László Andor / Jun 2025
Photo: Shutterstock
A new major debate awaiting the EU bubble and the member states is about the next MFF (Multiannual Financial Framework) proposal from the European Commission. It is expected to be presented in the middle of the Summer, with a target to securing an agreement before its implementation in January 2028. A critical question as always is how the EU can ensure that the objectives of balanced growth are supported by adequate fiscal capacity with the necessary degree of flexibility to ensure that the EU revives its growth potential (“competitiveness”) and improves its capacity to respond to the new realities and occasional shocks.
While the method is more or less routine, greater than usual changes are expected, reflecting the geostrategic earthquakes of the recent period. Similarly to the times when Jean-Claude Juncker and Günther Oettinger framed the 2018 MFF debate in the context of “old versus new”, Ursula von der Leyen has signalled that the approach she comes up with will not be conventional. She actually stretched it further than the predecessors by declaring that “our current budget was designed for a world which no longer exists.”
The question is whether the Commission president herself is preparing a budget for the world that actually comes from 2028, by which year it needs to be in place. Such language carries a certain degree of ambivalence: it may be a demonstration of commitment to innovation, but it may also signal the readiness to put pre-existing EU policies at risk in the name of new objectives which might not be well defined or fully shared by all members. It also remains to be seen whether von der Leyen’s bravery is only about addressing trade-offs within the existing frameworks, or also to break the 1 % glass ceiling (the conventional limit for the MFF in percentage of total EU GDP).
The past five years has already seen a kind of budget revolution in the EU, and it also means a great deal for the future. An important lesson of the Covid-19 period is that EU financial tools are also needed for stabilisation. Next Generation EU was an important step forward, but the jury is still out to evaluate its main component, the Recovery and Resilience Fund (RRF). The recent report of the European Court of Auditors is not particularly flattering regarding the RRF.
While there are still mixed views about the merits of the really existing RRF, it should not be doubted that, given the increased level of uncertainty, hostility and volatility in the world economy, EU budgetary tools serving internal stabilisation need be strengthened (e.g. the Globalisation Adjustment Fund) or newly established (e.g. an unemployment reinsurance fund). A new model MFF should entail permanent tools for stabilisation, following the pattern of SURE which was a crucial invention at the time of the Covid-19 shock.
The future of EU cohesion policy is one of the key questions in the upcoming MFF debates. There is a risk that newly defined priorities such as competitiveness, defence, and preparedness could sideline cohesion, which is the only redistributive policy of the EU budget on the expenditure side. If new priorities are pursued without awareness of their impact on regional disparities, we may end up with the poorer regions paying for the conflicts in our neighbourhood. On the other hand, just like in the cases of digital development and climate investment before, defence priorities can also be reconciled with the objectives of territorial cohesion, but that requires inclusive planning and implementation mechanisms.
EU cohesion policy remains the EU's main investment policy serving competitiveness. It is an effective tool for reducing inequalities and promoting sustainable growth in European regions. It is inseparable from the single market, and the deeper the market integration goes in the EU, the more sophisticated and robust cohesion policy is required. Territorial imbalances are often underestimated, since convergence measured in GDP can hide divergences in working and living conditions, and the quality of public services.
Nevertheless, cohesion policy faces a qualitative and a quantitative challenge in a mid- to longer-term horizon. The quantitative one is the set of “new priorities”. It has been floated recently that “unspent” funds from cohesion could be used for defence purchases of member states. In the medium and longer run, the question is whether further EU enlargements can take place without significantly reducing the investment support for the poorer and peripheral regions of the EU. Meanwhile it is also true that dynamically converging countries like Poland may be shifted to the net contributing side of the EU budget in any scenario.
The qualitative challenge for cohesion policy stems from the attraction of the RRF model, which is in its simplified implementation model and its result orientation. The point here is to distinguish between inspiration and replacement. The idea to give more powers to the national, as opposed to the regional level, could be a setback for the cohesion policy, and the performance-based approach of the RRF type might not be fully applicable to the cohesion goals either. Nevertheless, one should not doubt that cohesion policy itself must evolve, and that can happen through learning from the RRF to improve governance, simplify procedures, and enhance its effectiveness.
As always before MFF debates, the eternal drive for simplification reappears in new forms. But it makes a big difference whether the new rules and implementation methods would simplify life for national governments, or the final beneficiaries at the local and regional levels. The new modernisation efforts should not deprive the cohesion policy of its primary objective, which is to deliver balanced growth within the single market which otherwise would have polarising effects.
Without a strong commitment to cohesion policy, Europe risks deepening inequalities and as a consequence fueling further anti-European sentiment in lagging-behind regions – all this at a time when economic integration and geopolitical instability demand greater unity. While the conventional thinking only connects cohesion policy to less developed regions which need investment support to catch up, today it also is highly relevant for regions which have experienced relative decline in the last 15 years (i.e. since the Great Recession). Therefore, cohesion is not only crucial for poorer corners of Europe, but it delivers indispensible support also in regions of net contributing countries (like Wallonia, Piemonte, or the French Outermost Regions).
Due to diverse and probably divergent views on some of the these questions, the coming debate is likely to be more comprehensive, but perhaps also more conflictual than any previous ones in recent memory. Undoubtedly, the EU’s current strategic priorities require greater ambition, to deliver substantial investments in green, digital and social transitions and now, increasingly, defence. The EU Budget negotiations will be crucial in strengthening European financial and investment capacity which today does not only form part of the effort to revive Europe’s growth performance but also to boost its strategic autonomy.
Needless to say, the MFF cannot be a tool to solve all problems. For example, the EU must help raising funds for the post-war reconstruction of Ukraine outside its own budget, and the main answers to Trump’s trade war should not come from fiscal but monetary policy (by strengthening the external role of the euro). If the point is to boost “investment for strategic sectors such as artificial intelligence, biotechnologies, and space”, the role of the European Invstment Bank needs to be explored most of all. The EU has more financial tools than is often recognised. The fallacy to pursue too many objectives with too few tools can be avoided, if we really want it.
