Wanted: An Effective and Sustainable Financial Framework for Europe

For the next two days, Heads of State and Government of the European Union are meeting in the EU capital. On the agenda of the European Council: the Multiannual Financial Framework and the “Next Generation EU” programme for the rebuilding of the EU after the Corona health crisis. EU-expert Thomas Ilka has the latest news on the content of the negotiations, lines of conflict, actors and timeframes.

The meeting starts today: Corona-compliant in two separate divisions – the minutes note “Arrival 1” and “Arrival 2” in a strictly neutral manner. The 27 heads of state and government will drive up to the conference building in Brussels in the morning. At ten o’clock they will take their seats at the large round table in the Council building. The meeting of the powerful is scheduled for two days, and the final press conference has not yet been scheduled. So far “business as usual” in the EU capital. Everybody knows that Brussels days are long and the nights even longer. Some observers rumour that the bosses might not reach an agreement until Monday morning. If at all.

What is on the Table

Actually everything is quite simple: there are about 1,800 billion euros for 27 countries. The overall package is divided into the EU’s seven-year budget, the so-called “multiannual financial framework” (MFF) – where around 1,074 billion euros are to be spent between 2021 and 2027 – and the 750 billion euro fund for the reconstruction of Europe after the Corona crisis. With all this money on the table, one would think that there is certainly some for everyone, especially since it is not the first time that these experienced politicians are dealing with large funds.

Time is also ticking: the EU Member States are facing the effects of the biggest economic crisis since the Second World War. The world is not waiting for Europe: China and the US are pursuing their own agendas. In addition, negotiations with the UK on how to deal with the post-Brexit situation will continue until the end of 2020. So there is enough pressure in the negotiation pipeline to reach a quick solution.

Who is Setting the Scene

A German proverb says “Kasse macht sinnlich”, which translates into: the more money there is on the table, the greater the desire for it. Therefore, those that bear the main burden of payments will pay closer attention. This is no different in the EU than at the family table or in any community of heirs,

This makes it all the more important to define the roles of the players and the question of direction – in Brussels one would speak of “leadership capacity”. The European dramaturgy provides for clear roles: The “Economical Four” (the Netherlands, Denmark, Austria and Sweden) do not want to open the money faucet too much, “the South” (Spain, Italy and others) emphasises its neediness and warns of solidarity, Poland and Hungary wave the veto card if payments should in future be linked to compliance with rule of law standards. In the end, the whole act only comes to a happy ending if all 27 participants agree.

Enough work for the chair of the meeting, and enough room for the heavyweights at the table to take the lead in initiating and agreeing on compromises. In the coming days, President-in-Office Charles Michel, Angela Merkel and Emmanuel Macron will be particularly important. Michel chairs the round, has set the negotiating framework and will have to give structure and rhythm to the hours spent together.

Germany and France Plus “X”

Chancellor Angela Merkel is the head of the German Presidency and “prima inter pares”. She is held in high regard by most and respected by all her colleagues. Together with Emmanuel Macron, she represents the two largest economies in the EU. Together, the two have shaped the negotiating framework through their consensual proposal in mid-May. Without Germany and France, nothing will work. However, Germany and France alone will not succeed. It will be a matter of creating an atmosphere in which everyone can see the seriousness of the situation and no one will lose face. In the backdrop of the negotiating drama, there must be room and time for diversions, pauses for rest, threats and enticements as well as hidden solutions.

If areas of conflict are known, red lines are visible, and the depth of dividing trenches is measured, the scope for compromise becomes apparent. To this end, in the weeks leading up to the summit, a plethora of bilateral and group discussions have taken place to give shape to the compromise map. The parameters are the size of the MFF and the Recovery Plan, the distribution of loans to grants, the question of discounts for the so-called “Thrifty Four”, as well as the conditionalities and governance of both budgets: i.e. the answer to the question of which criteria are to be used for the distribution of money, who is to decide on it and how.

General expectations suggest that not much will change in terms of amounts. There will be discounts, and the ratio of grants to loans could be balanced after a fierce tug-of-war. The question of conditionalities will be as cruical as it is controversial: How can the rule of law be taken into account in a way that avoids a veto by Hungarian Prime Minister Viktor Orban? How can a reform programme, be formulated so watertight, that there is confidence in its implementation? How many heads of state and government will will be needed, in order for the money to be disbursed? And if unanimity is maintained: will a qualified majority be sufficient or will there be a compromise?

Hamiltonian or Wallonian moment for the European Union?

This weekend could be a key milestone in the field of financial and economic integration policy. With the pressure to revive the economy from the corona coma, the issues of debt and additional EU own resources (e.g. digital or plastic tax) are on the table for the first time. This creates both euphoria and anxiety: Those that are building on a federal future for the EU, see the doors to its realisation being pushed wide open. Those who see the EU as merely an intergovernmental cooperation project between states, are more on their guard than ever.

So is the EU on the brink of its “Hamilton moment”? In the 18th century, the US Secretary of the Treasury Alexander Hamilton took advantage of the financial weakness of the heavily indebted states during the War of Independence, to establish fiscal sovereignty for the federal state. Transferred to the EU, the “Hamilton moment” thus refers to the possible step towards a shift of power from individual member states to supranational decisions.

But beware: the EU may be born of dreams, kept alive by visions and developed further in crises. In the first place, its survival and prosperity depends on hard, prudent and careful work. as well as compromise building both in Brussels and in the Member States. This is where the agreements on MFF and “Next Generation EU” need to be ratified. Some people will remember how the CETA trade agreement once almost failed at the Wallonian regional parliament. So anyone who dreams too much of “Hamilton moments” could wake up in a ” Wallonian disaster”.

Will the heads of state and government be ready this weekend? That too is uncertain. Perhaps the dramaturgy will force another special summit in a few weeks, but one thing is certain: failure is not an option.

Thomas Ilka

Regional Director, FNF European Dialogue