EU's Global Ambitions Need a Bigger Budget
Europe needs a budget for defence, competitiveness and enlargement. National governments risk protecting old priorities instead. A commentary by Marco Buti
Negotiations over the European Union’s Multiannual Financial Framework (MFF) have entered their operational phase. Following last June’s informal European Council meeting, which proved largely inconclusive, responsibility has passed to the rotating Irish presidency.
The task facing the EU’s three institutions is as difficult as it is critical. For decades dismissed as a dry accounting exercise, the MFF has become a geopolitical battleground on which Europe’s strategic autonomy will be decided.
In the 1950s, the economist Richard Musgrave argued that public finances should perform three main functions: allocating resources, redistributing wealth and providing macroeconomic stabilisation in the face of shocks.
Viewed through this lens, the history of the EU budget reveals how profoundly Europe has changed, while remaining trapped in a paradox: it has global ambitions but a meagre domestic purse.
Before the watershed of 1988, when European Commission president Jacques Delors introduced seven-year financial programming, the Community budget was a source of permanent conflict.
Without a medium-term framework, decision-making was reduced to annual skirmishes that often resulted in the use of the provisional twelfths system.
The Delors I package shifted institutional conflict on to a longer timetable, while the accession of Spain and Portugal gave a powerful boost to redistribution through the strategic reform of the Structural Funds.
Yet until the global financial crisis of 2008, Brussels almost entirely lacked Musgrave’s third instrument: the capacity to respond swiftly to macroeconomic shocks.
When the sovereign debt crisis shook the eurozone, the rigidity and limited size of the common budget became impossible to ignore.
Unable to act within the EU architecture, member states were forced to create external, intergovernmental countercyclical safeguards, first the European Financial Stability Facility and subsequently the European Stability Mechanism.
The taboo was finally broken by the pandemic and Russia’s aggression against Ukraine. Europe’s response took the form of NextGenerationEU, an exceptional instrument financed through common debt issuance.
This was no longer the conventional countercyclical fine-tuning of the previous century, but structural stabilisation in response to an existential shock.
In a world marked by endemic uncertainty, the ability to reallocate funds rapidly and maintain substantial room for manoeuvre is no longer a luxury. It is a condition for survival.
The challenge now is to provide European public goods: common defence, the green transition and industrial competitiveness. But how can these priorities be financed while preserving internal cohesion and managing the fiscal consequences of future enlargement towards the east?
Candidate countries will inevitably be net beneficiaries of the EU budget, a prospect that alarms existing members.
The history of EU budget negotiations shows that bargaining among the 27 national governments systematically cuts back Commission proposals along three familiar lines.
The overall size of the budget is reduced; flexibility is curtailed in favour of rigid, pre-allocated spending; and transfers that deliver clear national benefits, following the logic of so-called net balances, are prioritised over projects serving the common European interest.
The Commission’s proposal for the 2028-34 MFF sets the headline figure at about €2tn. That may sound impressive in absolute terms, but it is plainly inadequate when measured against the continent’s total economic output.
The current framework amounts to roughly 1.13 per cent of EU gross domestic product. The new proposal appears to raise this to 1.26 per cent. Yet 0.11 percentage points will have to be devoted exclusively to repaying the interest and principal on the debt issued to finance NextGenerationEU.
The “primary” budget will therefore amount to about 1.15 per cent of GDP, an almost imperceptible increase given the scale of the challenges Europe faces. The Commission should have presented a more ambitious opening proposal, anticipating from the outset the inevitable erosion during negotiations.
The real change lies instead in the composition proposed by the EU executive. While the current framework continues to favour agriculture and cohesion, the post-2028 proposal places greater emphasis on European public goods, introduces a more performance-based approach and promises a substantial increase in spending on research and innovation.
The attempt to loosen the rigid pre-allocation of 90 per cent of today’s resources also points in the right direction.
A previous version of this article was published by the Italian daily Il Sole 24 ore
IEP Bocconi does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
