The EU’s budget tribes explained

EU leaders are under time pressure to find a deal on long-term finances — but to get there, the bloc’s warring budget tribes will need to start making compromises.

Leaders had aimed to reach agreement by the end of the year on the EU’s 2021-2027 budget, using the European Commission’s €1.13 trillion blueprint as their starting point. But deep divisions on sensitive questions like the overall size of the budget and cuts to traditional spending areas — as well as Brexit and delays to the new European Commission’s start date — pushed this timeline into next year. As a result, officials fear that new budget programs might not get underway on time.

Some leaders are now pushing for countries to put their differences aside and come to an agreement in the first months of next year. But some diplomats say the factions are so far apart that an agreement could only be reached at the last moment, under the German presidency of the Council of the EU in the second half of 2020.

The budget battle is traditionally one of the toughest fights in Brussels. It’s also a multidimensional game: Countries can be allies on agricultural subsidies, for example, but on opposing sides on the budget’s size or regional development funding. France and Germany are on the same page when it comes to pushing for a link between funding and respect for the rule of law, but belong to very different camps on the issue of how much money to dedicate to farmers.

Here’s a breakdown of the main alliances that have formed so far.

The 1 percenters 

Austria, Denmark, Germany, the Netherlands, Sweden.

“De facto the most powerful is the Hanseatic alliance,” said one EU diplomat, referring to five northern countries vocally pushing a frugal position in budget talks.

Austria, Denmark, Germany, the Netherlands and Sweden want to see a smaller post-Brexit budget than the one proposed by the European Commission and in their eyes, that means limiting spending to 1 percent of the bloc’s gross national income. The same five are pushing to retain so-called rebates — reduction in their contributions — even after the U.K., the original recipient of a rebate, leaves the EU.

The countries are in favor of spending more on priorities like research and migration, and less on traditional programs like agriculture and cohesion.

Whether this alliance succeeds could depend largely on Berlin. As the most influential member of the faction, and the biggest net contributor to the EU budget, a second diplomat said that during the October European Council summit the country already showed “flexibility” on its position on the size of the budget. Germany would also be charged with overseeing a budget deal if talks run into the second half of 2020.

Belgium, Finland and Ireland are not in the 1 percent club but want to spend less than the 1.11 percent of GNI proposed by the European Commission.

Friends of Cohesion 

Bulgaria, Croatia, Czech Republic, Cyprus, Estonia, Greece, Hungary, Italy, Latvia, Lithuania, Poland, Portugal, Malta, Romania, Slovakia, Slovenia, Spain.

A 17-strong alliance made up primarily of eastern and southern countries, this group is fighting to maintain funding for regional development.

Friends of Cohesion is a formal group that also influenced the previous budget negotiations throughout 2012 and 2013. Diplomats say it is among the most powerful factions in the EU budget negotiations.

Under the Commission’s proposal, countries like Poland and Estonia would see their regional funds cut by nearly a quarter for the 2021-2027 period compared with the last seven-year budget. In a further blow, the Finnish presidency of the Council of the EU has proposed deepening cuts to some parts of cohesion funding to better support agriculture.

The cohesion countries argue that’s inappropriate because spending to reduce disparities across the bloc is mandated in the EU’s treaties.

Representatives from 17 countries will attend the next Friends of Cohesion EU budget coordination meeting in Prague Castle on Tuesday. Countries expected to stay away from the event include Austria, Denmark, Finland, France, Germany, Ireland, the Netherlands and Sweden.

But even within the cohesion group, there are divergences. Some countries would be willing to see reductions in cohesion spending as long as funding is maintained for the worst-off regions, one diplomat said.

The 1.11 percent club

Croatia, Italy, Lithuania, Malta, Romania, Slovakia, Slovenia, Spain

A subgroup of the Friends of the Cohesion, at least eight countries fighting to protect cohesion spending are pushing for the budget to be set at 1.11 percent of GNI — the size proposed by the Commission.

For some of these countries, 1.11 is the ideal number, while others see it as the bare minimum they are willing to accept but have put a figure on their efforts to counter the powerful Frugal Five.

A few other countries have positioned themselves higher than the 1.11 percent alliance: Estonia and Hungary, for example, are advocating for 1.16 percent, while Portugal says it is open to a compromise between 1.11 and 1.3 percent.

Friends of the farmers

Austria, Bulgaria, Cyprus, Czech Republic, Croatia, Estonia, France, Greece, Hungary, Ireland, Latvia, Lithuania, Luxembourg, Poland, Portugal, Romania, Slovakia, Spain, Malta.

A huge majority of EU countries fear the demise of their farming industries — and this Paris-led alliance to maintain agriculture spending at current levels has already influenced the negotiations.

Agriculture for now receives around 35 percent of total spending from the EU budget, and the Commission had proposed to reduce this share to about 28 percent in the next seven-year framework to focus on “newer” priorities including research, defense and migration.

But pressure from the farmer-friendly coalition led the Finnish presidency to propose that a bigger share of the pie be devoted to agriculture than originally planned. According to a paper seen by POLITICO, the Common Agricultural Policy would under the presidency proposal take a share of between 30.5 percent and 30.9 percent of the budget.

One diplomat described the agriculture alliance as a “strong runner-up” to the 1 percent club and Friends of Cohesion in terms of influence because it is a “single-issue” coalition “with supporters in both main camps and, through agricultural ministries, a lot of internal lobbying power in practically every national capital.”

But another diplomat noted the coalition is far from homogeneous in its priorities for agriculture spending. There are different views on whether rural development should be emphasized over direct payments to farmers in the Common Agricultural Policy. Countries are also divided on whether direct payments to farmers should be equalized across the bloc — an issue that divides the group from east to west.

Democracy promoters  

Denmark, Finland, France, Germany, the Netherlands, Sweden. 

While not a formal club, several countries have indicated they will not approve an EU budget framework if it does not link the distribution of funding to respect for the rule of law.

Members of this faction are primarily wealthier countries where voters tend to be concerned about reports of threats to checks and balances in some eastern nations, as well as reports about misuse of EU funding. The group is influential because it includes some of the largest net payers into the budget. At the same time, Hungary and Poland are informally allied in their goal of blocking a mechanism able to suspend funding over rule of law concerns.

While there is a “traditional rule of law faction … for the majority of member states this is not [the] most crucial matter” in the EU budget negotiations, one diplomat said.

CORRECTION: This article has been updated to correct the budget size advocated by Estonia and Hungary. It is 1.16 percent of Gross National Income.

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