Commission proposes a bigger and simpler budget for the EU – Easier than applying for funding
The Commission’s initiative is notable for its relatively large size, new national and regional plans, a competitiveness fund, and a loan-based crisis package.
16.7. 16th of July was a long-awaited day in Brussels when the European Commission published its initiative for the future Multiannual Financial Framework of the Union, covering the years 2028-2034. This is a significant package, as it defines where, how, from where and how much European actors can apply for EU funding.
The details of the initiative were reportedly hammered out until the very last minute. Commission President Ursula von der Leyen has been criticised for her overly centralised approach to budget preparation. MEPs voiced their displeasure when Budget Commissioner Piotr Serafin finally arrived before the Budget Committee about four hours late.
The Commission’s proposal would increase the budget to almost €2 trillion. The budget for 2021–2027 is €1.2 trillion. With the new framework, the Commission aims to achieve greater effectiveness, simplicity, flexibility and investments in strengthening strategic autonomy. Funding will be directed more towards areas such as defence, preparedness and digitalisation. One key objective is to mobilise more private money for priorities that are important to the EU.
In addition to the expenditure side of the budget, interest is also focused on where the EU intends to raise the necessary money. The Commission is proposing reforms to the EU’s so-called own resources. In addition to the previous own resources, which include customs duties, the Commission is proposing to raise funds from taxes on tobacco products, revenues from the European emissions trading scheme, the carbon border mechanism, taxes on electronic waste and a tax on large companies. For major and unexpected crisis situations, the Commission is proposing a crisis mechanism based on joint loans of 400 billion, which could be activated with the approval of the member states in the event of a serious crisis.
The budget is structured under four pillars. The first pillar includes national and regional plans, the second focuses on competitiveness, the third influences the EU’s global role, and the fourth defines the Union’s administrative costs.
National and regional plans would combine cohesion and agricultural support
The Commission is proposing national and regional programmes worth almost €900 billion, including agricultural support, regional and structural policy support, and fisheries and shipping. According to preliminary information, Finland would receive €9.7 billion in current prices.
The amount of support earmarked for agriculture would decrease compared to the previous framework. On the other hand, it would be possible to obtain funding for agricultural development through the Competitiveness Fund and the Horizon Europe programme. Over EUR 200 billion of cohesion support has been reserved for developing regions. More funding is planned for border security in those regions that border either Ukraine, Belarus or Russia. 14% of national programmes should be allocated to the implementation of the European Pillar of Social Rights.
A key aspect of national and regional programmes is their governance model. Regions and cities do not seem to have a clear role in drawing up national plans. This raises questions, for example, about where the support allocated to the eastern border countries will be directed in Finland. It is particularly important to remember that when strengthening the eastern border, the whole of Finland is in an important position, not just the easternmost parts of our country. It is therefore important to allocate the 1.7 billion euro pot planned for Finland with the interests of the whole of Finland in mind.
The Commission is planning to strengthen results-based implementation of national plans. This would mean that payments would be made based on milestones achieved rather than actual costs. The Commission believes this will improve the effectiveness of EU funds.
The second pillar boosts competitiveness
The link between the Competitiveness Fund and Horizon Europe has raised questions in recent months. The Commission has proposed that the Competitiveness Fund and Horizon Europe be separate but closely linked. The aim is to support projects in strategically important sectors at all stages of their investment path – from basic research to scale-up.
The new Competitiveness Fund would combine several existing funding programmes and would be built around four priorities (policy windows). The identified priorities are clean transition, health and bioeconomy, digitalisation and defence and space. Advisory groups focusing on these priorities would provide the Commission with insights on their respective areas.
The Commission’s plans for Horizon Europe, the framework programme for research and innovation, include four pillars: excellent research, competitiveness and society, innovation and a European Research Area (ERA) with research infrastructure. The Commission proposes an almost double budget of EUR 175 billion for the framework programme. The connection to the Competitiveness Fund will be established through integrated work programmes and, for example, a competitiveness coordination tool, which will ensure synergies between different funding programmes.
Applications will be available on a single portal, and funding applications will be made more transparent so that they do not limit the projects that can be applied for too narrowly. This aims to make applying for funding even simpler.
The budget’s effectiveness is being improved by introducing the full toolbox of financial instruments. Each project would be defined in a more tailored way than before, with the most suitable financing model, be it grants, loans or something else. The InvestEU instrument, based on a guarantee from the EU’s own budget, aims to ensure that European companies with high potential have access to the necessary financing, especially when obtaining financing from the market is challenging.
Support for Ukraine and EU candidate countries
The third pillar of the budget is called Global Europe. It aims to promote the EU’s values, principles and interests at international level. Cooperation with third countries is aimed at being more tailored and flexible. One of the key objectives is to achieve the Sustainable Development Goals. This instrument also provides humanitarian aid to the most vulnerable regions where people have suffered from natural disasters and diseases.
The Commission also proposes a separate support of around EUR 100 billion for Ukraine. The support for Ukraine is above the EUR 200 billion ceiling of the pillar, with which the EU seeks to convey that support for Ukraine is continuous. The Commission’s initiative would also involve cooperation with countries aspiring to become EU members through the Global Europe programme, in order to smooth the path of these countries towards membership. The Commission mentions that enlargement is strategically important in the long term.
Long negotiations ahead
Now that the Commission has published its initiative on the future financial framework, the actual negotiations can begin. Member states discussed the financial framework for the first time on Friday 18 July. As expected, Germany, among others, managed to reject both the crisis mechanism implemented with 400 billion euros of debt and taxes collected from large companies, which would aim to increase the Union’s own resources. The size of the budget is also too large for Finland and Sweden, for example, and these countries hope for better prioritization between expenditures. On the other hand, Finnish Prime Minister Petteri Orpo mentioned that he was satisfied that the Commission is targeting funding to important areas, such as defense and security.
The European Parliament, for its part, has been dissatisfied with the way the Commission has kept Parliament informed of the twists and turns in the budget preparation phase. In other words, there has been very little information provided. The Commission’s press conference graphs were not entirely flawless either, as the figures in the pie chart presented added up to 101%. At the Budget Committee meeting, Parliament representatives criticised, among other things, the national plans for being too Member State-led.
For the new financial framework to enter into force, it must be unanimously approved by the member states. The European Parliament must approve the initiative by a majority vote.
What should you pay attention to?
The EU’s multiannual financial framework is a huge package, the details of which will change many times during the negotiations. However, there are a few points that are worth paying special attention to.
The first concerns national and regional plans. If the Commission initiative were to go through as it stands, it would give Member States significant discretion over where they allocate the funds from the envelope allocated to them. The concern is that the voice of regions and cities is not being heard in the capitals when designing programmes. This is unfortunately what happened with the post-COVID-19 recovery and resilience instrument, and this mistake should not be repeated.
A concrete example of this is the initiative’s additional support for countries on the EU’s eastern border. This support should not be fully targeted at the easternmost part of Finland, as protecting the eastern border requires functional infrastructure and capabilities from all of Finland. The economic effects of Russia’s war of aggression are also visible not only in the border areas but also elsewhere in Finland.
It is also good for companies to embrace the logic of the new financial framework. Applying for funding should, at least in theory, become easier and simpler, which is one of the most common wishes according to surveys. According to the Commission’s initiative, the Competitiveness Fund and Horizon Europe should be simpler and faster, and there would also be targeted calls for SMEs within the various work programmes. The Commission is also planning an EU for Business network, which would focus primarily on helping SMEs. Applying for funding in all programmes would take place through the same central portal.
Our EU office monitors the progress of the negotiations and carries out advocacy work in accordance with the interests of our region. In terms of main lines, our goals largely align with the positions presented by Finland. As a region, we promote issues that are important to us in networks of like-minded people, which increases our voice in European arenas.
