Social Europe

politics, economy and employment & labour

  • Themes
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter

The New EU Budget Under The Constraints Of Brexit And The Debt Brake

Susanne Wixforth 13th July 2018

Susanne Wixforth

Susanne Wixforth

The UK’s exit from the EU means a contributions gap of an estimated €10-14 billion per year, around 7 percent of the EU Budget. Thereby, the discussion about the multi-annual financial framework has already set off in one direction: How do we fill the gap rather than how do we reform the budget?

At the same time, a reform is overdue: Many challenges require European solutions: climate change, shortage of resources, high unemployment in many parts of Europe, social and economic inequalities as well as digitization and global instability. Keeping the status quo intact would send a bad signal about the effectiveness of the political union. Within this context, Brexit has come like any other unexpected event at a bad time.

Budget proposal of the EU-Commission for 2021-2027

Total expenditures for 2021-2027 are an estimated €1300 billion or an extremely modest increase from 1.03 % to 1.114% of EU GDP.

New Budget thinking can be summarized as follows:


Our job is keeping you informed!


Subscribe to our free newsletter and stay up to date with the latest Social Europe content. We will never send you spam and you can unsubscribe anytime.

Sign up here

  • Abolition of all rebates, hitting Germany, Austria, Sweden and the Netherlands.
  • Greater linkage between the Budget and private investors: The European Fund for Strategic Investment is due to become a fully integrated investment fund “InvestEU“. The key partner in implementation is as before the European Investment Bank. InvestEU is due to embed all centrally managed financial instruments within the EU in a single streamlined structure.
  • Reform support programme furnished with €25bn to promote inter alia structural reforms in the member states. This programme aims to strengthen the resilience of member state economies and support key reforms set out within the European Semester.
  • For the stabilisation of the Eurozone €30bn would be set aside (EU-Investment stabilisation function). It is devised to stabilise investment levels in the member states and prevent them from suffering asymmetric shocks.
  • Introduction of new own resources, furnished by proceeds derived from the emissions trading system, the Common Consolidated Corporation Tax Assessment Basis and a levy on non- recyclable plastic packaging materials.

Brexit – Occasion for a progressive budgetary reform

The policy-making power of the EU depends on the readiness to boost its sovereignty and on its financial provisions. Now the UK is leaving this comes over more as a ‘spending watchdog’ than as a committed protagonist of a political union. But other member states might take over the UK role. The ‘frugal four’ – Austria, Sweden, Denmark and the Netherlands – reject any increase in their contributions.

To get out of entanglement in net-payer-net-recipient discussions therefore requires a fundamental rethink of the income side of the EU Budget. As before, the political centre of gravity in member states remains how they can achieve a fair return rather than drawing up new strategies.

The Commission, in proposing the creation of new own resources, is taking a first step in the right direction. According to its calculations, the new proceeds total €22bn per year, i.e. 13% of the Budget. These new ressources, however, depend upon the political will of all member states ready to concede more sovereignty to the European Union.

Primacy of Europe’s social dimension

Looking at challenges as set out above, the strengthening of the social dimension of Europe must take first place. The EU Budget must aim for the perceptible improvement of living and working conditions of European citizens and the fight against increasing economic and social inequalities as well as the unacceptably high youth unemployment rate of up to 50%.

The most important instruments of European convergence policy, European Regional Development Fund and Cohesion Fund, are set at €273bn, the European Social Fund+ at €101bn. According to the Commission, both should be more strictly connected to the European Semester. ESF+ should be increased. However, its share of structural funds still remains too low in order to combat unemployment and poverty in an efficient manner. A shift of the Budget from direct payments to rural development (EAFRD) is the order of the day to combat rural migration.

The envisaged new conditionalities have to be handled with great care. Criteria like rule-of-law, structural reform or good conduct imposed from above go unmentioned in Art 174 TFEU for a reason. Cohesion should be a mechanism acting like an incentive not a sanction that threatens funds withdrawal. The programmes and goals should be set at regional level through the affected citizens. Europe can come alive concretely in this way.

The same is true for the stronger links between EU Budget and European Semester: Recommendations in the semester framework often contradict the interests of employees and amplify the centrifugal forces within the Union. This became apparent with the attacks on well-established structures of collective bargaining during the economic and financial crisis.


We need your support


Social Europe is an independent publisher and we believe in freely available content. For this model to be sustainable, however, we depend on the solidarity of our readers. Become a Social Europe member for less than 5 Euro per month and help us produce more articles, podcasts and videos. Thank you very much for your support!

Become a Social Europe Member

State design instead of political decisions by private investors

The proposed stage-by-stage financialisation of the structural funds or a redirection of transactions to the European Investment Bank and InvestEU should now be countered very energetically. Long-term that means a shift from subsidies to loans. Worse still: It means handing over the responsibility of policy-makers for deciding upon support measures to bankers and private companies. Public-private partnerships would be fostered by tax-payers’ default liability. Rather than InvestEU and EFSI, establishing a Marshall Plan for Europe would be urgently advised that, similar to the sovereign wealth funds from China, Norway, Saudi Arabia and many others, would develop more strategic ownership of key European technologies and set in train infrastructure investments as European projects.

Outlook

The Commission has the ambitious concept of reaching agreement on the Budget before the elections to the European Parliament in May 2019. This schedule seems over-ambitious. The hope is that the new European Parliament will contain enough progressive forces to approve an ambitious EU policy equipped with corresponding funding.

The multi-annual financial framework may be just a small budget line in national spending programmes but it is an important barometer of how much Europe EU citizens and national governments want in future.

Susanne Wixforth
Susanne Wixforth

Susanne Wixforth is deputy head of the Economic Policy Department in the Vienna Chamber of Labour.

You are here: Home / Economy / The New EU Budget Under The Constraints Of Brexit And The Debt Brake

Most Popular Posts

Russian soldiers' mothers,war,Ukraine The Ukraine war and Russian soldiers’ mothersJennifer Mathers and Natasha Danilova
IGU,documents,International Gas Union,lobby,lobbying,sustainable finance taxonomy,green gas,EU,COP ‘Gaslighting’ Europe on fossil fuelsFaye Holder
Schengen,Fortress Europe,Romania,Bulgaria Romania and Bulgaria stuck in EU’s second tierMagdalena Ulceluse
income inequality,inequality,Gini,1 per cent,elephant chart,elephant Global income inequality: time to revise the elephantBranko Milanovic
Orbán,Hungary,Russia,Putin,sanctions,European Union,EU,European Parliament,commission,funds,funding Time to confront Europe’s rogue state—HungaryStephen Pogány

Most Recent Posts

reality check,EU foreign policy,Russia Russia’s invasion of Ukraine—a reality check for the EUHeidi Mauer, Richard Whitman and Nicholas Wright
permanent EU investment fund,Recovery and Resilience Facility,public investment,RRF Towards a permanent EU investment fundPhilipp Heimberger and Andreas Lichtenberger
sustainability,SDGs,Finland Embedding sustainability in a government programmeJohanna Juselius
social dialogue,social partners Social dialogue must be at the heart of Europe’s futureClaes-Mikael Ståhl
Jacinda Ardern,women,leadership,New Zealand What it means when Jacinda Ardern calls timePeter Davis

Other Social Europe Publications

front cover scaled Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship
Women Corona e1631700896969 500 Women and the coronavirus crisis
sere12 1 RE No. 12: Why No Economic Democracy in Sweden?

ILO advertisement

Global Wage Report 2022-23: The impact of inflation and COVID-19 on wages and purchasing power

The International Labour Organization's Global Wage Report is a key reference on wages and wage inequality for the academic community and policy-makers around the world.

This eighth edition of the report, The Impact of inflation and COVID-19 on wages and purchasing power, examines the evolution of real wages, giving a unique picture of wage trends globally and by region. The report includes evidence on how wages have evolved through the COVID-19 crisis as well as how the current inflationary context is biting into real wage growth in most regions of the world. The report shows that for the first time in the 21st century real wage growth has fallen to negative values while, at the same time, the gap between real productivity growth and real wage growth continues to widen.

The report analysis the evolution of the real total wage bill from 2019 to 2022 to show how its different components—employment, nominal wages and inflation—have changed during the COVID-19 crisis and, more recently, during the cost-of-living crisis. The decomposition of the total wage bill, and its evolution, is shown for all wage employees and distinguishes between women and men. The report also looks at changes in wage inequality and the gender pay gap to reveal how COVID-19 may have contributed to increasing income inequality in different regions of the world. Together, the empirical evidence in the report becomes the backbone of a policy discussion that could play a key role in a human-centred recovery from the different ongoing crises.


DOWNLOAD HERE

ETUI advertisement

The EU recovery strategy: a blueprint for a more Social Europe or a house of cards?

This new ETUI paper explores the European Union recovery strategy, with a focus on its potentially transformative aspects vis-à-vis European integration and its implications for the social dimension of the EU’s socio-economic governance. In particular, it reflects on whether the agreed measures provide sufficient safeguards against the spectre of austerity and whether these constitute steps away from treating social and labour policies as mere ‘variables’ of economic growth.


DOWNLOAD HERE

Eurofound advertisement

Eurofound webinar: Making telework work for everyone

Since 2020 more European workers and managers have enjoyed greater flexibility and autonomy in work and are reporting their preference for hybrid working. Also driven by technological developments and structural changes in employment, organisations are now integrating telework more permanently into their workplace.

To reflect on these shifts, on 6 December Eurofound researchers Oscar Vargas and John Hurley explored the challenges and opportunities of the surge in telework, as well as the overall growth of telework and teleworkable jobs in the EU and what this means for workers, managers, companies and policymakers.


WATCH THE WEBINAR HERE

Foundation for European Progressive Studies Advertisement

The winter issue of the Progressive Post magazine from FEPS is out!

The sequence of recent catastrophes has thrust new words into our vocabulary—'polycrisis', for example, even 'permacrisis'. These challenges have multiple origins, reinforce each other and cannot be tackled individually. But could they also be opportunities for the EU?

This issue offers compelling analyses on the European health union, multilateralism and international co-operation, the state of the union, political alternatives to the narrative imposed by the right and much more!


DOWNLOAD HERE

Hans Böckler Stiftung Advertisement

The macroeconomic effects of re-applying the EU fiscal rules

Against the background of the European Commission's reform plans for the Stability and Growth Pact (SGP), this policy brief uses the macroeconometric multi-country model NiGEM to simulate the macroeconomic implications of the most relevant reform options from 2024 onwards. Next to a return to the existing and unreformed rules, the most prominent options include an expenditure rule linked to a debt anchor.

Our results for the euro area and its four biggest economies—France, Italy, Germany and Spain—indicate that returning to the rules of the SGP would lead to severe cuts in public spending, particularly if the SGP rules were interpreted as in the past. A more flexible interpretation would only somewhat ease the fiscal-adjustment burden. An expenditure rule along the lines of the European Fiscal Board would, however, not necessarily alleviate that burden in and of itself.

Our simulations show great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way. Raising the debt ceiling to 90 per cent of gross domestic product and applying less demanding fiscal adjustments, as proposed by the IMK, would go a long way.


DOWNLOAD HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube