Regions demand Brexit compensation from EU budget

Regions most exposed to Brexit want the European Union to create a special fund to mitigate the pain.

Calls from across the Continent for the EU to help cushion the impact of the U.K.’s departure come ahead of an intense push to draft the EU’s next long-term budget plan. Brussels confronts not just the Herculean task of filling a €9 billion-per-year hole that will be left by the U.K.’s departure, but also reconciling competing visions of how the budget should be used to tackle major issues such as migration.

Top EU officials will begin wrestling with the core challenges of developing the new long-term budget, called the Multiannual Financial Framework (MFF), at a high-level conference in Brussels Monday and Tuesday. Budget Commissioner Günther Oettinger has already warned that a combination of spending cuts and increased budget payments by wealthy EU countries will be required to close the gap that will be created once the U.K.’s regular budget contributions come to an end — most likely at the end of 2020.

The appeal for Brexit financial assistance adds to the political complexity of budget negotiations that have been delayed by at least five months by the uncertainty around Brexit.

The demands for compensation — from regions, municipalities and provinces across the Continent — are described in responses to a survey by the EU’s Committee of the Regions, obtained by POLITICO. They highlight the pressure on budget-makers in Brussels facing calls for more spending in several areas, including security and border control.

The future of a vast array of programs, from farm and fishing subsidies to infrastructure, education and cultural programs, is at stake.

“If the EU establishes a special fund for local cities and regions, it will be a good measure to avoid any negative consequences of Brexit in other EU countries,” wrote Stavros Stavrinides, the official who responded to the Committee of the Regions questionnaire for the Strovolos municipality in Cyprus, for example.

Likewise, a submission from the Andalusia region in Spain called on the EU to “create a fund for areas especially affected by Brexit.” And Mário Sérgio Quaresma Marques, an official from Madeira, wrote that the government of the autonomous region of Portugal “strongly recommends using European and other financial mechanisms, at regional and local level, to help offset the consequences for the outermost regions, as most of them and their municipalities will be affected by the U.K.’s departure from the EU.”

Such demands for Brexit assistance, and the precise makeup of cuts and extra payments, will be the subject of debate in the months ahead, as officials in Brussels and national capitals joust over their policy priorities. The future of a vast array of programs, from farm and fishing subsidies to infrastructure, education and cultural programs, is at stake.

“From Monday 8 January onwards it is work, work, work on long-term #EUBudget to be ready in May,” Oettinger tweeted Friday.

Opportunity for overhaul

The line-up of speakers at Monday and Tuesday’s conference offers a window into the toughest aspects of the debate, and even into how the European Commission appears to be leaning.

For instance, the commissioner for regional policy, Corina Creţu, who oversees funds for projects that help “strengthen economic and social cohesion” by investing in poorer EU countries, features prominently with a speech on Monday evening. Commissioner for Agriculture Phil Hogan, however, is not on the bill, even though the EU’s Common Agricultural Policy is currently the bloc’s largest budget expenditure.

Other speakers include German Foreign Minister Sigmar Gabriel, speaking for the EU’s wealthiest country; Portuguese Finance Minister Mário Centeno, the incoming president of the Eurogroup; and former Italian Prime Minister Mario Monti, who recently led a commission to develop proposals for revamping so-called own resources — direct revenue-raising mechanisms such as customs duties and a share of member contries’ VAT, which provide a large share of the EU’s revenue.

The U.K.’s departure is viewed by many experts as an opportunity to overhaul the EU’s finances, especially because it allows for the elimination of an array of budget gimmicks that were implemented to adjust for the budget rebate negotiated by Margaret Thatcher in 1984.

At the same time, Brexit poses enormous practical and philosophical challenges for budget-makers. For example, the EU has long aimed to limit its annual budget to 1 percent of the bloc’s gross national income (GNI). Because the U.K., as a result of the rebate, contributes far less than 1 percent of its GNI, the overall EU budget once Britain leaves will grow, proportionally, to substantially more than 1 percent of the EU27’s GNI.

Already there are demands for new areas of spending, including a decision already taken by the European Council in December to create a new financing stream to address migration issues.

Oettinger, in visits across the Continent, has advocated a combination of spending cuts and increased contributions — as well as tougher accountability for countries that are net recipients of EU funds. Countries that fail to implement fiscal reforms demanded by Brussels would potentially stand to lose funds.

Original Article

Politico