Listen: The €2 trillion budget battle dividing Europe

Production: By Europod, in co-production with Sphera Network.

EUobserver is proud to have an editorial partnership with Europod to co-publish the podcast series “Briefed” hosted by Léa Marchal. The podcast is available on all major platforms.

Find the full transcript below:

The 27 EU heads of state or government will gather in Brussels on Thursday for what promises to be an intense meeting. They’re expected to make key decisions on the future budget of the European Union.

Budget talks entered a more serious phase last week, but the signals coming out of the negotiations have been overwhelmingly negative when it comes to the prospects of a deal.

So what are the possible outcomes for the EU’s next long-term budget?

Two weeks ago, I told you about the battle over the EU budget, the long and complicated process of reaching an agreement, and the challenge of getting a budget adopted on time.

Today, we’re going a bit deeper into what exactly awaits European leaders.

On Thursday, the leaders of the EU’s 27 member states are expected in Brussels for a summit that could even stretch into a second day. The goal is to move discussions forward on the next Multiannual Financial Framework — the EU’s long-term budget. It needs to be ready before 2028, and ideally even before 2027.

For now, though, things aren’t looking good.

Last week, Cyprus, which currently holds the rotating presidency of the Council of the EU, presented what Brussels insiders call a “negotiating box.” In simple terms, it’s the first budget proposal containing actual figures, and it will serve as the basis for negotiations in the weeks and months ahead.

The European Commission had already put forward its own proposal last year. But this new negotiating box incorporates many of the demands made by member states since then.

It’s a delicate exercise — and Cyprus received quite a bit of criticism.

The role of the rotating Council presidency is to organise discussions, prepare compromises as neutrally as possible, and then let the other 26 countries make the final political choices.

But many governments felt Cyprus had not been neutral at all.

Why?

Because member states are split into two camps in this budget battle.

On one side are the countries that want to preserve substantial funding for the Common Agricultural Policy, cohesion funds, and other traditional EU programmes. They now even refer to themselves as the “Friends of Cohesion.”

On the other side are the countries traditionally known as the “frugals.” They want cuts to agricultural spending and regional development funds. Their goal is to keep the overall budget under control because they don’t want to contribute more money. Their priority is funding that boosts Europe’s competitiveness and supports businesses.

So when Cyprus presented a proposal that significantly reduced the competitiveness fund while largely protecting cohesion spending, it went down badly among the frugals — who, by the way, now prefer to call themselves the “modernisers.”

In their view, the Cypriot presidency stepped beyond its neutral role by putting forward a proposal that clearly favoured one side.

The result? In many ways, discussions are back to square one.

Still, it’s worth taking a step back and looking at which side currently has the stronger hand.

The modernisers officially include nine countries: Sweden, Denmark, Finland, the Netherlands, Ireland, Germany, Austria, Belgium and France — essentially most of northwestern Europe.

Almost everyone else, with one or two exceptions, sits in the opposing camp.

If the budget were decided by qualified majority voting, the modernisers would probably have the upper hand because they represent some of the EU’s largest populations.

But that’s not how it works.

The EU budget requires unanimity. Every country must agree. That means finding a formula everyone can live with.

So how does that happen?

First, negotiations drag on for a very long time. As I mentioned in the June 1st episode, discussions will probably spill beyond the official timetable.

Then, at the last minute, member states usually find a compromise that gives everyone at least part of what they want.

One likely outcome is that the overall budget will end up smaller than the €2 trillion proposal put forward last year, with cuts spread across different policy areas according to the balance of power between member states.

That means regional cohesion policies will probably take a hit.

As for competitiveness spending, cuts are also likely, but probably to a lesser extent. After all, there is broad agreement among all 27 member states that improving Europe’s competitiveness should remain a priority in the years ahead.