Brussels seeks EU budget top-up — but it’s a hard sell

BRUSSELS — The EU Commission will ask countries for tens of billions of euros to cover gaps in its long-term budget left by the unforeseen crises of COVID, inflation and war.

But the EU executive is likely to hit stern opposition from national governments, as many are already having to make savings within their own budgets and are unwilling to pay up for anything other than Ukraine-related causes.

“Clearly we are stretching the limits of what we can finance in the [Multiannual Financial Framework] as it stands,” EU Budget Commissioner Johannes Hahn said earlier this month, referring to the EU budget’s formal name.

The Commission will on Tuesday unveil a mid-term review of the budget. It wants additional cash for a host of items including €50 billion in financial support for Ukraine, €15 billion for migration and neighbourhood policy, €10 billion for investments in key strategic sectors, some more money for running EU machinery and an as-yet-unspecified amount for repaying EU debt, according to two people briefed on the matter who were granted anonymity to discuss confidential matters.

The overall figure of the top up is yet unknown, as some items are unspecified — but the overall amount will be below a hundred billion euros, an EU official said. The amount requested isn’t final until it’s endorsed by the College of Commissioners on Tuesday.

Changing the budget will require the backing of all EU countries, and it will be a tough sell — especially as countries that are net payers to the EU’s coffers have made clear they’re not in the mood for largesse, and have instead asked the Commission to make savings elsewhere.

“At the moment we have very difficult [budget] negotiations in Member States including Germany so this is not the time to ask Member States for more funding,” Germany’s hawkish Finance Minister Christian Lindner said on Friday.

Shopping list

Among the priorities that are likely to be put forward as justifying a top-up, the most pressing is support for Kyiv.

In that vein, the Commission wants funding for a new Ukraine Facility to help balance the war-torn country’s budget through 2027, but also to kickstart the country’s reconstruction as soon as possible and to offer guarantees to private investors, according to a draft seen by POLITICO. The €50 billion facility is mostly made up of loans guaranteed through the EU’s budget headroom, as is the case for current support, as well as grants coming out of a new ‘Ukraine Reserve’ lodged under the EU’s budget. Support will be linked to reforms aimed at smoothing Ukraine’s entry into the EU.

Other items also slated for a €15 billion cash injection include migration and EU neighborhood policy, which means more money for third countries to keep migrants in or take them back.

A much-touted European Sovereignty Fund — set to be Europe’s response to a subsidy push from the U.S. and China, to retain a competitive edge in strategic sectors — will be renamed the Strategic Technologies for Europe Platform (STEP) and would be funded by reshuffling existing cohesion funds and a €10 billion top up of InvestEU and the Innovation Fund.

Also under consideration is funding to cover the increased cost of servicing EU debt following a rapid rise in interest rates, which has generated a shortfall of between €17 and €27 billion through 2027 relative to when the budget was first struck. The amount of funding needed is as yet unspecified. Two other ‘rainy-day’ funding pots — the ‘flexibility instrument’ and the ‘solidarity and emergency aid reserve’ — will also be put forward for an increase.

The Commission also wants more cash to cover the increased cost of general administration, courtesy of a mechanism for EU official wage indexation and higher energy and service bills in EU buildings.

Tough sell?

As things stand, the only thing everyone seems agreed upon — including thrifty net payers — is ongoing funding for Ukraine.

“We understand that this has been a very challenging period, but when it comes to regular expenditures such as the unforeseen hike in interest rates, other investments required, we expect the Commission will … make sort of the adjustments that are required within budgets,” Dutch Finance Minister Sigrid Kaag said last week.

“In case of additional support for Ukraine, we need to take a closer look, because this is also a political commitment to the safety and security on our continent, and there is widespread support. So there will be a differentiation,” Kaag added.