A Geopolitical Union or a 'Fortress' Union?: An analysis of the EU summit's provisional agreement on the EU budget

Eulalia Rubio

5 mins - 19 de Diciembre de 2023, 07:00

The last week’s European summit will be remembered by the historical decision to open accession talks with Ukraine. As a result of the veto imposed by Hungarian prime minister Orban, EU leaders failed to agree on a €50bn financial package to accompany this decision but there is a strong commitment among the EU’s 26 other Member States to find alternative solutions to provide the necessary funds for Ukraine.

Many observers have seen this decision on Ukraine as the sign of a definitive turn towards a geopolitical Union. However, there was another important issue at discussion in the latest’ EU summit: the revision of the EU’s long-term budget. The decision on this revision has been reported to early next but a look at the provisional agreement reached during the EU summit says a lot about the type of Union we are heading forward.

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To start with, the Commission’s intention was to increase EU spending by an extra €99bn during 2024-2027 (€66bn of grants and €33bn of loans). As explained in a previous post (see here), ahead of the EU summit the Spanish presidency of the Council had already proposed to reduce the ambition in response to pressures from the ‘frugal countries’. In the final agreement, the support to new priorities is reduced from €99bn to €66bn, of which €33bn of loans and €31.6n of grants. If we look at the grant component, two thirds (€21bn) is fresh money and one third (€10bn) will come from re-deployments of existing EU funds. 

Looking at the distribution per priorities, in the proposal by the EU Commission the extra EU funds were distributed on roughly equal terms across four priorities: providing support to Ukraine (€17bn), reinforce tech integration and external action (€15.5 bn), supporting investments in digital and deep tech, clean tech and biotech to strengthen Europe’s strategic autonomy though a new instrument called “STEP” (€10bn) and covering higher-than-expected borrowing costs of Next Generation Union (€19bn).

In the Council’s provisional agreement, the four priorities are not given equal weight. Leaving aside the aid for Ukraine (which is pending), the main victim of the new re-allocation of funds is the support to strategic technologies (STEP), which is cut from €10bn to €1.5bn. Looking at the paragraphs of the agreement on STEP, it is clear that the EU leaders’ vision is to finance new strategic technologies through re-deployments of EU cohesion funds rather than new funds (there are some provisions in the agreement to incentivise this redeployment). The lack of fresh money to support cutting edge, critical technology constitutes a major blow to the EU’s strategic autonomy ambitions.

In contrast to STEP, the priority “Migration and external challenges” suffers minor cuts and guarantees a significant amount of funding (€11.5bn). Despite a generic reference to the need to adapt the Union to  “a context of extraordinary geopolitical tension”, looking at the Council’s agreement it is clear that most of these extra funds will serve to address needs related with the migration challenge; that is, helping Member States manage migration influx and external borders, implementing the new Migration and Asylum Pact (once adopted) and financing migration cooperation agreements with third countries. 

Thus, judging for where we put the EU money, we’re heading towards a fortress Union rather than an ambitious, geopolitical Union.

Finally, another worrying element of the Council’s agreement is the procedure to cover the extra NGEU funding costs. As explained in the Commission’s proposal, given the sharp rise in interest rates, the amounts reserved in the current EU budget to cover the NGEU interest payments (€14.9bn) are likely to be insufficient. To re-assure NGEU investors, it is important to set up a procedure allowing the Union to swiftly mobilise extra resources to honour its obligations towards bondholders. While the Commission proposed a simple and quasi-automatic mechanism, allowing the Commission to request to the Council all the extra resources needed during 2024-2027 to cover NGEU interest payments (estimated at €19bn) the Council’s agreement envisages a more complex ‘cascade mechanism’ . Before making a proposal to the Council, the Commission will have to explore the possibility of covering these extra NGEU funding costs through a re-prioritisation of EU funds; only if this is not sufficient the Commission will be able to make a request to the Council for new funds. Besides, Member States will have the right to contest the Commission’s numbers and ask the EU executive to 'reassess' its proposal (that is, finding more money within the EU budget). There is even the possibility for one of more Member States to bring this issue to the European Council, with the risk of blocking the decision for months. To sum up, what the Council proposes is a highly political procedure which may pit Member States against each other, may block the adoption of EU annual budgets if the issue is brought to the European Council and may not reassure NGEU investors. 
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