by Dr Joanna Drake
The eyes of Europeans are turned upon EU institutions as national governments struggle under the weight of the coronavirus. In the wake of the Covid-19 threat, the European Commission mobilised all tools at its disposal to assist member states with critical needs such as securing the flow of goods around the bloc or placing joint orders for medical supplies and bringing stranded citizens safely home.
The swift actions were crucial to limit the viral spread and support jobs in the immediate term, but it became increasingly clear that a strategic, long-term response was needed to address the deeper effects of the disease on economies and communities.
While the epicentre of the pandemic was rapidly shifting from China to Europe in the first weeks of the new year, EU leaders left discussions about the Europe’s budget also technically known as the Multi-annual Financial Framework (MFF) to focus on the unprecedented hazard hitting their countries. But the unfinished business over the EU budget could now hold the key to demonstrate European solidarity in its most tangible form.
As late as February, European Council President Charles Michel attempted to broker an agreement pegging the MFF at 1.07 percent of gross national income before it was turned down by heads of state. Since then, the context has changed so much that the question is no longer about finding a workable GNI percentage but repurposing the EU budget to send a powerful signal of community spirit among member states to EU citizens.
Talks about the MFF now offer the best opportunity to reconcile the major goals for the medium-to-long term objectives of the Union: the economic rebuild in member states, the European Green Deal, the digital transformation project, and European leadership in the world. This is the moment of truth for European solidarity.
Commission President Ursula von der Leyen captured the magnitude of the opportunity when she described the revamp of the budget as the “mothership of EU recovery”. The new financial framework, which will be presented in the coming days, will not merely allow European countries to pick up from where they left off, but it shall be a courageous step forward into the future that citizens envisage.
More importantly, the seven-year budget will provide a collaborative strategy for member states that looks ahead with ambition and confidence. Before taking the MFF back to the drawing board, the European Commission committed itself to propose innovative financial instruments that enable a sustainable, fair and resilient Europe.
Sustainability, fairness, resilience
Already in December, when the new Commission was formed, sustainability was declared a top subject on the agenda, resulting in the inauguration of a wide-reaching EU Green Deal that aspires to make Europe the first carbon-neutral continent. But sustainability is not only achieved by bold policies on renewable energy, clean transportation or the restoration of the natural environment; it needs a radical conversion of the economy that does not punish competitiveness. Which is why a complementary priority for the EC is building a Europe fit for the digital age.
The vision for sustainability encompassing a green revolution and a digital transformation will mean a viable and wholesome food production process, the creation of new stable job categories, tourism that respects communities and their heritage, cities that are prepared for the future.
The shock of the pandemic was symmetric across European regions and cities, and a fair remodelling of the budget requires a symmetric recovery. The MFF should, therefore, actively support an equal recovery across the EU by making sure that countries take off from the same starting line; members that were hit harder by the virus spread, or whose GDP was not strong enough to withstand the economic and social blows, must not find themselves at a disadvantage.
Divergences at the restart, will only widen into unbridgeable gaps over time. Besides, disparities not only undermine the value of fairness but threaten to torpedo the programme for sustainability, too, and a revised EU budget will seek to close the economic gaps between countries caused by the pandemic, fairly.
At the same time, the EU wants to be prepared for the next crisis whichever shape it comes in by improving its resilience. A major focus of the Commission is to restore the strategic autonomy of the bloc and abandoning an over-reliance on external partners for critical supplies. This is a lesson learnt the hard way during the outbreak, but the MFF now comes just in time to address the situation head on.
A more resilient Europe demands financial backing for industry and SMEs operating in the manufacturing sectors. Europe not only has the need to revitalise its technical and production heart, but the potential as well. Simultaneously, direct investment by non-EU companies and states has to be monitored more closely to safeguard work, standards and, most importantly, strategic supply chains.
Moreover, it will strengthen the EU’s leadership role in the world to pursue a responsible and just global trade agenda. A greater degree of self-reliance will make European governments more resilient to emergencies and, consequently, provide long-term support to sustainability and fairness among communities.
Four hard questions
The Multi-annual Financial Framework comes at the right time to integrate the EU’s current and future priorities. EU leaders have given their unanimous support to the bold and forward-looking vision during a virtual summit held towards the end of April. But forming such a package is more difficult that framing it and there will certainly be long discussions on details of implementation.
There are four major questions that EU institutions and member states will be looking at when the Commission presents the revamped MFF this week: the size of the budget; the direction of investment; the timing of disbursement; and the type of financing methods.
Most of the planning ahead will be determined by the global fund of the budget. Recent discussions suggest that the own-resource ceiling will be raised from 1.2 percent of GNI to 2.0 percent for the coming two to three-year period. Meanwhile, the greatest share of the MFF is expected to be allocated to the so-called modern policies that channel investment towards the EU Green Deal, digital transformation and the Union’s strategic autonomy.
Negotiations on the new budget term were already protracted before the pandemic threw a wrench in the works, but the crisis has only increased the need for funds to be made available as soon as possible. The timing of the release will prove vital for economies, and countries expect a substantial frontloading of cohesion funds while discussions will take place to be able to access recovery funds by the first half of 2021, latest.
Finally, a sound solution to the type of the financial package will strike a balance between loans and grants. EU governments left their virtual summit without an agreement, with a difference in opinions noticeable mainly between northern and southern members. The EU Commission, however, said that it will come up with a compromise that works for all sides.
A budget to look forward to
The coronavirus stormed into European life and upheaved the health systems, economies, inter-governmental relations of all member states. Citizens and nations around the EU have shown a formidable sense of unity and common will, and European institutions were successful in triggering programs that facilitated coordination and efficiency.
The extraordinary emergency has, thus, redefined the value of European solidarity. The Multi-annual Financial Framework will now be the first, and possibly the biggest, test in translating the concept into meaningful action for citizens.
The EU finds itself at an important juncture in its story and decisions taken in this intense period will reverberate throughout generations. The new-look budget is the seed for a new-look Europe.
Dr Joanna Drake