17-10-2022

One of the primary goals of the European Union from its inception has been to foster prosperity and peace. One method to accomplish this is to pool resources to be spent on areas critical to the well-being of all European residents. These funds are distributed through the EU’s annual and long-term budgets.

The EU budget varies from national budgets in that it invests in areas where the EU can offer value, allowing it to grow and become more competitive. While national budgets fund education and social protection, the EU budget addresses issues that affect the entire continent, such as migration management and border control.

EU funds also enable the continuation of costly, long-term initiatives. The Investment Plan for Europe, for example, would be too expensive for any single country to support at a cost of almost €500 billion.

So, how is the EU budget paid for? How are EU funds allocated? How much does each country contribute to the EU budget? Continue reading to find out the answers to these and other important questions.

DIFFERENCE BETWEEN THE ANNUAL AND LONG-TERM EU BUDGETS

The EU budget is decided on a long-term basis. Given that it is primarily an investment budget, a long-term strategy provides stability and that projects can be supported in the future.

The Multiannual Financial Framework (MFF) is the EU’s long-term spending plan that lasts at least five years. The MFF determines the maximum amount of money that the EU can spend in each area.

These constraints are used to establish the annual budget. To account for unanticipated occurrences, the annual budget is frequently set lower than the MMF’s maximum amount.

HOW EU BUDGET NEGOTIATIONS WORK

Every year, the EU Parliament and Member States gather to determine how much of the long-term budget will be spent in the coming year and how the money should be distributed. A mechanism is in place to ensure that the budget is developed democratically and fairly.

The following are the steps to reaching an agreement on the EU budget:

  • Draft budget is proposed the EU commission
  • The draft is reviewed by the Member States and the EU Parliament
  • Negotiations between all parties based on their opinions of the draft
  • Agreement is reached
  • Approval of the annual budget

The process begins in May or June with the publication of the draught budget, and ends in December with the approval of the final version.

CONTRIBUTIONS TO THE EU BUDGET BY COUNTRY

Each year, each Member State contributes a different amount to the EU budget. Similarly, depending on a variety of conditions, European countries receive a varying share of available resources.

MEMBER STATES CONTRIBUTIONS TO THE EU BUDGET IN 2019 (BILLION)

  • Germany: €1,552
  • France: €1,342
  • Italy: €871
  • Spain: €516
  • Poland: €223
  • Belgium: €242
  • Austria: €192
  • Denmark: €15

In 2019, the total EU budget was €148 billion. Although this appears to be a large sum of money, it is actually far lower in relation to national budgets.

While a Member State’s national budget is typically roughly 46% of the value of its economy, the EU budget is less than 1% of the value of the EU economy.

EU BUDGET NEGOTIATIONS: NET PAYERS AND VS NET BENEFICIARIES

Some countries pay more to the EU budget than they take out, but EU resources are available to all Member States, and expenditures benefit the entire region. The existence of a common pot also implies that money is available in times of crisis.

CURRENT CHALLENGES

Nonetheless, EU negotiations are trying; Member States that spend more than they get frequently prefer to cut spending; the Netherlands, Austria, Sweden, and Denmark have been known as the “frugal four.”

Net spenders in Central and Eastern Europe, as well as the South, desire increased agricultural expenditure to help impoverished regions.

HOW WILL BREXIT AFFECT THE EU BUDGET?

Britain’s departure from the European Union creates a dilemma because it is one of the largest donors to the EU budget.

Brexit will leave a significant budget shortfall, estimated at more over €9 billion per year. Despite accounting for less than 0.1% of the remaining 27 Member States’ GDP in 2018, it will cause problems.

However, the UK and EU have reached an agreement on a financial settlement, sometimes known as the ‘divorce bill,’ outlining the UK’s EU budget obligations in the years following Brexit.

HOW MUCH DOES BRITAIN CONTRIBUTE TO THE EU BUDGET?

In 2019, Britain made a net contribution to the EU budget of 9.4 billion euros. While contributions will now be reduced, the UK has several financial responsibilities that need payments to the EU budget to continue after Brexit.

The financial settlement is founded on several ideas, including:

  • EU Member States should not pay more or receive less as a result of Brexit
  • The UK should pay its share of the commitments made during membership to the EU
  • The UK shouldn’t pay more or earlier than if it had remained a member of the EU

Based on this financial agreement, the UK will continue to contribute to the EU budget in order to pay for outstanding commitments as of December 31, 2020. (the end of the transition period). Some assets will also be distributed to the United Kingdom.

UK CONTRIBUTIONS TO THE EU BUDGET POST-BREXIT

The UK’s contributions to the EU budget remained mostly constant in 2020, while the country also received cash from several EU programmes.

The amount paid by the United Kingdom will gradually diminish now that the transition period is finished. Total EU budget contribution from the UK between 2020 and 2064 is estimated at £33.4 billion.

HOW THE EU BUDGET IS SPENT

EU spending is divided into five broad areas known as headings; the percentage of the total budget allotted to each heading is shown in parentheses:

  • Administration: administrative spending of all EU institutions (6%)
    • Staff salaries
    • Buildings
    • Training
    • Interpreting and translation
  • Global Europe: EU foreign policy spending (7%)
    • Assisting with development
    • Humanitarian aid
  • Security and citizenship (2%)
  • Smart and inclusive growth (49%)
    • Research and innovation
    • Transport and telecommunications
    • Support for less developed EU Member States
  • Natural resources and sustainable growth (36%)
    • Agriculture and rural development
    • Fishing
    • Environmental action

LONG-TERM EU BUDGET 2021 TO 2027

The EU budget for the future years has been designed to address Europe-wide challenges, specifically the recovery from the coronavirus pandemic.

The EU’s long-term budget for 2021-2027 is €1824.3 billion:

  • Multiannual Financial Framework: €1074.3 billion
  • Next Generation EU (extraordinary recovery effort) €750 billion

EUROPE STIMULUS PACKAGE TO FUND COVID-19 FINANCIAL RECOVERY

The additional €750 billion from Next Generation EU will be used to aid in economic recovery. It is the largest Europe stimulus package ever funded by the EU budget and will be used to:

  • Helping the Member States recover by supporting investment and reform
  • Kick-starting the economy by investing in key sectors and technologies
  • Supporting programmes for future crises

National budgets in Member States have been significantly strained as economic activity-limiting measures have been implemented in a bid to curb the virus’s spread. The EU’s reaction to COVID-19 involves substantial financial assistance.

The Own Resources Decision has enabled the European Commission to borrow up to €750 billion in exceptional circumstances through the issuance of bonds. This is a temporary setup that will continue till 2024.

LONG-TERM EU BUDGET 2021-2017: OTHER PRIORITIES

When it comes to allocating the annual EU budget, current priorities include ensuring the security and safety of EU citizens and fostering sustainable economic growth.

Migration management is also a concern: by 2027, the European Border and Coast Guard Agency will spend $22.7 billion on migration and border control, including funding for up to 10,000 border guards. After the Entry/Exit System is deployed, the ETIAS visa waiver for visa-exempt non-EU citizens will be introduced in November 2023. These will help to deter irregular migration in the Schengen Area.

External problems and humanitarian aid provision are other factors that will be affected by the prolonged pandemic.

MMF AND NEXT GENERATION EU ALLOCATIONS 2021-2027

EU spending for the period 2021-2027 will be distributed as follows:

SINGLE MARKET INNOVATION AND DIGITAL: € 143.4 BILLION

  • European Strategic Investments
  • Research and innovation
  • Space
  • Single Market

COHESION, RESILIENCE AND VALUES: € 1099.7 BILLION

  • Recovery and resilience
  • Regional development and cohesion
  • Investing in people, social cohesion and values

NATURAL RESOURCES AND THE ENVIRONMENT: € 373.9 BILLION

  • Agriculture and maritime policy
  • Environment and climate action

MIGRATION AND BORDER MANAGEMENT: € 22.7 BILLION

  • Border management
  • Migration

SECURITY AND DEFENCE: € 13.2 BILLION

  • Security
  • Defence

NEIGHBOURHOOD AND THE WORLD: € 98.4 BILLION

  • External action
  • Pre-accession assistance

EUROPEAN PUBLIC ADMINISTRATION: € 73.1 BILLION

The final line item refers to the funds required to ensure the continuity of staff development, pay, and other administrative issues inside EU institutions.

THE EU BUDGET AND THE RULE OF LAW

On December 16, 2020, the European Parliament passed legislation to prevent EU funds from being misappropriated by governments in EU member states.

Nations that violate the rule of law might now have their EU budget funds withdrawn. Payments may be suspended if EU funds are directly misappropriated, such as in cases of corruption or fraud, or when basic principles are violated. The Council will have one month to vote on the proposals (3 in exceptional circumstances).

Students and researchers, for example, will be financially safeguarded. There will be processes in place to ensure that they continue to receive EU cash on which they rely.