Winners and losers of the European Council marathon session

This morning, EU leaders agreed on an EU Corona recovery programme of €750 billion and on their position for a next Multiannual financial framework. In a commentary, CESI Secretary General Klaus Heeger determines the good and bad in the deal – and writes that while some winners and some losers are already known, only developments during the next months will reveal the full picture of who and what ended up on the winning and losing sides.

The 2 winners:
• European federalists that have tirelessly advocated a mechanism for the EU to raise a significant share of the budget by itself (own resources as opposed to, almost exclusively, Member State contributions) and to take loans on behalf of all Member States: Already in January 2021 new own resources through a levy on non-recyclable plastics will be put in place, followed by a carbon border adjustment mechanism and a digital tax as from January 2023. And the introduction of Corona bonds, even if they are of limited size and duration, opens precedence for permanent Euro bonds at some point in the future.

• Italy and friends: They receive 390 billion Euros of direct aid from the EU which they do not need to repay. It is less than they had hoped for and less than the European Commission and Germany and France had had in mind too, but it is still very much more than o€ that the Frugals had wanted and represents indeed a very significant amount of money. Not to forget the additional 360 of loans that they will receive on very favourable terms.

The loser:
• Non-Corona related EU programmes: Many EU programmes, most of the innovation- and investment-oriented and so far success stories, lost out to Corona recovery and were proposed by the Member State leaders to be significantly cropped: The MFF heading 1, which includes the EU’s flagship research programme Horizon and other programmes such as the InvestEU programme or the Connecting Europe facility would, for instance, be reduced from 210 billion to 132 billion. But also other headings would lose out: Heading 4 on migration and border management would be reduced from 31 billion to 23 billion, heading 5 on security and defence from 29 to 13 billion, and heading 6 on the neighbourhood and internal development from 118 to 98 billion. It will be up to the European Parliament to put up a fight with the Member States in upcoming negotiations in order to raise the figures at least somewhat from the level that the Member State leaders have in mind. As CESI, we would certainly welcome if the programmes aimed at social fairness, digitalisation and environmental protection would be strengthened.

2 winners and losers TBD during the next months:
• The Frugals: While they were not able to prevent non-repayable Corona bonds, they did manage to bring down the direct aid share from 500 down to 390 euros. This makes them neither a loser nor a winner. A core issue for them will however only be decided later: Control over how Corona bonds will be spent by the Member States. While the Frugals, the Netherlands in particular, had wanted veto power over the dispersion of financial resources, what they got was a right to table worries about the reform progress in the individual Member States to the European Council, which will then “discuss” the matter and until which point the dispersion of money to the Member State in question will be frozen. This begs the questions: What happens after or as a result of the “discussion”? EU leaders remained silent about this in their conclusions today. We will only know later how easily the Frugals will deploy their right and what the ultimate consequences will be.

• Friends of the rule of law and liberal democracy: A key element in the European Commission’s MFF proposal, -the requirement of a qualified majority in the Council to override a European Commission decision to freeze EU funding for the Member States if it finds that the rule of law and liberal democracy is no longer maintained- fell victim to unanimity bargaining during the European Council. What remains is a clause to task the European Commission to propose a rule of law mechanism which will then be voted on by the qualified majority in the Council. This means: The introduction of a strong rule of law conditionality in the next MFF will likely depend on the success or failure of Viktor Orbán and the Polish government to organise a blocking minority on this in the Council. As CESI, we have stood by a strong rule of law mechanism and will continue to raise our voice in favour of it.

In any case, what, not least, remains from the summit is that 27 Member States were able to reach a compromise that could always be better and that includes the unknown variable of a strong rule of law instrument – but that also contains ground-breaking new funding mechanisms will likely contribute to the EU’s internal cohesion in the long term.