Ireland’s EU presidency has the job of brokering a deal on the EU’s budget for the years from 2028-2034. Getting a majority will be difficult between those member states who want a bigger, and others a smaller, budget. There is, however, an urgency to strike a deal before possible changes in government after forthcoming elections make reaching agreement even more challenging.
Marine le Pen, for example, believes in dramatically reducing the EU’s role and returning powers to national governments. If she wins the French presidential election next May, she could seek to upend EU funding.
To judge by the rows over recent decades about the EU’s budget, you might believe it is a major drain on member states’ national resources. However, the budget amounts to only 1.1 per cent of national income, whereas national budgets across the EU average 45 per cent of national income, somewhat higher than for Ireland.
So the fight over whether the budget should amount to 1 per cent or 1.25 per cent of national income is about relatively small sums when averaged across the EU. In national budgets, such a small difference as a share of national income could get lost in rounding errors.
There are a range of public goods that are best undertaken on a pan-EU basis rather than by national governments. Examples include cross-border infrastructure, research and development, climate, security, foreign policy, industrial policy and development aid. These are areas where collective EU spending is more effective than uncoordinated national investment.
The construction of the electricity interconnector between Ireland and France is a prime example that merits the significant EU funding involved. This project will benefit not only Ireland and France, but also the wider EU electricity system.
Interconnection across borders boosts efficiency, provides better matching of variable supply and demand, and minimises wasted power generation.
Other potentially beneficial projects to enable the free flow of electricity across the EU’s national boundaries are only likely to proceed if there is EU financial support.
Food shortages in the aftermath of the second World War were the initial driving force behind the EU’s Common Agricultural Policy. Today, however, it is more difficult to justify rationally why agriculture looms so large in the EU’s budget, or why the EU rather than national governments should fund farm supports.
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Ireland, of course, has benefited disproportionately from EU payments to farmers over the past half century. Like other EU members, we pay about 1 per cent of national income into the EU budget. However, despite the fact that we are one of the richest EU members, we get back around 0.7 per cent of national income, most of it going to Irish farmers. A great deal.
The modernising of Ireland’s infrastructure has also benefited greatly from EU support to poorer regions over the first decades of EU membership.
Today there are two groups of countries with very different outlooks on the EU’s budget.
The “frugals”, like Scandinavia, Germany and the Netherlands, want a smaller budget, in particular they want to cut back on funds for agriculture, and for infrastructure in poorer states. They want to reallocate funds to other headings.
The “friends of cohesion”, which include Spain, Italy and some poorer member states, want a larger budget, with continuing substantial agriculture and cohesion payments.
The first stab at a compromise by the Irish presidency involved a small cut in the original EU Commission budget proposal. For 2028-34, this proposed that real EU resources, after debt interest, would be slightly lower than today.
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This draft also largely protected agriculture and cohesion funds. But this compromise got a widespread thumbs down.
In the next round of negotiations, Ireland needs to adjust its proposals to garner more support. Next time, the Bruegel think tank in Brussels suggests, we should propose a slightly larger budget that cuts back on agriculture and cohesion funds, which are unpopular with the frugals, and that reallocates some resources to other European public goods.
A few rounds of proposals may be needed to garner the necessary majority support before year end.
As the honest broker, it may thus fall to the Irish Government to propose a compromise budget that would cut some resources for agriculture, which will be unpopular at home.
However, given the risk that delayed agreement could mean an even more unpalatable outcome, as the political winds shift in France and elsewhere, it is vital from an Irish point of view that agreement is reached on the budget by the end of the year. Better a budget with somewhat reduced funds for agriculture, than no budget and no funds.