Europe Fires Starting Gun for Fight Over Next EU Spending Plan

(Bloomberg) -- The European Union moved to reduce farm subsidies in a bid to help fill a Brexit-induced budget hole, triggering a year or more of political battles over the bloc's future spending program.

The European Commission proposed a roughly five percent cut in EU agricultural expenditure as of 2021 to make room for bigger outlays on security. In a further sign of the tensions ahead, the commission recommended a similar lowering of European regional-development aid and tying it to member countries' respect for the rule of law as the bloc struggles to check a Polish political assault on domestic judicial independence.

The measures form the centerpiece of the proposed 2021-2027 EU budget unveiled on Wednesday by the Brussels-based commission, the bloc's executive arm. It recommended total EU expenditure of around 1.28 trillion euros ($1.54 trillion) over the seven years, after adjusting for inflation, compared with 1.09 trillion euros in the 2014-2020 period.

“The new budget is an opportunity to shape our future as a new, ambitious union of 27 bound together by solidarity,” commission President Jean-Claude Juncker said in an emailed statement. “We have put forward a pragmatic plan for how to do more with less.”

Drama Ahead

Always a piece of political theater, the deliberations over the multiannual European budget this time around will be a drama within several dramas that were almost inconceivable when the current seven-year spending program was fixed in 2013.

Since then, the EU has been trying to put a lid on centrifugal political forces that propelled the U.K. vote to leave the bloc, take on a bigger global role as U.S. President Donald Trump pursues his “America First” agenda and counter a drift by Poland and Hungary toward authoritarianism.

While amounting to only 1 percent of EU economic output, the European budget provides key funds for farmers, poorer regions and researchers in everything from energy to space technologies. It's also a barometer of the political mood in European capitals, signaling the risk of fissures as the EU confronts its new challenges.

With national transfers filling about 80 percent of the EU's coffers and Britain being the No. 2 net contributor, after Germany, Brexit will leave a 10 billion-euro annual hole just as the bloc faces calls to spend more on border controls and defense amid heightened concerns about Islamic terrorism, Middle Eastern and African migrants and Russian aggression.

EU farm subsidies and regional aid together account for about 70 percent of the bloc's current outlays.

The multi-annual EU budget needs the unanimous support of national leaders and the backing of the European Parliament. Rich, western European countries are split over the way ahead, with France leading a group that supports farm largesse and the Netherlands spearheading a smaller alliance opposed to higher national contributions.

Resistance in national capitals to bigger transfers to the EU has existed for years and grew in the run-up to the mid-2016 U.K. referendum on Brexit. The reluctance shaped the deal five years ago over the 2014-2020 EU spending program, which marked the first time the bloc's multiannual budget shrank.

The new proposed link between regional aid and democratic principles will be a further complicating factor. That's because, besides facing outright opposition in Warsaw and Budapest, the idea has sparked reservations in some other EU capitals since surfacing in Germany and picking up French support.

--With assistance from Ewa Krukowska and Viktoria Dendrinou

To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net.

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net, Nikos Chrysoloras

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