How COVID-19 Will Impact the EU’s Budget Priorities

What Happened

Europe’s pandemic-induced economic crisis will force EU members to rethink the size and priorities of the bloc’s next seven-year budget, which should enter force in 2021. In an April 16 speech, European Commission President Ursula von der Leyen said that the new EU budget should be "the mothership of our recovery" and called for a "huge amount of investment" to "rebuild the single market" after the COVID-19 outbreak subsides. This suggests that the European Union will reconsider proposed spending cuts in areas such as cohesion funds, while areas that were expected to receive more money, such as the fight against climate change, may not receive as much funding as originally intended.

With a size of roughly 1 trillion euros ($1.09 trillion), the seven-year budget pays for most of the European Union’s policies, including subsidies for farmers and infrastructure projects. Before the COVID-19 pandemic, governments were debating how to react to the United Kingdom’s exit from the bloc, which has removed a net contributor to the budget. Countries in Southern Europe argued that the remaining 27 states should increase their national contributions — which are currently at around 1 percent of gross national income (GNI) — to compensate for Britain’s departure. But Northern Europe rejected this view, arguing that a smaller European Union needs a smaller budget. In February, EU governments failed to agree on the commission’s proposal to take national contributions to 1.1 percent of GNI.

Why It Matters

Now that the Continent is in a recession, Southern European states will have more ammunition to demand a bigger budget to promote growth. For Northern European states, small increases in national contributions would be easier to digest than other measures their southern counterparts have pushed for, such as the issuance of jointly-backed debt (or "coronabonds") to mitigate the economic blow of the COVID-19 crisis. But even if northern governments accept bigger national contributions, they will still push to keep them as modest as possible.

The second debate will be about how the money should be spent. Northern Europe wants to move spending away from policies such as agricultural subsidies and infrastructure plans to instead focus on areas such as the fight against climate change and the digitalization of the EU economy. But countries in Southern and Eastern Europe, which are net receivers of agricultural and cohesion funds, want to keep spending in these areas as high as possible. In light of the COVID-19 pandemic, southern and eastern countries will push even harder to preserve these subsidies to help the Continent recover from the economic crisis. Von der Leyen’s vocal support for cohesion funds suggests that the south and the east may have the European Commission on their side during the upcoming negotiations on spending.

Delayed Climate Plans?

The pandemic is already forcing the EU to change its policy priorities. Brussels recently admitted that several initiatives related to the Green Deal — which sets out to make Europe climate neutral by 2050 — will have to be postponed because of the COVID-19 crisis. Initiatives such as the "European Climate Pact" (a process of open public consultations on the European Union’s green policies), the "Farm to Fork Strategy" (a series of guidelines to make food production more sustainable), have been moved to late 2020, along with the "Offshore Renewable Energy Plan" and the "EU Biodiversity Strategy for 2030." Policies including the "New EU Strategy on Adaptation to Climate Change" and "New EU Forest Strategy," meanwhile, have been moved to 2021.

The COVID-19 crisis could force Brussels to abandon plans to shift its budget priorities away from agriculture and infrastructure policies to new areas such as climate change.

Before the health crisis, coal-dependent countries in Central and Eastern Europe were critical of the Green Deal, arguing that the transition to renewables would be too expensive for them. The global recession will give them additional justification to criticize the plan and to push Brussels to put the focus on the economy instead of the environment. The European Commission has invested significant political capital in its Green Deal, meaning its unlikely to abandon the environmental plan altogether. But the COVID-19 and the economic recession that it has brought to Europe will force Brussels to slow down the implementation of its ambitious flagship policy.