Budget battle in the EU

2024-01-05 21:09:22

The validity of the budget will be the first major political battle of the European Union (EU) at the beginning of 2024. Germany and the self-styled frugal countries have already distorted the initial proposal of the European Commission, cutting the funding of industrial and technological development, despite the fact that the The EU is lagging behind its main competitors (the United States, China and South Korea) due to the austerity policy, which was reinstated on January 1 with some minor relaxation.

EU Heads of State and Government will meet in a special European Council on February 1 in Brussels after the review of the multiannual financial framework 2021-2027 was blocked at the summit on December 14 and 15 by Hungary’s veto of the new financial aid package for Ukraine of 50,000million euros. The Hungarian Prime Minister, Viktor Orbán, demands in order to approve the funds for Kyiv that the European aid suspended in Hungary be unblocked due to the violation of democratic principles and the corruption of the regime.

The review of the budget framework that has majority support removes the increase of 8.5 billion in funds for industrial and technological development proposed by the European Commission, reduces by another 1.3 billion the fund to mitigate the negative effects of globalization and allocates other purposes 1,000 million from the health program and 1,100 million from the agricultural and cohesion policy.

Expansion of the budget

There is a consensus among the Twenty-seven, except for Hungary, to concentrate the expansion of the Community budget until 2027 on the aforementioned aid to Ukraine, on 2 billion more for border control and immigration within the EU, in an additional 7,600 million to pay Turkey and other countries to stop the arrival of immigrants in the EU and in an additional 1,500 million for the European defense fund. On the contrary, the mentioned 8,500 million that the European Commission considered an indispensable minimum for industrial and technological development are sacrificed, despite the delay accumulated by the EU and the immense investment challenge posed by the green energy transition.

The European economic decline compared to its main competitors due to self-imposed restrictions on investment is reflected in the evolution of gross domestic product (GDP) per capita. Eurozone GDP per capita in constant dollars grew by 9.5% between 2007 and 2022, according to the World Bank. Growth in the United States was 15.6% in that period; in South Korea, 44.3%, and in China, 167.7%. If the leaders of the EU had translated into concrete measures the White Paper on growth, competitiveness and employment, drawn up by the President of the European Commission Jacques Delors in 1993, the economic and technological growth of the EU would be much higher than today and not there would be such a high degree of social inequality. But even then EU leaders felt an aversion to public investment, industrial policy and long-term plans. While the EU is obsessed with reducing the level of public debt to 60% of GDP, the United States supports its economic and technological development with a debt equivalent to 123% of GDP and in Japan the ratio reaches 246%.

austerity

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The Belgian Prime Minister, the liberal Alexander De Croo, who has just assumed the six-month rotating European presidency, points out that the EU needs more own resources to finance its budget and its economic and geopolitical challenges. But it collides with Germany, Holland, the Nordic countries and the countries of the East, which prioritize the short term and do not understand that frugal budgets and investments lead to small economic futures.

The return of the austerity policy in the EU is already noticeable in the aid for the green transition. France has cut aid to buy an electric car by 20%, as part of the 12 billion annual budget adjustments agreed with the European Commission. Germany has also suspended aid of 4,500 euros for the purchase of electric cars since December 17 due to the budget adjustment. No one should be surprised that this policy of adjustments in a context of increasingly weak growth (zero annual rate in the EU in the third quarter of 2023) favors discontent and the vote to the far right. The German Government has already had to backtrack on the abrupt removal of subsidies to the countryside after massive protests.