Brexit, Security and Rule of Law to Come Into Focus in EU Budget

(Bloomberg) -- The European Union’s executive arm will kick off a political battle next week over the bloc’s post-Brexit budget by urging reductions in farm and regional aid to allow for more spending on security.

The European Commission’s blueprint for the 2021-2027 EU budget will also seek greater contributions from member governments to fill a 10 billion-euro ($12.2 billion) annual hole that will result from the U.K.’s scheduled withdrawal from the bloc next year.

The commission will propose on May 2 to fill 80 percent of the gap through increased transfers from national capitals and new revenue sources, according to an EU official in Brussels with knowledge of the matter. That changes an original plan for half the shortfall to be covered by budget cuts and, amid persistent anti-EU sentiment in rich countries such as the Netherlands, may spark sharp opposition.

The commission of President Jean-Claude Juncker is trying to balance the interests of net contributors to the EU budget skeptical of boosting outlays and net recipients -- especially in former communist eastern Europe -- that have relied on European funding for economic expansion.

The commission also wants to show that Europe can tackle pressing challenges such as terrorism and migration that have traditionally been the policy domain primarily of national governments by seeking more EU funding for such areas as border protection and defense. National transfers fill about 80 percent of the the bloc’s coffers.

While amounting to only 1 percent of EU economic output, the European budget of around 140 billion euros a year provides key funds for farmers, poorer regions and researchers. The spending plan is also a barometer of the political mood in European capitals, signaling the risk of fissures as the EU seeks to maintain unity in the Brexit talks, confront new security challenges and curb the risk of democratic backsliding in countries such as Poland.

In that context, the two largest EU spending programs -- agriculture and regional development -- will face proposed cuts of around 6 percent compared to 2020, said the official, who asked not to be identified because the commission deliberations are confidential.

Alarm about a Polish assault on domestic judicial independence by the ruling Law & Justice party has pushed the democratic-principles question onto the EU political agenda. The commission is in talks with the government in Warsaw to scale back a controversial judicial revamp and end a monitoring procedure that includes the possibility of stripping Poland of its voting rights in the bloc.

To address such risks in the future, the commission’s budget proposal will include a mechanism for ensuring member governments respect the rule of law, according to the EU official. While the details of the planned link between EU funds and values are yet to be fully worked out, at the heart of the idea is observing the principle of an independent judiciary.

EU Budget Commissioner Guenther Oettinger said last week in Berlin that this is a necessary condition “to be able to claim back money via a court in case of corruption or embezzlement.”

On a separate matter related to EU regional aid, the commission may propose changes for the eligibility criteria. In particular, it is considering lowering the weight given to gross domestic product and taking account of other factors such as unemployment and migration, according to the EU official, who said such a step would amount to “evolution, not revolution.”

To contact the reporters on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net, Ewa Krukowska in Brussels at ekrukowska@bloomberg.net.

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Alan Crawford at acrawford6@bloomberg.net, Jonathan Stearns, Richard Bravo

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