Feb 20, 2020

Europe News: The EU's biggest post-Brexit fight is about to get real

Silvia Amaro

BRUSSELS — Where will the money come from? This is the contentious question that the EU needs to answer every seven years — and this time around, the issue is even more complicated.
The U.K., which has been one of the EU’s key contributors, left the bloc on January 31. Over the last few years its net contribution to the EU has been around £7.8 billion per year and, as such, the U.K.’s departure could leave the group with a shortfall of around £55 billion ($71.3 billion) over the next seven years.
The remaining 27 EU countries are now scratching their heads and trying to find ways to make up the difference. In an emergency meeting Thursday, the bloc’s leaders will seek to agree on its next budget, but there are expected to be long and arduous fights between those paying the highest amounts to the EU and those receiving the most money from it.
“The situation won’t get better over time ... We face between 60 and 75 billion (euro, $64.7-81 billion) gap because of Brexit, we are facing new challenges and new priorities ... and member states have a tight budgetary situation, so realism is needed,” an EU official, who did not want to be named due to being close to the negotiations, told reporters in Brussels Wednesday.
The EU’s budget is used to finance policies across the bloc, ranging from developing rural areas, security and the promotion of human rights. However, EU countries have a hard time figuring out how much money to allocate to the different policy aims.
There are 15 nations that do not want a smaller budget, including countries such as Portugal, Poland, Spain and Greece. This group has been dubbed the Friends of Cohesion, as it opposes cuts to the so-called Cohesion funds — which support members whose gross national income per inhabitant is less than 90% of the EU average.
On the other hand, the Frugal Four, a group made up of Austria, Denmark, Sweden and the Netherlands, believe the EU should cut its budget and allocate more funding to new policy areas, such as technology and climate change.
Speaking in the Portuguese Parliament Tuesday, Prime Minister Antonio Costa called the later group “stingy.”
In an exclusive interview with CNBC, Johannes Hahn, commissioner for the budget and administration, told CNBC that the EU is already “running late” with the process.
“It’s absolutely high time to get the deal. If there is any further significant delay it will have an impact on the start of the programs,” Hahn said in reference to the EU projects that are due to receive funding by the end of the year.
Furthermore, some analysts warned that mishandling the negotiations could boost anti-EU sentiment in various European capitals.
“This is a tragedy,” Friedrich Heinemann, a budget expert at the think tank EconPol Europe, told CNBC Thursday. He said that policymakers should be asking themselves what the region’s biggest challenges are, and that money should be allocated on that basis.
European leaders need a consensus in order to approve the next seven-year spending plan. Once that is achieved, the budget will still have to be green-lit by European lawmakers in a majority vote.
Jorge Nunez Ferrer, from the Brussels-based think tank CEPS, told CNBC that as it stands it will be difficult for the parliament to approve the current spending plans.

Trump ‘should be happy’

Ahead of the leaders’ meeting Thursday, a preliminary proposal seen by CNBC, suggested an increase to 7 billion euros from 0.6 billion euros in the amount allocated to the European Defense Fund — a program designed to increase national investment in defense research and cooperation between national armed forces.
President Donald Trump has often criticized European countries for not paying their fair share towards NATO. When asked if Trump would be upset with European countries for investing more in European defense programs rather than increasing their NATO contributions, Hahn said: “No, if he’s carefully analyzing this, he should be more than happy.”
Hahn explained that the EU wants to streamline different military systems and use those savings to make additional investments in defense.

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