How close is the EU to agreement on spending one trillion euro?

The negotiations on the 2014-2020 multiannual financial framework (MFF) are critical to the current CAP reform process. These negotiations will determine the size of the financial envelope as well as many of the key parameters which will decide the future shape of the CAP.

I have previously commented on the slow progress of the MFF negotiations (see here and here). In principle, these negotiations need to be completed under the Cypriot Presidency by the end of this year, to allow the negotiations on the future CAP regulations to be completed under the Irish Presidency in the first half of next year, so that the necessary supplemental legislation as well as member state rural programmes can be passed and approved by the end of 2013.

The official view remains that the negotiations are on track to reach a conclusion by the end of November (a special meeting of the European Council will be held on 22-23 November solely to discuss the MFF, with some suggestions that the meeting could be extended into the weekend if necessary). The Council website following the meeting of the General Affairs Council on 24 September carried a press release saying that the negotiations are approaching endgame.

But to me this smacks more of hope than reality. At stake is the spending of one trillion euro over the next seven years. Normally this would be one of the hottest debating issues on the EU agenda, with heavy leaking by member states and lively discussion in the media of the pros and cons of alternative options.

Yet a search of the (admittedly English-language version) Google News website for the number of mentions of the terms “eu multiannual financial framework” in the past month returned just 249 hits (search undertaken on 29 Sept 2012), and few of these dealt in any way with the substance of the negotiations. I find it scarcely credible that within the next seven weeks we are going to have unanimous agreement among the member states on how this one trillion euro budget should be financed and on how it should be spent (even taking another four weeks and reaching agreement at the December European Council seems too much of a stretch).

State of play at end-September

This conclusion is based on an analysis of the state of play of the MFF negotiations as of today. Following the circulation of its Issues Paper at the end of the summer (20 August), the Cyprus Presidency prepared an updated version of the MFF negotiating box for the General Affairs Council (GAC) on 24 September. Although the document still does not contain any numbers, the Presidency made clear its belief “that it is inevitable that the total level of expenditure proposed by the Commission, including all elements inside and outside of the MFF, will have to be adjusted downwards”.

One source quoted by Euractiv calculated that 15 countries contested the Cyprus conclusion that cuts were needed across the board while admitting that, on the other side, a smaller group, “meaningful by its composition”, took the opposite view. The Commissioner for Inter-Institutional Relations and Administration Maros Sefcovic in his comments after the GAC meeting also expressed the Commission’s rejection of a reduction of all allocations on individual headings.

The minutes of the GAC record the extent of the disagreements on this and other issues and are worth quoting in full as they illustrate the range of issues on which agreement must be found:

    the overall expenditure ceiling: some member states welcomed the presidency intention to reduce the figures proposed by the Commission and insisted on the need of better spending. Others defended the Commission proposal, arguing that the MFF was the major investment tool for promoting growth and creating jobs, while agreeing with the importance of a high quality of spending which in their view needed to be ensured in all expenditure areas.
    expenditure ceilings for individual headings: some delegations insisted that cuts should be made in all individual headings. Some opposed any reductions in cohesion policy, some objected to cuts on the Common Agricultural Policy (CAP) and some considered the amounts proposed for both, cohesion policy and CAP, to be a strict minimum.
    the allocation of cohesion policy funds: some member states deplored the removal from the negotiating box of the “reverse safety net”, aimed at limiting the scope of support to a member state compared to a certain percentage of its level during the 2007-2013 period. Others welcomed this modification, but voiced concern about a possible reduction of the maximum level of transfer (“capping rate”) below 2.5% of GDP of each individual member state.
    rural development: some member states insisted that the “past performance principle” for the distribution of EU support should be understood as the share of funds allocated to a member state for the entire 2007-2013 period, rather than only for the year 2013 as intended by the Commission.
    direct support in agriculture: some member states opposed the reduction of the EU average of direct aids per hectare. Others supported it if this contributed to a higher convergence of direct aids between member states, or subject to exceptional provisions for member states whose level of direct aids is lower than the EU average.
    unused commitments (“reste a liquider”, RAL): some member states welcomed the presidency’s intention to include provisions on this into the negotiating box, while others considered RAL to be a normal feature of the EU budget procedure, and that it should be addressed in that framework.
    instruments inside and outside the MFF: some member states expressed concern at the suggestion to put the EU’s solidarity fund (SF) and the European globalisation adjustment fund (EGF) outside the MFF, rather than keeping the SF within the MFF’s expenditure limits and discontinuing the EGF.
    own resources: several ministers stressed the importance of rules being simple, transparent and fair. Some deplored the fact that the negotiating box had not been revised on the revenue side. Others opposed any change on own resources. Some delegations supported the abolition of the current VAT-based own resource, as proposed by the Commission. Some were ready to examine this proposal, while others opposed it. The proposal for a new own resource based on a financial transaction tax1 was supported by some member states and opposed by others. Some member states insisted to keep the system for collection of traditional own resources unchanged. This would mean that member states would continue to retain, by way of collection costs, 25% of the amounts collected by them, rather than 10% as proposed by the Commission. Some ministers were in favour of abandoning all correction mechanisms under the system of own resources; others insisted on maintaining existing correction mechanisms or at least keeping a guarantee of the current amount of correction under a new mechanism.

Views of the Budget Commissioner

Europolitics carried an interview with EU Budget Commissioner Janusz Lewandowski following the GAC meeting. Lewandowski noted that the eurozone crisis is casting a long shadow over long-term EU budget talks.

The amount of money poured into bailout packages has made spending at EU level ever more unpopular. Clinching a deal amongst EU leaders and with the European Parliament on the 2014-2020 multiannual financial framework (MFF) before the end of the year will thus be difficult.

From the taxpayers’ point of view, the ESM (European Stability Mechanism) is a contribution to Europe, that’s the problem. That makes EU expenditure more difficult to swallow despite the fact that “the European budget as it is is very modest in volume” (around 1.08% of EU gross national income in commitments and 1.03% of GNI in payments according to the Commission’s latest MFF proposal).

Lewandowski noted that it is “an interesting exercise to discuss the budget for more than a year without figures”. Nevertheless, he does not think that talking about the size of the overall MFF or individual headings would be helpful at this stage. EU leaders would make public declarations and “we would have a lot of political red lines immediately, narrowing flexibility,” explains the commissioner. “In order to negotiate successfully, some scope of manoeuvre is necessary for EU leaders otherwise they cannot come back as the winners.”

Negotiating wording on the CAP

The latest Presidency proposal makes two important shifts in the wording of the MFF negotiating box where it concerns the CAP (hat tip to Ralitsa Kovacheva, the consistently perceptive journalist who writes for the Sofia-based news site); a change in terms of greening of the CAP (the EC proposed 30% of the funds to go for environmental measures, but the negotiation box says “X to 30%”) and the proposal for a progressive reduction of direct payments per hectare. This refers to the addition of the following sentence in the Pillar 1 text : “In order to adjust the overall level of expenditure under heading 2, the EU average level of direct payments per hectare will be reduced by [X% to Y%] per year for the financial years 2015-2020.” In other words, given that CAP expenditure [heading 2] should be reduced in line with the expected reduction in the overall MFF ceiling, the Presidency is proposing a progressive cut in direct payments per hectare over a six year period. As noted above, the minutes of the meeting recorded disagreement among the member states on this proposal.

No similar sentence is included in the Pillar 2 text which may suggest a preference of the Cypriot Presidency for CAP cuts mainly to come in Pillar 1, even if its general position is that cuts should take place in all headings of the MFF. Further, the Commission has not yet made a proposal on the member state allocations in Pillar 2. It is not conceivable that member states will agree to an MFF without knowing their Pillar 2 allocation, so one assumes at this stage that these figures will be released along with the revised negotiating box towards the end of October.

Outlook and role of the European Parliament

The Presidency intends to issue a newly revised negotiating box with some ranges of figures after the next European Council on 18-19 October where the MFF will be discussed over breakfast or lunch in the margins of the meeting. The President of the European Council, Herman Van Rompuy, will then hold bilateral consultations starting from 5 November with a view to preparing for the European Council meeting at the end of November.

The Budget Commissioner expresses the view that the difference between the most polar opposite positions is “not that huge,” and feels it would be inexplicable if no common ground could be found. Nonetheless, he expects “a very heated discussion” when figures appear in the MFF negotiation towards the end of October. He admits that the four weeks leading to the November summit will “not [be] much time” but adds that no surprises concerning well-known national positions are foreseen and member states are ready.

Even assuming that the Budget Commissioner is right in his optimism, the conclusion of the MFF also requires the consent of the European Parliament. The Parliament in its opinion on the Commission’s MFF proposal (13 June 2012) demanded “that political positions agreed by the European Council be negotiated between Parliament and the Council, as represented by the General Affairs Council, before the Council formally submits its proposals with a view to obtaining Parliament’s consent on the MFF regulation pursuant to Article 312 TFEU”. Under the van Rompuy procedure this is now unlikely to happen.

Last week, rapporteurs for the European Parliament’s Budget Committee issued a further warning shot in the form of a draft report which will probably get the backing of the Budget Committee and the Parliament as a whole. It notes that “any political agreement reached at European Council level constitutes no more than a negotiating mandate for the Council; insists that after the European Council has reached a political agreement, fully-fledged negotiations between Parliament and the Council need to take place before the Council formally submits for Parliament’s consent its proposals on the MFF regulation”.

The draft report repeats the well-known positions of the Parliament. The Parliament has sought a 5% increase in real terms in the EU MFF to allow the EU to fulfil its existing political priorities as well as the new tasks foreseen in the Treaty of Lisbon and allow for unforeseen events. The draft report for the Budget Committee “strongly rejects … any attempt by the Council to reduce further the level of EU expenditure as proposed by the Commission; firmly opposes, in particular, any plead for linear, across-the-board cuts that would jeopardise the implementation and effectiveness of all EU policies, irrespective of their European added value, political weight or performance”.

It reaffirms the Parliament’s position that it is not prepared to give its consent to the next MFF regulation without political agreement on reform of the own resources system, in line with the Commission’s proposals of 29 June 2011; while insisting that the new system must put an end to the existing rebates and other correction mechanisms.

The draft report also stresses that the negotiations on the legislative proposals relating to the multiannual programmes will be pursued under the ordinary legislative procedure. At the moment, the negotiating box still includes the expansive version of the European Council’s powers to decide CAP matters (see here for a discussion).

The Parliament’s representatives have made clear to the Cypriot Presidency that the extent of CAP decision-making in the negotiating box is much too broad and should be scaled back. The Cypriot Presidency may be sympathetic to this position, so in the next revision we may see a more limited set of CAP issues for decision in the context of the MFF negotiations than is currently the case.

Finally, the Budget Committee’s draft report foresees the possibility of a lack of agreement on the MFF by the end of 2013. In that situation, it calls for the ceilings and other provisions corresponding to 2013 to be extended until such time as a new MFF is adopted. It signals that, in this eventuality, Parliament would be ready to reach a swift agreement with the Council and Commission to adapt the internal structure of the MFF to reflect the new political priorities.

But there is no automatic roll-over clause to ensure that this would happen, it would have to be negotiated politically. And there is no guarantee that these negotiations would be any easier than those on the MFF itself. Uncertainty over the future shape of the CAP is set to continue for some time yet.

This post was written by Alan Matthews.

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