Politics & Economics

The Critical Issues of the EU Budget System

July 2023
By Gianni Pittella

On June 20, the European Commission requested member states to provide an extraordinary contribution to the Union’s multiannual financial framework totaling 65.8 billion euros, after various crises and rising inflation made existing funds insufficient.

Of these funds, 17 billion euros would be allocated to Ukraine, 15 billion for migration and neighborhood policy, up to 19 billion for EU debt interest, 10 billion for research, 1.9 billion euros for increased administrative costs, and 3 billion for unforeseen expenses.

This proposal has already elicited critical responses from member states. For example, Austrian Chancellor Karl Nehammer, on June 23, expressed his clear opposition to the Commission’s request, while Germany and the Netherlands have already stated that, although they are in favor of additional funding expressly for Ukraine, they have highlighted that national budgets are also under pressure due to the same phenomena: inflation and strategic uncertainties.

On the other hand, in the European Parliament, there are positions favorable to an even greater increase in the European budget for initiatives on the front of new technologies necessary for the green and digital transition. This episode once again demonstrates the inefficiency of the current Union budget system.

The 7-year time horizon is too long to predict economic evolutions that can transform the world. For example, in 2021, the year in which the current multiannual financial framework was launched, ECB deposit rates were at 0 percent, while by June 2023 they had been raised to 3.50 percent, the highest level since August 2001. Faced with such a significant change in monetary policy, the difficulty of budgetary policy in coping is understandable.

For this reason, the functioning of budgetary policy at the EU level should be radically changed. The model to be adopted is the federal one, based not only on a quantitative increase in the size of the EU budget relative to the Union’s GDP but also on procedures and financing sources. Indeed, most of the contributions to the budget currently come from national transfers, whereas it would be more effective to introduce a new system of own resources.

It would also be useful for the EU’s democratic legitimacy to align the duration of the MFF with the term of the European Parliament legislature. It is regrettable that this is not discussed in the context of the debate on new European budget rules and that the platform that could have been the right space, namely the Conference on the Future of Europe, has completely disappeared from the agenda of the governments and institutions of the EU.

If we are unable to build a more ambitious Europe, as Mario Draghi also recently reminded, we may not be able to meet the challenges the world is posing to us.