8 takeaways from the new EU budget proposal

Charles Michel sets out proposal for the bloc’s next seven-year budget.

European Council President Charles Michel faces an uphill battle.

The Council leader wants to negotiate a grand bargain on the EU's 2021-2027 budget when the bloc's 27 leaders gather in Brussels on Thursday. After marathon bilateral meetings this month, the former Belgian prime minister on Friday produced a 53-page document outlining a possible compromise.

The proposal quickly met with criticism from diplomats across the budgetary battle lines. One EU diplomat said it would “make an agreement even more difficult.”

With the proposal released on February 14, a senior diplomat described it as Valentine's Day "without presents.”

But a conclusion to the budget fight is ultimately inevitable. With EU countries for now holding their lines, ministers will meet on Monday to discuss the plan.

The plan contains multiple gestures that appear to be aimed at the bloc's east ...

Here are the top takeaways from the president's proposal.

1. There’s a Finnish compromise in the making

Michel's proposal bears striking similarity to the blueprint put forward by the Finnish presidency of the Council of the EU in December. While the Finns proposed a budget of €1.087 trillion in commitments, the Council president is suggesting €1.095 trillion — the equivalent of 1.074 percent of the bloc's Gross National Income.

Differences come primarily in the reshuffling of funds — often within the same program or among related spending areas — to try to assuage some governments' concerns.

2. Rebates are here to stay

The U.K. may no longer be a member country, but the legacy of its special budget reductions will live on. “Lump-sum corrections will reduce the annual GNI-based contribution of Denmark, Germany, the Netherlands, Austria and Sweden,” Michel wrote in his proposal, using the word for reductions to national contributions flowing from national budgets to the EU's coffers.

Rebates would be “degressive,” the proposal said, meaning they would gradually reduce — but that’s a far cry from the demand from some member countries to do away with them altogether.

The proposal pointedly does not lay out the size of the rebates, leaving the haggling for the leaders' summit. Some frugal governments will fight for significant sums — and a permanent system of corrections.

3. Concessions to the east

The plan contains multiple gestures that appear to be aimed at the bloc's east, where many countries face steep cuts to their (publicly popular) regional development funding.

The total amount of that so-called cohesion funding — at €323 billion — would stay the same as the Finnish proposal. But Michel is proposing reshuffling funds away from wealthy regions and toward the EU's poorest areas and regions in transition.

Michel is also proposing greater flexibility when it comes to moving money around between different cohesion funds, a gesture that will be welcomed in many eastern and southern EU capitals.

4. Rule of law sidelined

Many Western EU governments have insisted that the long-term budget must contain new safeguards to protect EU funds in case of rule of law deficiencies impacting the bloc's financial interest.

While Michel’s plan includes a proposal to link EU funding to rule-of-law criteria, the process outlined for cutting funds — “the Commission will propose appropriate and proportionate measures that will have to be approved by the Council by qualified majority” — would make it difficult for the tool to be used.

Against the wishes of some national governments, one of Parliament’s main demands is the creation of new sources of revenue for the EU budget.

Some officials expressed outrage over the move, with one diplomat describing it as “a big disappointment.” A second diplomat who wants to see strong rule of law conditionality called Michel’s proposals “ridiculous” and “a big mistake.”

5. A win for Parliament

European Parliament negotiators this week threatened to veto the budget deal, and — while there’s little to suggest they would risk a significant delay in the budget process — Michel has moved to show he’s listening.

Against the wishes of some national governments, one of Parliament’s main demands is the creation of new sources of revenue for the EU budget. Michel is asking for “a national contribution calculated on the weight of non-recycled plastic packaging waste” and “any revenue generated by the European Union Emissions Trading System exceeding the average annual revenue per Member State” to flow to the EU's coffers.

In a further gesture of goodwill to legislators, Michel said proposals for other new so-called “own resources” could be considered over the seven-year budget period: listing a digital tax, an aviation levy, a carbon border tax or a Financial Transaction Tax as options.

Nevertheless, Johan Van Overtveldt, chair of the Parliament's Committee on Budgets — who was previously Michel's finance minister in the Belgian government — called his former boss' proposal "disappointing."

"While the current consensus provided an opportunity to shape the right budget for the coming decade, today’s proposal seriously undermines the credibility of the new political agenda and of the EU institutions," he said.

6. New priorities take a hit

European leaders often talk about the need to spend more on priorities like border security, migration and defense research. But Michel's blueprint, like the Finnish presidency's proposal, significantly reduces planned spending in these areas compared to the European Commission's proposal.

For example, migration and borders would get €21.9 billion in 2018 prices under the new proposal, compared to €30.8 requested by the Commission. The new European Defence Fund would get €7 billion, a significant reduction from the Commission's €11.5 billion ask.

Michel’s proposal would see 30 percent of the total spent on the Common Agricultural Policy

7. France won’t be happy

Agriculture spending is for many capitals the sacred cow of European spending — and that makes Michel’s proposal sure to run into resistance at Thursday's summit, not least from Paris.

While Michel’s proposal would see 30 percent of the total spent on the Common Agricultural Policy — and would be a real-terms increase from the Commission’s proposal — the €329.3 billion proposed is a long way from the estimated €382.5 billion that the EU27 spent on CAP under the current budget.

“The position was always not to cut the budget compared to the current one. This is still a cut,” said an EU diplomat.

With Michel floating a cut of €7.5 billion to rural development compared to Finland’s proposal, and only a €2.5 billion boost in direct payments to farmers, the diplomat said the plans do not reflect their “expectations and ambitions overall for agriculture.”

8. Just transition creates tensions

Michel heeded the Commission's advice and is calling for a Just Transition Fund of €7.5 billion to help regions move toward greener economies.

But diplomats oppose the fact that funding is possibly coming out of the budgets of other spending areas — although there are different interpretations of where it comes from.

Two officials said that from their perspective, money from the fund is being appropriated at the expense of the cut in rural development funding, which is the equivalent size. “For us this is where they took it from,” the EU diplomat said.

The senior diplomat who called Michel's plan Valentine's Day "without presents,” warned the proposal should “not to be at the expense of cohesion, and should be targeted for less developed countries and regions, not for rich ones.”