EU prepares for budget impasse and an inventive workaround on Next Generation EU 

A senior European Commission official outlined the measures the EU would need to take should the EU fail to reach an agreement on the multi-annual 2021 - 2027 budget (MFF) and recovery package next week. 

The deal on the budget and the New Generation EU package was agreed after several days of negotiations in the summer. However, Poland and Hungary are threatening to veto the deal because of the agreement the German Presidency has reached with the European Parliament on rule of law conditionality.  

Time is running out and in order for the budget to be operational on 1 January, there would need to be an agreement between the Parliament and Council by Monday (7 December) on the budget for the first year of the seven-year budget, this would also require the agreement of heads of government at next week’s European Council (10-11 December) to the full budget package. In this scenario, it would then be rubber-stamped in a further conciliation (11 December) and placed before the European Parliament’s plenary (14-17 December) to be signed off.

The budget, but not as we know it

If the heads of government fail to reach an agreement next week it will automatically trigger the“provisional twelfths” (Article 315 TFEU) approach, which was last used in 1988. It is a mechanism that guarantees some degree of continuity and will be based on the current MFF. As the legal basis for some programmes expires at the end of the year, those programmes will not receive any further payment commitments. This includes major funding programmes, such as Cohesion Policy, the European research programme (Horizon Europe) and many more. It does not include pillar 1 of the Common Agricultural Policy, humanitarian aid and the EU’s Common Foreign and Security Policy (CFSP). Rebates will also vanish as there won’t be a replacement decision on own resources in this scenario. 

The new annual budget would also have to take into account that the EU’s overall funds will be lower due to the failure to reach an agreement on own resources and lower GNI caused by the pandemic and Brexit. This could amount to as much as 25 to 30 billion euro.

Next Generation EU

Next Generation EU, which is discrete from and additional to the multi-annual budget, could be agreed upon by different means. The senior official ruled out the use of an inter-governmental conference and separate treaty as it would take too much time and would place the debt burden on individual states, rather than allowing the EU to hold the debt in its name. However, the Commission does think that a “Community-based solution” allowed under the current treaties would be possible. This could allow enhanced cooperation between a coalition of the willing, and would need a clear link to the EU’s treaties, for example, it could be allowed through the possibility in the treaty of channeling financial assistance to member states experiencing severe difficulties, caused by exceptional occurrences (Article 122), but the senior official eluded to other options.

The possibility of circumventing some of the damage caused by Poland, Hungary and possibly Slovenia’s veto could help to focus minds as an important week approaches.

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