Editor's note

International Internet Magazine. Baltic States news & analytics Friday, 29.03.2024, 12:29

Financial perspectives for EU and the Baltics

Eugene Eteris , BC, Riga/Copenhagen, 03.05.2018.Print version

The EU’s draft for financial period 2021-27 is planned at about €1,1 trillion, i.e. on average about €157 million per year, much is almost the amounts presently. First, good news: Brexit doesn’t make the Baltic States worry about future EU’s financial injections; second (sort of bad news), less money will be for structural reforms with R&D instead. This isn’t actually bad news at all: just politicians shall re-orient perspective growth patterns.

The European Commission proposed the new MFF’s draft in the beginning of May 2018. This “overall EU budget”, so-called multiannual financial framework (MFF) of €1.135 trillion over seven years constitutes 1.11 percent of the EU-27 states’ gross national income (GNI). In fact, expressed in current prices and taking into account inflation, this would amount to a little bit more, i.e. €1.279 trillion. So, the actual member states’ contribution to the “common purse”, and consequently the expenditures from the states budgets will amount to €1.105 trillion or 1.08 percent of each state’s GNI over the whole budget period. The rest comes from VAT, customs duties, etc. For example, the Commission proposed a new MFF-basket of new own resources representing about 12% of the MFF. It combines a share of the Emissions Trading System revenue and the Common Consolidated Corporate Tax Base, as well as a levy on non-recycled plastics waste.

 

For example, Latvia is going to pay to the EU about € 300 million/yearly, though getting back about four times more each year through different funds and supporting payments. But everything is relative: Latvian membership in OECD “costs” almost the same and participation in NATO is twice the EU’s contribution. 


Issues to be solved…

Some questions remain as to the MFF’s perspectives. Thus, the Commission proposed a mechanism to link payments from the EU budget and the member states’ implementation of the EU’s values, e.g. concerning the respect of the rule of law in a certain country. However, these states’ governments will not be able to blame the EU of stopping funding projects; thus, individual funds’ recipients cannot be held responsible for deficiencies in the rule of law system of a respectful country. For example, states’ would continue to be obliged to make payments to Erasmus students, universities, NGOs or any other final recipients of the EU financing.


The key issue of limiting the flow of money to any EU state concerning the “rule of law” will be the EU values formulated in the Treaties; however, behind this “punishment” is, in fact, an efficient and proper use of European taxpayers’ money. Hence, a funding cut could be applied only in cases of “general deficiency” to the rule of law, or to “sound financial management” of the EU’s funding. The ultimate decision process is quite difficult: the Commission would propose and Council adopts any funding freezing through reversed qualified majority voting in one of the Council’s configurations; that means possible fines have to be approved by the national ministers unless a qualified majority overturns the decision.


It shall be mentioned that fines and sanctions mechanisms have never been used as “severe penalty” in the EU’s economic governance rules.  


Note: the “punishment part” of the draft is intended to put pressure, for example, on governments in Poland and Hungary over alleged democracy-violating local decisions in contrast to the EU values and the rule of law. On one side, it sends a warning signal to other EU states which might take the same measures; on another, it can exacerbate tensions between European east and west and raise opposition from those states that are against additional powers from Brussels. 


However, it doesn’t seem that these discussions and decisions will in any way affect the Baltic States.


See more in Politico’s Lili Bayer and Andrew Gray article on:

https://www.politico.eu/article/mff-commission-eu-budget-proposal-brussels-looks-to-link-eu-payouts-to-justice-standards


Old and new budget’s priorities


Under the MFF, the EU funding will largely stay the same for most of “common EU policies”, e.g. infrastructure, transport, energy, education, environment, etc. Big share of expenditures, i.e. in cohesion (structural funds) and agriculture will face cuts of about 5-7 percent, which brings total volume of funds for these issues down to about 60 percent of the MFF.


Numerous eastern EU states have been having lavish support in structural reforms for almost three 5-years’ national planning (if there had been such!). For example, according to the Commission, such funding accounted for more than 70 percent of government’s investments on structural/cohesion issues in Lithuania, about 60 percent in Poland, more than 55 percent in Hungary and 45 per cent in Estonia in 2015-2017.

More in:https://cohesiondata.ec.europa.eu/Country-Level/-of-cohesion-policy-funding-in-public-investment-p/7bw6-2dw3/data


Additional expenses are expected for defense, security, migration and general growth. 


The MFF proposal foresees that the EU’s coast and border guard will be several times the size of its current staff, increasing to 10,000 from present 1,200. The budget provides €35 billion for border management, asylum and migration, as compared to €13 billion in the current MFF.


The European Fund for Strategic Investments, so-called “EU-invest program” is expected to provide roughly €15 billion in guarantees on investment programs in the states. Science and research programs will get an increase of around 40 percent; Erasmus+ funding will be doubled, as being a “best answer to populism and anti-European voices.”


Drive for a more competitive EU is also in the new MFF: the Commission wants 64% increase in funding for research and development (R&D) to demonstrate the intention to boost the EU’s position as a knowledge-based economy. However, given the limited size of the EU budget, the effectiveness of this policy will primarily depend on the EU’s ability to link funding to comprehensive industrial strategies in the states. According to the European Policy Center (EPC), the latter would spur productivity gains by ensuring that the share of R&D funding also rises in EU member states, reducing inconsistencies in the EU single market, and promoting a wider uptake of new technologies across the continent.

See more in: “EPC analysts comment on the new MFF proposal” in: http://www.epc.eu/


Nevertheless, some EU states will contribute more: e.g. Denmark, Sweden, Holland and Austria (Danish politicians have already rejected country’s increased share in the EU’s budget). Other states, however, will see a reduced EU’s paycheck, e.g. Poland, Hungary, Greece and Romania. 

 

Finally, to be a reality, the MFF proposal –according to the EU Treaty- has to be approved by the EU member states’ governments in the Council by a qualified majority voting (QMV) by the states representing at least 55 per cent of the EU states and 65 per cent of the total EU-27 population (if there would be no more member states at that time). It means that if some two-three states would be against the draft, the Commission would have to draft a new one. Besides, the proposal suggests that if the Commission wants to apply a “punishment measure” against a particular EU states, it needs again QMV to proceed with it. 





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