EU Affairs

The German EU Council Presidency – In Search of the European Bang!

On 1 July, Germany takes over the EU Council Presidency and faces a major agenda. [Part 4]

Today, Germany takes over the Presidency of the EU Council; a routine process in the wheelwork of Brussels: preparing and chairing meetings of the member states from speaker to governmental level, mediating differences, avoiding red lines, finding compromises, keeping a balance between the role of “honest broker” and personal  interests.

Meanwhile, Europe and its political hotspot Brussels are not experiencing any normality these days. The Corona health crisis is ushering in the biggest economic crisis that the EU has seen so far. Looking ahead, we must prevent a temporary economic crisis from turning into a persistent labour market, financial crisis and ultimately a social crisis with the potential to tear the EU apart.

All of this is happening in an environment that offers enough challenges on its own for a six-month presidency, even without Corona. The identified keywords: raising more resources for the collective security of Europe, both in NATO and the EU; finally taking a leading role in globalisation and a rule-based international order and defending the rule of law in the EU against abuse and by populists, authoritarians and extremists.

A Demanding List of Responsibilities

The responsibilities of the German Council Presidency are therefore very demanding: to pass the 2021 to 2027 EU budget – the so-called Multiannual Financial Framework (MFF) -, to negotiate the “Next Generation EU”, i.e. the 750 billion euros for the reconstruction of Europe, to successfully shape a post-Brexit deal, to discuss the Commission’s expected asylum proposal with the Member States, to effectively compensate for the cancelled China summit in terms of foreign policy and to react to the US presidential election in terms of transatlantic cooperation.

At the top of the list are the MFF and the “Next Generation EU” programme. A total of 1,850 billion euros is at stake, which will be waiting for its distribution to Member States and spending programmes on the negotiating table in Brussels in the coming weeks. The MFF billions will be financed from EU resources such as customs revenue and, for the most part, by contributions from Member States based on their economic performance. These 1,100 billion euros within the MFF are actually “business as usual”. The money is channelled through EU programmes ranging from A for agricultural policy, E for Erasmus+ and M for migration and border management to R for and  resources. In total, this will encompass 1,100 billion euros for 27 member states over seven years. Every seven years it is as complex as it is predictable.

MFF and Next Generation EU in the Same Pot

This list is not complete without the “Next Generation EU”. Based on the rationale to rebuild the EU Member States after the Corona crisis, it is separate from the normal EU budget MFF, but follows the same requirements in terms of negotiation procedure: i.e. first the 27 member states have to agree, then their national parliaments and finally the European Parliament (EP) have to be in agreement. This is what the Member States want.

Reconciling National Interests and European Added Value

This is a wise move, because increasing the size of the pot means more bargaining power for the respective national interests, which will be articulated and which must be served; and of these interests there are many. While some countries demand more agricultural funds, others want to see increased investments in climate protection. Yet others are focusing on the promotion of research and technology, while others are thinking more about strengthening rural areas, catching up in structurally weak regions or securing (external) borders. Finally there are those, now known in EU-speak as the “Frugal Four”, who want to spend less money overall, especially in the “Next Generation EU”.

The golden EU Negotiating Formula…

… does not exist. Not in the EU or anywhere else. What remains are hard-won compromises. Solutions are conceivable in terms of time frame, volume and combination of programme approaches and the grant / loan ratio. For example, “Next Generation EU” may end up at 600 billion euros, half of which would consist of grants and half of loans. In addition, the discounts will play a role again, especially when it comes to convincing the Thrifty Four. Shifts in the MFF offer opportunities to serve individual interests without upsetting the overall structure.

Angela Merkel, together with Emmanuel Macron, made an unexpected 500 billion proposal for reconstruction, ahead of the EU Commission proposal. In doing so, she, as head of government of the largest country, together with the French head of government, has combined her political weight in the framework of the negotiations ahead. None of the 27 Member States will be able to fall behind. This gives Merkel additional room for manoeuvre in the negotiation poker, for example in the planned conditioning of funds (rule of law, climate, etc.) and the allocation to the individual programmes. One of the goals of the German Presidency is to end up with a package that sends a credible signal to the capital markets about the will to rebuild, a “European Bang”, so to speak.

Green Deal, Digitization, Resilience

In addition, the agreement must make a comprehensible contribution to the European priorities of the Green Deal, digitisation and increased resilience to future crises. The timeline remains delicate. All those involved must be careful not to get into a blockade situation that is difficult to resolve. Delaying the disbursement of funds would damage the impetus for reconstruction and, since “Next Generation EU” is linked to the MFF, it would also delay the payment of normal EU budget funds. In the end, none of the parties involved has any interest in this, neither do the governments of the Member States or the national parliaments, let alone the European Parliament. Therefore, this should create enough pressure in the time pipeline.

What will happen when everything is finally agreed upon? Then the German Presidency will  be able to tick one major task off its list. Nevertheless, as you can see above, more tasks are waiting.

Thomas Ilka

Regional Director, FNF European Dialogue