ZEW Economist Friedrich Heinemann on Agreement on the Next EU Budget

The European Parliament and the Council have agreed on the EU budget for the time frame 2021 until 2027. The Parliament was able to make small amendments, with slightly increased budgets in research, health, border management and the Erasmus programme. The agreement also means that the penultimate obstacle for the EU’s coronavirus recovery plan has been cleared. The only remaining task is to get all 27 Member States of the EU to agree on the budget, although there is a certain degree of uncertainty from Hungary. The Member State has criticised the fact that future allocations of the EU budget may be stopped on the grounds of violations of the rule of law. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at ZEW Mannheim, gives the following assessment of the agreement:

“The agreement was overdue. The coronavirus recovery plan ‘Next Generation EU’ can only achieve its goal of stabilising the economy if these projects are launched quickly and the money does not start pouring in only after the coronavirus crisis has long passed. In this respect, the agreement with the Parliament is very much welcomed. Yet the outcome of this budget is still extremely disappointing. The defenders of the status quo have once again got their way. A bold shift of the budget towards genuine European public goods has not been successful. Europe will distribute more than 250 billion euros in direct support schemes to large agricultural holdings until 2027 and by doing so will squander more than a quarter of its annual budget.

The additional 750 billion euro COVID-19 aid package could achieve a lot if the European Commission and the Council manage this meticulously and without compromise. If, however, Member States use this financial assistance to plug the gaps in their own domestic budgets, then it can be expected that there will be no long-term positive impact on growth. Unfortunately, the Commission has a poor track record when it comes to keeping an eye on the domestic budget policy of its Member States. Out of political consideration, it has never really taken drastic measures against governments with regard to the Stability and Growth Pact in previous years. The current European Commission, headed by von der Leyen, should opt to take a new approach so that it is able to effectively control the extensive budgetary resources. Otherwise, we will see a repeat in which money will trickle away in the well-known channels without kick-starting the growth that is much needed.”