The European development plan consisting of the Multiannual Financial Framework (MFF) 2021 to 2027 and the “Next Generation EU” development package for the years 2021 to 2023 is a remarkable project of the European Union (EU) for several reasons The expenditure and reforms financed from this package are not only intended to provide short-term economic impulses, but at the same time give priority to climate protection and digitization.
On the one hand, it is a remarkable sign of solidarity within the EU that of the total volume of 390 billion euros as non-repayable financial aid is to flow primarily to the poorer southern and eastern European EU member states. On the other hand, the richer EU member states will also benefit from a faster recovery of the poorer EU member states.
In addition, the agreement on a roadmap for the introduction of innovative own resources is a big step forward in the decades-long debate on a fundamental reform of the EU's own resources system. These innovative own resources are to be used mainly to repay EU debts in order to avoid or at least limit an increase in national EU contributions.
This historically unique agreement on a comprehensive EU aid package, supported by a broad consensus among the member states, masked in the public debate the fact that the potential contribution of the MFF to a sustainable EU policy could be greater than was ultimately agreed.
This concerns first of all the scope of the MFF. At 1,074.3 billion euros or 1.05 percent of GNI, it is both below the current MFF (1.116 percent for the EU27) and below the proposals of the EU Commission (1.114 percent) and the EU Parliament (1.3 percent) . The long-term trend towards a decreasing MFF in relation to the EU's GNI is thus continuing. However, taking into account the planned non-repayable grants from the Next Generation EU development package, the total amount of funds available under the EU reconstruction plan up to 2027 amounts to 1,464.3 billion euros, also taking into account the loans that can be drawn from the member states , to 1,824.3 billion euros.
Long term challenges
In addition, the reforms planned for the next seven-year period in the structure of the MFF and in the own resources system for its financing do not respond adequately to the long-term challenges facing the EU.
Firstly , although the share of agricultural policy in total expenditure continues to decline, it remains the most important expenditure item at around 31 percent. In addition, the conventional first pillar, which has a significantly lower European added value compared to the second pillar, which aims at social and ecological sustainability, is even gaining in weight.
Second, the increase in the research framework program Horizon Europe to 75.9 billion euros or 7.1 percent of the total MFF expenditure (currently six percent) is unsatisfactory. Only taking into account the five billion euros that are to be made available in addition under the reconstruction package, as well as the further four billion euros that the European Parliament negotiated as the top-up in November, does the total budget then exceed 84.9 billion euros easily the original proposal of the EU Commission.
Thirdly , the funding for the Connecting Europe Facility, which promotes cross-border infrastructure that creates added value in Europe in the areas of transport, digitization and energy supply, is inadequate: the € 18.4 billion budget means that it currently accounts for 1.5 percent of total expenditure will decrease to one percent.
Fourth , the requirement that thirty percent of the MFF funds must be used for climate protection in future is more ambitious than the twenty percent in the current MFF and the twenty-five percent originally proposed by the EU Commission. However, even this increased climate mainstreaming requirement does not appear ambitious enough if the MFF is to act as a central lever for the implementation of the envisaged European green deal.
Fifth , the reforms in the own resources system to finance the MFF do not go far enough. According to the roadmap for the introduction of innovative own funds, the first step is to add a plastic-based own funds from 2021 to the existing own funds – mainly national contributions from the member countries – to finance the MFF. The EU Commission is also to present specific proposals for own funds based on a CO2 border adjustment and the auctioning of certificates within the framework of the EU emissions trading system and for a digital tax by June 2021. The European Council is to discuss these by mid-2022 with a view to their introduction from 2023. And by June 2024, the EU Commission is to work out a proposal for further new own funds that could be based on financial transactions or a new harmonized corporate tax base. However, from the MFF's point of view, it is unsatisfactory that, with the exception of the new plastic-based own funds, no further innovative own funds sources are being developed for its financing, since these are intended for debt servicing in connection with the EU loans taken out for the reconstruction package.
Shortly before the current MFF 2014 to 2020 expires and the new MFF 2021 to 2027 comes into force, the scope for profound changes in the spending structure, as it is currently politically agreed, is de facto limited in the short term. The agreement between the European Council and the EU Parliament of November 2020, however, stipulates the submission of an evaluation of the functioning of the MFF by January 1, 2024 and, if necessary, reform proposals by the EU Commission. These reform proposals should address the deficits mentioned in the expenditure structure and own resources system.
The article is an abbreviated version by Margit Schratzenstaller, The European Development Plan – a historic EU project, blog post for the Friedrich-Ebert-Stiftung (fes.de)
