The European Union has encountered several big political, economic and security crises over the past year. The UK’s withdrawal from the European Union and the consequent profound geopolitical impacts, the outbreak of the coronavirus pandemic and the EU officials’ poor handling of the pandemic’s far-reaching economic, commercial and social impacts, Trump’s policies and behavior towards Europe and his attempts to create division and further weaken the European Union, as well as a surge of unilateralism and the decline of multilateralism would result in further division and divergence within the European Union.
In order to avert such process, leaders of the 27 EU Member States finalized the EU’s budget for 2021-2027 on July 21, 2020, after four days of intensive talks. The overall budget of €1824.3 billion is aimed at helping the EU rebuild following the COVID-19 pandemic and supporting investments in the green and digital transitions. The agreement among the EU leaders on the budget was indeed a win-win deal for all EU Member States and would strengthen the bloc’s economic and political situation.
Completion of the Brexit process that leads to the withdrawal of the UK -Europe’s second economic power after Germany- from the EU, and the UK’s budget deficit estimated at €12 to €15 billion have been huge challenges in financing the EU’s new budget plan. The EU’s budget for the previous 7 years (2014-2020), set in 2013, was €908 billion in payments and €960 billion in commitments.
The sources of finance for the European Union's budget include customs duties on products from outside the EU, value added tax (VAT)-based own resource, and Member States’ direct financial contributions proportional to their economies. The EU budget is used to implement the policy of support from the Member States for the farmers and the cohesion policy, help the economic development and digital governments, investment in research and innovation, strengthen the single market and competitiveness among the European countries, security and defense, external action, and the EU’s administrative affairs.
The EU’s €1824.3 billion budget for 2021-2027 includes €1074 billion for multiannual financial framework and €750 billion for recovery effort to tackle the COVID-19 pandemic and its economic and social consequences in the Member States, including the severe economic recession with tens of thousands of jobs having been lost and the businesses shutting down which have resulted in massive unemployment. Of the total budget, €390 billion will be distributed in the form of grants to Member States and €360 billion in loans. Member States will also have until 2058 to pay the loans back. As of late August 2020, more than 2,695,000 people were infected with the coronavirus in Europe as the death toll stood at 199,500. The figures are still growing rapidly. A section of the budget, amounting to €750 billion, would be allocated to supporting agriculture, promotion of single market, investment in EUCO green environment (the EU has plans to plant three billion new trees across the Member States by 2030 to reduce greenhouse gas emissions, tackle climate change, and preserve the woods), digital transitions (digitalization) and the multiannual financial framework (MFF), as well as flexibility and modernization of the single market.
The EU leaders’ move to approve a €1824 billion budget is unprecedented considering its amount. It was impossible to approve such a large budget without agreement and flexibility from France and Germany, which shifted the previous stances. All EU Member States would allocate 1.4% of their gross national income to the EU’s budget.
Ratification of the EU’s annual budget and the multiannual financial framework was a milestone in the EU that would strengthen economic and political stability and create changes contributing to convergence in the EU. The next step for the deal is to be ratified by the European Parliament, the negotiations for which have begun since September 1.
After ratification of the budget, European Commission President Ursula von der Leyen said, “Today, we have taken a historic step, we all can be proud of.” She said the EU’s €1.8 trillion budget would support modern policies, health, tourism, sustainable development, digitalization of trade, and investment for the future of Europe, describing it as the symbol of power and unity in Europe.
Considering the existing crises in the European Union, the current tense situation caused by the UK’s withdrawal from the EU, the far-reaching consequences of the coronavirus outbreak for the European economies, and Trump’s divisive policy on Europe, including the pullout of US military forces from Germany and deployment to Poland and other East European states in order to intensify divergence in Europe -which reveals a shift in the US’ security policy towards Europe, particularly Germany- and creation of political and security rifts within Europe, all EU Member States -above all Germany and France- have come to the conclusion that it is necessary to revive Europe and enhance cooperation in the field of foreign policy and common security in order to prevent growing divergence.
The EU leaders have reached a historic deal by approving the EU’s €1.8 trillion budget, whose ratification in the European Parliament and implementation would not only prevent the deepening divergence in the EU, but also push the entire EU towards increased convergence and unity.
(The opinions expressed are those of the authors and do not purport to reflect the opinions or views of the IPIS)