Besides the risk of the UK crashing out of the EU without a deal on 29 March 2019, there is another cliff edge looming: 31 December 2020. Not only does it mark the end of the Brexit transition period (unless extended), but it is also the day on which the next Multiannual Financial Framework (MFF) has to be in place. While the MFF deadline is often dismissed as a technicality, the stakes are high, especially this time.
The EU’s next multiannual budget needs the agreement of all member states and the European Parliament. But the negotiations are expected to be harder than ever, given the member states’ opposing visions for the future and the prevailing ‘juste retour’ logic: everyone tries to get as much as they can while contributing as little as possible. Instead of waiting for an 11th-hour agreement to materialise, the EU and its member states should face their differences head-on and start working on a compromise now, or risk going over another cliff edge, with no deal at all.
A Gordian knot
Reaching a compromise on the MFF has always gone down to the wire, but this time the process is likely to be even more difficult. Some member states, like Sweden and the Netherlands, are firmly rejecting the idea of having to raise their contributions to the EU budget. Additionally, the EU is expected to do more – and thus spend more – in a wider range of policy priorities, including migration and security.
Adding more complexity to this already tense debate is Brexit: the departure of a net contributor to the EU budget leads to a net loss of approximately €10 billion per year. To cover the gap, the EU27 must decide whether to raise contributions, cut existing programmes, increase the Union’s own resources, or a combination of the three. There’s a real chance that the member states will not be able to clinch a deal.
A way out?
If the Council has no agreement in place on 31 December 2020, “the ceilings and other provisions corresponding to the last year of that framework shall be extended until such time as that act is adopted” (art 312.4 TFEU). This means that the EU budget for 2020 would be extended to 2021.
But how can the 2020 budget be extended, if there is €10 billion less to spend (assuming there are no further payments from the UK)? It is possible that the 27 member states will not be able to agree promptly on an MFF revision. The worst-case scenario is a complete shutdown of the EU institutions, which would resemble a downsized version of the current US government shutdown: the interruption of active programmes, a halt of payments of salaries and financing, and the closure of EU buildings. If that were to happen, legal questions of liability for previous commitments are bound to be raised.
A time-constrained prisoners’ dilemma
Ending up without an agreement on the MFF is a drastic outcome, but it is not unrealistic. Not unlike Brexit, the MFF negotiations present a ‘prisoners’ dilemma’. If everyone digs in their heels and chooses self-interest over cooperation, the default outcome will be the least desirable one: no agreement. This is suboptimal as all parties would be better off if they reach a compromise.
Arguably, the costs of a no deal scenario are asymmetric: net recipients stand to lose more than net contributors in case of an EU budget shutdown. Therefore, the less affected party can afford to be more stringent. The consequences of a failure to find an agreement are also not clear. Such additional uncertainty may lessen the sense of urgency and reduce incentives to act.
The clock is ticking. While there are still two years left to reach a deal, institutional change within the EU will probably delay the real negotiations (with a compromise unlikely before the European Parliament elections in any case), and the upcoming Council presidencies are not likely to facilitate compromise. The positions of Romania, Finland and Croatia are all too much at the extremes of the ‘net-contributors, net-recipients’ debate to be the ones brokering a deal within the Council, unless they show a greater willingness to sacrifice their narrow financial interests. One might have to wait until the German presidency (second semester of 2020) to start seeing some real trade-offs.
No deal by default
As a compromise on the MFF has also become increasingly complex and difficult to sell domestically, an agreement can be reached only with the threat of a cliff edge. On the surface, MFF negotiations are a matter of financial contributions, but the underlying logic is a battle of principles. Member states increasingly disagree on the values behind the EU budget. Should it help the best become even better – and increase competitiveness – or support those who struggle the most – and aim for convergence? What are the EU’s priorities: migration, climate change, economic stability, cohesion or others? And should the MFF be used to ‘punish’ misbehaviour? These questions are becoming a source of friction and division. Once the need to cover the Brexit gap is added in, negotiations for the next MFF become harder than ever.
Overcoming seemingly unresolvable deadlocks with overnight extraordinary summits has become the default practice for the EU. But going to the brink bears the risk of going over the edge. A ‘no deal’ on the MFF, not by design but by default, cannot be excluded. Time is running out, and in contrast to the Brexit transition period, the negotiations on the next MFF cannot be extended without all sides incurring significant costs.
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