Quentin Genard and Johanna Lehne / May 2020
Photo: European Union, 2020
Yesterday the European Commission released “Next Generation EU”, its response to the economic consequences of COVID-19. The steroids-fuelled EU budget is a political hat-trick striking a remarkable balance between Southern, Eastern and Frugal Europe. But while the Commission is talking up climate action, it’s unclear if the final budget will make Europe win or lose a decade in the clean economy race.
This week’s announcement marks another attempt by Commission President Ursula von der Leyen to close the, by now, two-year long negotiations. Budget negotiations are always drawn out, complex and fractious moments in the cycle of EU politics. All 27 EU member states have to agree and there is an intense political focus on net balances – who will pay in more than they receive.
Once agreed, however, a budget can mark the start of period of relative tranquillity between member states about EU funding – the budget is a kind of peace treaty, once signed it is virtually inviolable and member states set aside most money squabbles until the next cycle comes around.
This time around, however, the budget negotiations have been particularly excruciating. The COVID-19 outbreak and the economic fallout – we are staring down the barrel of an unprecedent economic crisis – have both raised the stakes and complicated the math of who should receive what funding. With the COVID-19 hitting Southern member states hardest, the proposal had to strike a difficult balance between net-recipients (South and East) so as not to open yet another front in an already complex negotiation.
The clock is ticking. The budget needs to be agreed in time for 2021 and member states need economic support to be made available as soon as possible. With this week’s proposal, the Commission is taking its last chance to cut a deal.
There’s been a lot of behind-the-scenes preparation for the announcement, with different factions positioning themselves in anticipation. The Franco-German proposal gave the Commission a huge boost. German Chancellor Angela Merkel and French President Emmanuel Macron signalled they were willing to go much further to safeguard an equitable European recovery than anyone had predicted. The Frugal Four (Netherlands, Sweden, Denmark and Austria) quickly made a counteroffer but it lacked momentum. They listed the conditions they have always made, failing to rise to the challenge posed by Macron and Merkel.
Given these different positions, the Commission has done a masterful job crafting a proposal in which everyone can find something they like. It builds on the Franco-German one, emphasising EU solidarity and following the guardrails Paris and Berlin have set: a record-sized EU budget to the tune of €1.85 trillion for an unprecedented moment.
The Frugal Four will be unhappy to see a majority of grants rather than loans, but know the ratio can still be adjusted to something they can live with. They will also hold out for further conditionality on structural economic measures, rule of law and the green transition to be attached to these recovery funds. And they can do it without threatening the balance of the Commission’s proposal, which makes it the best starting point for this conversation since 2018.
The ball is now in European Council President Charles Michel’s court and he needs a win. He’s already tried once to single-handedly engineer a deal, keeping leaders working overnight for nothing. Now there is a clearer path for him to navigate the upcoming European Councils this summer. He will have to go all-in on this proposal, play up the EU solidarity angle to push dissenters into a nationalistic corner, and keep the net-recipients happy with continued assurances on cohesion and green transition funding. It’s possible.
Climate can be a decisive element. The current text talks up the European Green Deal but the scope, enforcement and adequacy of how green the budget is remains unclear from the first documents. At the end of the day, however, this budget runs for pretty much the entirety of the next decade and the Commission is about to launch a revision of the 2030 climate target. These parallel negotiations will not be kept separate for long.
As the Commission writes: “To help unlock the private investment needed, long-term certainty and predictability are essential. This underlines the importance of the Climate Law and the upcoming proposals for more ambitious emissions reduction targets for 2030.”