MFF 2021-2027 and Recovery Fund 2020-2023

To agree on a common document of conclusions about the next Multiannual Financial Framework 2021-2027 and the Recovery Fund, the European Council ended up last 21 July the longest Summit ever. A new 2021-2027 Multiannual Financial Framework (MFF) amounting to € 1,074.3 billion was agreed by EU-27 leaders, with a 750 billion Recovery Fund on top. A Franco-German agreement pushed this Fund forward in mid-May when a first agreement started to be in the scope. There have been a lot of pressures, but the MFF has been slightly reduced and keeps many features of the Council’s proposal from last February, with some relevant reductions, including Interreg; while the Recovery Fund resists, with a smaller proportion of grants than expected. Including the various promised EU funds, a total of €2.36 trillion will be available. Raising own EU resources through bonds and new taxes will be possible.

Below you can find an account of the negotiations.

Here you can find more information on the Recovery Package

This is the current situation of European Territorial Cooperation and related aspects of interest.

published on 3/8/2020 (updated on 7/9/2020)

The negotiations

There was a strong delay to decide the EU budget for the next programming period 2021-2027 due to various reasons, including the pandemic. Despite the trend to reduce the EU budget even more (we should not forget that EU annual budget means around 1% of the EU-27 GDP), the emergency made necessary extraordinary support to various Member States, and this was clearly expected to have consequences for the future common budget, its amount, and its scope. The President of the Council put quite a promising proposal on table after Southern Member States asked for a trillion Euro additional Fund in grants (a “billion” in most European continental languages <twelve zeroes>, but a trillion or a thousand billion in English) during the hardest period of the pandemic in Europe. Various Member States in the North (the “Frugal Four”) replied that they were for a smaller fund mainly based on loans. When the final decision of the Council seemed to be close, it became clear that this would mean a reduction of all figures announced in May-June. However, the Council concluded a similar Multiannual Financial Framework (MFF) as previously discussed (finally reduced from € 1.1 to 1.074 trillion), with complementary instruments to strengthen the economy, and an EU Recovery Fund on top: Next Generation EU (NGEU) (€ 750 billion, of which € 390 billion will be distributed in the form of grants and € 360 billion in loans, instead of the previous 500/250 proposal).

The Commission’s proposal presented in May included a Cohesion top-up within the Recovery Fund/Next Generation EU, as it was already requested by the #Cohesion Alliance, a platform created by the CoR in 2018 to push for Cohesion Policy in the next programming period. We have to stress that most requests of the #Cohesion Alliance were taken into account; but ETC was not, despite the crucial role of borders and the gaps revealed during confinement and de-confinement processes. Anyway, the decisions and structure of ETC are not final yet.

The first concrete insights on the new MFF about how the budget and the recovery fund would look like had been already provided during the speech delivered by the President of the European Commission, Ms Ursula von der Leyen, at the European Parliament Plenary on 13 May with insights on the new MFF proposal (unveiled on 27 May), own resources and the EU Recovery plan. You can watch it and read it here.

Most European Parliament’s political groups endorsed this plan on 14 May, and the reaction of the European Council was expected to be shaped on 19 June, while Member States or groups of them had made their counterproposals, contributions, or remarks. However, that online Council meeting produced no results, and EU leaders decided to meet physically in Brussels on 17-18 July to discuss the recovery package and the next EU budget 2021-2027.

In the meantime, due to the need to coordinate closer EU institutions for stronger political leadership in order to achieve a quick agreement, the President of the Commission called President Charles Michel (European Council), President David Sassoli (European Parliament), and Chancellor Angela Merkel (representing the German Presidency of the Council of the EU in the second half of 2020) for a mini-summit on 8 July, before the meeting of the Member States’ leaders, to take stock of negotiations and put some more input towards a deal. Ms. Merkel and Ms. von der Leyen had seen very clearly the crossroad where Europe is, and have decided to set the course for the fifth Juncker’s scenario: more Europe!

Then, on 10 July the President of the Council presented a new negotiation box (10/7 NegoBox), and on 14 July Commissioner Ferreira met the Cohesion Alliance, while some EU leaders crossed Europe several times to meet each other on 13-16 July, and videoconferences multiplied. Finally, the Summit started on 17 July and lasted until 21 in the morning, being just 25 minutes shorter than the longest-lasting one in the history of the European Council (Nice, 7-10 December 2000). The final result can be considered quite satisfactory in terms of the total budget of the EU. Deeper cuts in the MFF have never been an option, and the “minimum agreed Europe” seems to be quite high. The recovery package makes the budget growing enormously (at least until 2023), and the level of financial commitment has substantially grown over previous taboos, such as mutualized debt and new own resources. We are probably towards one of the milestones in EU integration, comparable with the Maastricht or Lisbon Treaties, the introduction of the Euro, or the huge EU enlargement in 2004 after the Nice Treaty (2000).

However, this EU budget leaves a bitter taste due to various reasons:

• By pushing for a smaller allocation of grants and more loans, the frugal countries have undermined their own goal of modernizing the budget as a whole, reducing the size of EU programmes which are key for the regions to transit through a new era of strong reforms to build resilience.
• Surprisingly, some key priorities receive much less funding as previously proposed by the Commission, being the Just Transition Fund one of the biggest losers. This showed a dubious commitment of EU Member States with the Green Deal when the negotiations turned sharp.
• Even European Territorial Cooperation (ETC, our core business) receives a strong cut in the MFF, although some last-minute changes and expected pressure from the Parliament and the stakeholders might move ETC forward. Furthermore, ETC receives no mention at all in the Recovery Fund. Actually, there is no sign of subsidiarity in the Next Generation EU, as everything is addressed to “national planning and implementation”.
• Furthermore, this Recovery Fund was supposed to handle the consequences of the pandemic, stressing healthcare and research, but the only announced instrument to support the health sector has disappeared from the Council’s conclusions, and Horizon Europe has received a serious cut too.
• Neighbourhood policy and Solvency Support Instrument have also been cut in the course of the last negotiation.
• Another major issue was the administration of the funding, with some Member States asking for some right of veto (!) which wasn’t in the final conclusions, but an “emergency brake” was, making possible for any Member State to freeze payments until the Council decides if any suspicion of “serious deviation” arouses. Anyway, this is probably only to exist theoretically.
• The “Rule of Law conditionality” was quite diluted in the final text too, and some more ambiguities remain. The four main groups at the Parliament have warned repeatedly that they would not sign the budget unless there is a formal deal to link EU funds to the rule of law.
• Regarding own resources, the Commission’s had proposed to cover debt repayments entirely by revenue-generating own resources, including digital, non-recycled waste and financial taxes. Most of the Commission’s suggestions are mentioned in the Council’s conclusions, asking to work out the details within the next three years, but a unanimous backing is unlikely.
• The frugal four and Germany keep their rebates.

We hope that the weight of some major programmes will be shaped and better tuned in the coming weeks or months, but the feelings are quite frustrating in key sectors such as health and research, with many people currently working against the clock to prepare an effective immunisation or testing better treatments for Covid-19 worst cases. Interreg family also has many reasons to be worried, as well as Neighbourhood and Pre-Accession stakeholders, or those expecting a stronger environmental commitment.

Some Member States have started to consider the use of an enhanced cooperation mechanism included in the treaties to allow a minimum of 9 MS to pursue specific policies, while the ball is now in the Parliament’s court. The President of the EU Chamber already announced after the Summit that some elements of the deal are not acceptable, in particular the cuts to EU-funded programmes in the MFF and the weak nature of the rule of law conditionality. The latter was stressed very strongly by the four major political groups, who sent a letter in this regard to Chancellor Merkel and President von der Leyen on 26 August. Manfred Weber, EPP leader, clearly stated that this budget is not future-oriented enough, and it risks to be spent on national favourites. He also stressed the need to link funding with the respect of EU rules and mechanisms. Iratxe García, S&D leader, showed their rejection to cuts in research, Erasmus, digitalisation and humanitarian aid. Dacian Ciolos, leader of the liberals, asked European projects not to be sacrificed in favour of cuts. The Parliament also wants a say in the governance of the recovery package, the “emergency brake”, and the approval of national programmes. They would like to see a concrete and precise timeline for EU own resources. And then, the Commission must decide how it amends its original proposal with the EU leaders’ agreement and the Parliament’s remarks.

Anyway, the real work starts now. Countries receiving EU support have to give proof of deserving such solidarity, and this is a huge step forward for European integration, agreeing to issue joint debt for the first time (though partially and for a limited period of time). Most analysts have reminded in these days the famous Monnet’s Law (Europe will be made through crises and it will be the sum of the solutions developed to overcome these crises). On the other hand, Member States seem to only share their sovereignty when forced by necessity, and would only recognize necessity in crisis situations.

AEBR has followed all these negotiations within the #CohesionAlliance since its launching in 2018. The Alliance has organized various meetings with the Commission, including a webinar on 14 July with Commissioner Ferreira on The European Recovery Plan and its implications for EU cohesion policy, just before the 17-18 July Summit. AEBR President Ann-Sofi Backgren stressed the Commissioner that “European Territorial Cooperation should be kept and even increase its share in the EU budget”. She stressed the need of a stronger Cohesion Policy within the new MFF and the Recovery Fund “taking into account European territories facing specific difficulties such as border, mountain, peripheral regions, islands and other maritime regions; additional constraints like sparse and/or aged population, brain drain, lack of infrastructures and public services; and of course general challenges, namely climate and demographic changes, the transition to more sustainable development approaches and energy sources, optimal digitalisation, and resilience to global threats like Covid-19. Many border regions share many of these circumstances, and there are further difficulties related to the growing need to coordinate diverse national regulations which might collide at national boundaries.”

The Commissioner replied that in this emergency situation the Commission has not considered cross-border interventions because the procedures to negotiate and implement cross-border actions take too long to make them operational, but she is sure that Member States will take into consideration these regions, which deserve very special attention.

The video recording of this webinar can be watched here.

AEBR has also followed this in its own in order to keep the cross-border focus, and this has also been the case of other cross-border networks, like CESCI and MOT. Looking at the threats to CBC programs, we rapidly coordinated efforts to keep European Territorial Cooperation within the new MFF, but also in Next Generation EU, and increased the awareness of other EU departments and also of Member states about the added value of CBC in EU integration, even more in times of Covid-19, and when the pandemic ends. In order to raise the attention on the harmful effects of border closing, AEBR, CESCI and MOT have launched an Alliance of European Cross-Border Citizens. The Alliance has proposed a draft declaration, open for amendments, comments or remarks, drawing the attention of EU institutions and various strategic partnerships. You can also join the Alliance by completing this form.

 

Summarizing, this is the state-of-the-art by the start of the political course early September 2020: while MFF negotiations have entered their final stages and, as already mentioned, the Parliament has announced some major redlines, the Commission has also presented a draft budget for 2021, including an important share of the recovery instrument ‘Next Generation EU’ (NGEU). For 2021, the Commission is pledging €211 billion in grants and around €133 billion in loans, and the legal department of the Council has established that the recovery fund is compatible with the Treaties. During their meeting on 8 July, EU institutions agreed a common and strong position, based on 6 building blocks, according to latest proposal by the President of the Council:

1. Size of the MFF: a slight cut, but shorter than expected, to keep € 1.074 trillion, based on the proposal presented last February after two years of discussions with Member States; while keeping the capacity of the recovery fund.
2. Rebates will remain for DK, DE, NL, AT, and SE as lump sums.
3. Size of the Recovery package: € 750 billion borrowed by the Commission through an Own Resource Decision for loans and grants, as an exceptional and one-off tool.
4. Loans and grants: preserving the balance between loans, guarantees and grants to avoid over-burdening heavily in debt countries.
5. Recovery and Resilience Facility: linking the Recovery Plan and the crisis to ensure that funds go to more affected countries and sectors.
6. Governance and conditionality, with three goals:
   2022. Reform and Resilience National Plans, prepared by national governments in line with the European Semester (esp. country-specific recommendations), to be reviewed in 2022.
   2023. Climate Transition: 30% of funding targeted to climate-related projects
   2024. Rule of Law and European values, to show a clear sign of EU commitment by Member States.

On Repayments and Own Resources, many Member States and the European Parliament expressed concerns over the repayment at the beginning of the next budget cycle, and the lack of own resources to finance the reimbursement. In President’s Michel proposal, repayments would start earlier in 2026, so two years ahead, and this commitment enhances the pressure on the EU to introduce new own resources. He proposed to focus on plastic waste, carbon adjustment mechanism and the digital levy. And he also proposed a Brexit Adjustment Reserve of € 5 billion, to counter unforeseen consequences in most affected Member States and sectors.

The size of the recovery fund was kept (€ 750 billion), but the distribution between grants and loans dropped from € 500/250 billion to 440/310 before the Summit and finally to 390/360 billion in the conclusions document.

The “rebates” for the Frugal Four and Germany remain, but the allocation key, conditionality, and the creation of new EU taxes seems to be still open. The criteria proposed by the Commission to allocate the funds were based on population and PIB in 2019, and on employment figures before the crisis (2015-2019), in order to address countries’ resilience. The new negotiating box allocated 70 % of the fund (2021-2022) under these criteria, but 30 % (2023) based on falling GDP in 2020-2021 (calculated by 30 June 2022).

 

After a short summer break, leaders of the Parliament will meet on 10 September to decide if next Plenary (14-17 September) will be shifted to Brussels, to avoid a massive commuting to Strasbourg.

On 7 and 11 September negotiations between the Parliament, the Commission and the Council (Member States) on the MFF and NGEU continue… (more information will follow).

European Parliament negotiators on the Multiannual Financial Framework (MFF) and Own Resources (OR) interrupted negotiations and walked out on 8 October. They suspended all talks until next week, “once there a real will from the Council to find an agreement”. The main issue is the top-ups to the budget to improve 15 flagship EU programmes for the benefit of citizens.

 

The Commission will come up with possible proposals before 14 October, when talks will resume. The German Presidency has tabled an alternative budget offer to break the impasse. And a sharper tone on the new “rule of law mechanism”.

 

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