After hard negotiations, a new budget for the EU

The European Union has a new budget deal. After four days of intense negotiations and lots of political posturing, European leaders in July agreed to a new budget for the years 2021-2027, totaling 1.800 billion euro. It’s an historic deal in many ways, though critics say its scope and ambitions are underwhelming.

Negotiations on the budget were even more difficult than usual because of the 750 billion recovery fund necessary to help countries recover from the corona crisis. This money, 390 billion in grants and 360 billion in loans, will be raised by the European Commission on the capital market. Member states most affected by the corona crisis, such as Italy and Spain, will be able to benefit most from the recovery fund, but only if they also enact sensible economic reforms. The member states will vote on all spending proposals; if the money is not spent as intended, or if promised reforms are not realized, the European Commission or any member state can ask for the loan or grant to be frozen at the next meeting of the European Council.

Dr. No
The conditions attached to the recovery fund, called the ‘handbrake’ on spending, was one of the main demands of the ‘frugal four’, a coalition of the Netherlands, Austria, Denmark and Sweden (later joined by Finland) headed by Dutch Prime Minister Mark Rutte. Prior to the negotiations, the Dutch government as well as most members of Parliament in The Hague opposed a recovery fund made up of subsidies that would not be repaid. During the negotiations these four countries kept pushing against the fund, much to the consternation of southern European countries, that have been hit hard by the economic crisis resulting from the covid-19 lockdowns.Tensions were running high between Mark Rutte and his French and German counterparts Emmanuel Macron and Angela Merkel, who walked out on him one evening during negotiations. The Dutch Prime Minister was given the nickname ‘Dr. No’ in much of the southern countries’ media, but Rutte maintains that relations between him and the European leaders remain strong. In the end, the frugal countries ceased their resistance against the recovery fund only when the handbrake option was included in the deal.

Devil’s in the details
All European leaders celebrated the new budget as a great win for their countries, but there was also a lot of criticism. Dutch Parliamentarian Pieter Omzicht of the CDA lamented that there are different interpretations to the budget text, making Rutte’s handbrake not very effective after all. If a country receiving subsidies does not implement its promised reforms and the other member states don’t make a decision whether to discontinue payments, the European Commission can then make that decision for them.Dutch EU budget experts also complain that the 2021-2027 budget is a disappointment, as the much-needed modernization that Rutte touted at the beginning of this year has not come through. The Dutch ambitions were to have the EU spend more on security, climate and migration and less on agriculture and funds for poorer EU regions, but the climate budget has been cut and more subsidies are going to large companies instead of innovative agriculture.

Wins and losses for The Netherlands
Dutch researchers are also disappointed with the agreement, as the European budget for scientific research has been cut substantially. Health care research has even been scrapped altogether, which seems like an odd thing to do during a health epidemic. As a result, European subsidies to Dutch research institutions will go down by an estimated 100 million every year.

Still, there is no denying that this is a budget deal of historic proportions. Keeping the EU afloat and injecting new cash into the system is a huge boon also for the Netherlands, as the Dutch economy depends mostly on exports. The Dutch annual contribution to the EU has also been cut: the government negotiated an extra discount on the annual remittance to the EU of 350 million euros, as well as a larger share of customs duties collected in the Rotterdam port (100 million euro), bringing down the total cost of the new budget to 330 million euros annually, or €19 per citizen per year.

Written by Johannes Visser