Can Poland benefit from the new EU budget?

20.05.2018 | By Michał Dulak

A week ago, the European Commission presented a draft of the 2021-2027 EU budget. At the forefront, there are some new Brussels’ priorities emerging from the financial calculations, such as migration and defence of the outer EU borders. For the first time in the history, EC has also recommended a mechanism binding a sound management of EU finance by the member states with the effectiveness and independence of their judiciary. The new budget will also incorporate fewer funds for the cohesion policy and agriculture. In spite of the above, Poland can still gain more than lose in the new budget.

The primary aim of the new Multiannual Financial Frameworks (MFF) is to rebuild the social trust to the European Union in the first place. Its legitimacy, until then based on citizens’ conviction about the European efficiency in ensuring the well-being of various social groups, has been questioned as a result of the crises.

Firstly, the process will be supported by the stronger financial support of the fields relevant to the future of the UE, such as those indicated in the Bratislava Declaration of 16th September 2016, or the Rome Declaration of 25th March 2017. These issues are: migration, internal and external safety, youth elicitation and improvements to the economic management of the Economic and Monetary Union.

Secondly, the European Commission aims to simplify the MFF, for instance by reducing (from 58 to 37) the number of programmes to which budget funds were transferred, and incorporating an important instrument into the budget – the European Development Fund, dedicated to African, Caribbean and Pacific countries. EDF has previously been functioning as an extra-budget instrument financed by the member states.  Thirdly, the EC wants the MFF to be as flexible as possible, allowing, for example, transferring more funds between budget divisions than it was possible until now.

What will get more funds allocated, what will we be cutting from?

Although the nominal value of the proposed EU multiannual budget has increased in comparison to 2014-2020 (all the breakdowns in the text relating to the 2014-2020 MFF are based on EC’s proposal presented on 6 July 2012) from 1.033tn to 1.279tn in current prices (on the liabilities side), it does not reflect member states’ sizeable economic potential. The Multiannual Financial Framework for 2021-2027 accounts for only 1.11% of the gross national income of the 27 member states (Great Britain is of course omitted in the calculations). This means that the new multiannual EU budget is the lowest since 1993. Only in 2000-2006, the MFF also amounted to 1.11% of EU GNI, If the European Development Fund is taken into account.

In the 2021-2027 Multiannual Financial Framework the attention is paid to the remodelling of support areas in comparison to 2014-2020. Sections related to the single market, research and innovative economy have been separated from economic, social and territorial cohesion. A separate budget section for migration and border management has also been created. These changes show post-2020 priorities important for the EU and are clearly visible through the increase in funding for particular budget divisions.

Unsurprisingly, the most significant financial increase applies to matters is related to migration and border defence – from €12.4bn to €33bn. The second largest relates to youth-targeted programmes (such as Erasmus + programme that has been allocated twice as many resources, namely €30bn). Moreover, the funds for security, research, innovations and digitalisation have been boosted from €70bn to almost €120bn, as well as the climate protection, including implementation of the Paris Climate Agreement obligations – from €206bn to €320bn. The overall nominal gain in the fields mentioned above, comparing with 2014-2020, amounts to €223bn.

The only domains that have been decreased are cohesion policy and Common Agricultural Policy (including fishing). There are two ways to measure the decrease. Firstly, as a share of those policies in the overall multiannual EU budget: their slice of the cake has decreased by approximately 5 percentage points in both cases. This change is the most frequently brought up by the politicians and media. However, even more severe is the decrease measure by the fixed prices (cleared of inflation). The budget division of ‘economic, social and territorial cohesion’ (including the cohesion policy) has been allocated €379.2bn for 2014-2020. For 2021-2027, this amount has been reduced to only €330bn (drop by 13%). The current financial perspective allocated €283bn for ‘expenses related to agricultural market and direct payments’ (incorporating the most relevant for Polish farmers as part of the Common Agricultural Policy). For the post-2020 period, only €254bn has been allocated – a decrease of 10.25%.

One of the consequences of Brexit (and the so-called Brexit gap in particular) is a reduction of financial resources for the cohesion policy and Common Agricultural Policy. The hole in EU’s budgetary income of approximately €7-12bn (according to different estimates), resulting from the exit of the United Kingdom from the UE.

It needs to be balanced: if not through higher direct payments from the states (which has not been put forward in this proposal), then perhaps through introducing new sources of so-called EU own resources. The Commission has proposed to include a share of revenue in emissions trading, income from a common corporate tax base, and a state contribution linked to the recycling of plastics (including direct payments from States). The decrease in funds foreseen for the 2021-2027 period, allocated to the above-mentioned two policies, are put forward to encourage the net contributors to support the budget. This is to allow the final agreement to be reached before the European Parliament elections, what is important for the EC.

Emphasis should be put on the fact that the reduction of the expenditure on cohesion policy in the current EC proposal is the first such situation since mid-1987, when this policy was granted treaty status. It seems that a reduction in cohesion policy funds may be a signal for other countries that out of all budget categories it is this policy which is the most open to change. A proof of such approach can be the fact that the proposed catalogue of indicators, determining how much money will go to each member state, has been left open for discussion. Contrary to the previous MFF communication, the Commission’s current proposal also lacks more detailed reference to the spatial distribution of the funds between member states’ regions.

What are the consequences for Poland?

It is crucial to remember is that the EC’s proposal from the 2nd May is the very first accord of the negotiations that are supposed to be crowned with a compromise – as Jean-Claude Juncker wants – before the European Parliamentary election in 2019. It means that some of the matters are yet to be debated and modified. However, it can be assumed that at least part of the topics won’t change – such as the question of binding the abidance to the rule of law with budget transfers.

The claims of the Polish government representatives that Poland has managed to avoid the introduction of rule-of-law criterion to MFF are not valid. Such indicator is not directly addressed in EC’s own documents, however, for the first time in the history, EC has proposed a mechanism that binds proper management of the EU funds with effectiveness and independence of the judiciary. This mechanism will relate to funds that are subject to so-called common management by the EC and the member states. The example of such funds are all structural funds.

In a situation when a standard implementation of EU budget in a member state will be endangered, the European Commission will submit an application to the Council of the European Union for undertaking protective measures, after receiving an explanation from such state. The possible punishment includes suspension, reduction or restriction of access to EU funds.

The Council makes decisions on that matter with the so-called reverse qualified majority. This means that the EC proposal is accepted unless the countries reject it by a qualified majority (55% of countries and 65% of the population). Hence, it becomes even more difficult for the threatened state to build a coalition that would block the implementation of such EC proposal.

Given the determination of Commissioner Günther Oettinger to make a reference to the rule of law in the new MFF, it seems inevitable that Poland will not be able to gain broader support for abandoning this mechanism. Especially considering the fact that the proposed mechanism is not discretionary, as it was feared before.

Furthermore, Poland will also get less money for cohesion policy. This is not only because the resources allocated to this field have decreased. Poland is just getting wealthier.

Even if the GDP per capita will be the fundamental criterion for cohesion funds allocation, as the EC proposed, we should expect a greater differentiation between voivodships. In the current perspective, this differentiation is twofold: quota-wise and subject-wise.

In the first case, it is about the distribution of funds between more developed regions (Mazovia) and less developed regions (the remaining 15 provinces). In the second case, it’s about so-called thematic concentration, which obliged different regions to a compulsory allocation of a certain amount of funds for projects related to environmental protection, digitisation, support for SMEs or the development of scientific research and innovation. We already know today that Warsaw has been statistically excluded from poorer Mazovia. Moreover, in the Lower Silesian Voivodship, the GDP per capita has exceeded 75% of the EU average, and thus it already belongs to ‘transitioning regions’ category.

This differentiation between voivodships can be deepened by the measures depending on other criteria that the EC allows in its proposal, i.e. the level of unemployment (especially among young people), climate change or integration of immigrants. During the negotiations, Poland’s representatives should strive for a favourable construction of some indicators. For example, the migration rate should include not only refugees but also third-country nationals (from Ukraine, Belarus or the Western Balkans), who are lawfully living and working in the member states. Poland should also strive to ensure that the algorithm of funds allocation under cohesion policy maintains reasonable weights between indicators.

Another EC’s proposal is the increase in the level of co-financing of EU projects by a member state. This is unlikely to change during the negotiations, and will likely extort Poland into a greater institutional and regulatory adjustment to the absorption of funds.

Today, it ranges from 15 to 20% of the investment value. On a national and provincial scale, an increase will force even greater engagement of state’s or region’s own capital. Besides, the EC in its proposal aims for greater coordination of funds designated for cohesion with the economic policy planning at the EU level. Meaning that investment projects financed from the structural funds, the Cohesion Fund, or the InvestEU fund (to replace the European Fund for Strategic Investments financing, the so-called Juncker Plan) will depend to a certain extent on EC recommendations on stimulating the economy and the labour market in a particular member state (so-called European semester).

No use crying over spilt milk, let’s play our game

The EC hasn’t allocated much time to negotiate the new Multiannual Financial Framework. That is why the government should clarify its strategy as soon as possible. However, it should not be based solely on securing a sufficient amount of resources for Poland in beneficial for the country cohesion and agricultural policy. Apart from presenting the highest level of fund absorption from the current financial perspective, not much can be done here. All the more, Poland’s proposal to increase direct payments to the budget from the member states did not receive support from the European Commission, and it would rather not be welcomed by other countries (e.g. the Netherlands, Sweden, Austria).

Crucially, Poland should develop a comprehensive concept for the national administration, to take greater advantage of the programmes that become a priority for the entire EU. These include the European Defence Fund, the scientific research support programme, programmes financing infrastructure investments on a European scale and investments in environmental protection. Only then the new financial perspective can be as beneficial to Poland as the current one.

Translation from Polish: Kosma Nykiel

 

This publication has been cofinanced by the Ministry of Foreign Affairs of the Republic of Poland within “Cooperation in Public Diplomacy 2018” programme.
This publication reflects the views of the author and not the official stance of the Ministry of Foreign Affairs of the Republic of Poland.

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