by Bill Wirtz

The upcoming budget, as it has been suggested by the European Commission in May last year, excites itself over its own ambitions. With more contributions from the 27 member states, the European Commission wants to move all countries away from fossil fuel use for energy production, reform agricultural subsidies in a way that Central and Eastern Europe will get on board with, fund lavish educational programs and youth organizations for fancy conferences, and finance large infrastructure projects.

A number of EU member states, among them Germany, the Netherlands and Denmark, have been skeptical of agreeing to an increase in the EU budget, as it would only end up subsidizing citizens in regions that are not net contributors. Under the current framework, only a handful of countries actually pay more into the EU’s pot than they take out. The most prominent example of that is Germany, which also contributes over 20% of the total MFF. Berlin’s contribution is set to double to €33 billion in the next framework if the European Commission gets its way. Meanwhile, for Poland – which is among the biggest net recipients – net payments would increase just under €10 billion a year, reaching €12 billion in 2027.

The governing Polish Law and Justice party faces a political dilemma ahead of its presidential election, as stalling budget negotiations means that farmers don’t know whether the government can keep its promises. On agricultural subsidies, Warsaw says that Brussels disadvantages Central and Eastern European nations, due to a funding algorithm meant to account for cheap labor and land costs in the region. But these newer EU countries argue this calculation is out of sync with the current situation on the ground, where costs are now more similar to those in the West and should be rectified through a process known as external convergence. Polish farmers receive an average of €220 per hectare: compare this to Greek or Maltese farmers, who get more than €550 per hectare – the highest in the EU.

As the coronavirus “ravages” the continent, Italy is keen on using its overreaction to the illness as grounds for less commitments to its own budgetary goals. Rome told the European Commission that it would like some wiggle room on its own targets, as the virus is set to hit its tourism industry, which represents 13% of GDP. It seemed to have conveniently left out the fact that its own actions of cancelling flights and train rides, as well as putting entire towns under quarantine, has been the cause of this problem, much less than the virus. In fact, Italy has put many more of its own citizens under serious health risks by under-providing pharmacies through the panic it caused. One wonders how the February 21 statement by Italian Prime Minister Guiseppe Conte on “no rebates for net contributors” (of which Italy is one) will evolve.

The European Union is struggling with the departure of the United Kingdom, which used to be the second net contributor to the budget, and with a deadline of December this year, by which the 2021-2027 budget needs to be determined if Brussels doesn’t want a continuation of existing budgets into the next year. Germany has said that it will not accept a budget deal that does not contain rebates (particularly for itself), while the European Parliament demands an unprecedented contribution of 1.3% of GDP for all member states.

Overall, three types of member states exist in the negotiations as they stand: 1) those who pay in more than they get out, who pretend to be great EU supporters for the camera, though argue for rebates behind closed doors; 2) those who get more out of it than they pay in, and who are set to squeeze even more out in the coming years; 3) those who don’t have a say.

A likely scenario is that Brussels will run out the clock until December, and that an odd middle ground will be reached towards the very end of the year. Such a deal is likely to protect all spending on the environment and social institutions but might leave Central and Eastern European farm subsidies as unequal as they used to be.

Bill Wirtz is a political commentator from Luxembourg. His works have been published in The Times of London, the Washington Examiner, Newsweek, Die Welt, and Le Monde.

The views expressed on AustrianCenter.com are not necessarily those of the Austrian Economics Center.