infrastructure and economic gaps.

The frugal four are also in favour of EU funds being tied to upholding the rule of law and for rebates — which were meant to be phased out after Brexit — to remain in place.

But another group, Friends of Cohesion, has made clear that they would not accept a reduction in their cohesion funds arguing that there are still "substantial" disparities in the level of development of the bloc's member states.

The 15 countries making up the group — Bulgaria, the Czech Republic, Cyprus, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia, Slovenia and Spain — are all net beneficiaries of the MFF.

The European Parliament, which will be given a chance to vote on the MFF, has also criticised Michel's proposal as falling "far below" their expectations.

"While we ould expect significant investment to deliver the Green Deal, the digital transition and a stronger Europe, President Michel confirms or deepens the cuts to funding for agriculture, cohesion, research, infrastructure investments, digitisation, SMEs, Erasmus, youth employment, migration, defence and many other areas," it said in a statement on Wednesday.

After talks with the leaders as Thursday’s summit opened, European Parliament President David Sassoli expressed surprise that the latest budget proposal would see funding cuts to Europe’s public administration.

“There is something bizarre about this,” Sassoli told reporters. “We want to have proper checks on resources. How can you do that if you have cuts, if you have this kind of reduction?”

Parliament is in favour of the MFF should stand at 1.3% of GNI while the Commission backs a budget representing 1.11% of GNI in line with Michel's proposal.

Finally, two countries remain possible wildcards: Germany and France.

Traditionally, Germany has been an advocate for more fiscal discipline and is, therefore, more likely to align with the Frugal Four. But Chancellor Angela Merkel has indicated the country may be willing to pay more than 1% of GNI if the budget focuses more on "modern policies" like climate change and the digital economy.

Meanwhile, French President Emmanuel Macron has so far remained tight-lipped over how much France would be willing to pay. The country's priority has traditionally been to keep funds for the Common Agricultural Policy as high as possible.

The EU Council must approve the next MFF unanimously before it is put to a vote in parliament.