Behind the Scenes: Counting on 'levers'

BRUSSELS BEHIND THE SCENES includes weekly analysis not found anywhere else, as Sam Morgan helps you make sense of what is happening in Brussels. If you want to receive Brussels Behind the Scenes straight to your inbox every week, subscribe to the newsletter here.

About a year ago, FC Barcelona football club said it would activate a number of economic “levers” in an attempt to drag itself out of financial dire straits and maintain its position at the top table of European competition.

The situation was pretty awful: star player Lionel Messi had left the season before because the Catalan giants could no longer afford his wages; the club was struggling to sign the next-generation of talent; and future TV rights had to be sacrificed to pay off debts.

Barcelona owes well in excess of €1 billion, is spending more money to refurbish its iconic Camp Nou stadium and is still struggling to bring down its sizable wage bill. The club may have won its 27th league title this year but the future is not particularly bright.

To illustrate that, Messi was back on the transfer market recently after falling out with his new club, PSG, and although the Barcelona higher-ups were adamant that they would do everything to bring him back to the club, no serious offer was made.

It was literally impossible. The Argentine great would have had to play for free, which is illegal in Spain. He will instead now ply his trade in the United States for Inter Miami, a club that was only established in 2018.

Here is where the perhaps clumsy sporting metaphor crosses over with Behind the Scenes’ musings on the European Union’s finances, which were on full view this week when the Commission published its draft 2024 budget.

At first glance, the EU executive proposed a slight increase on 2023’s. But once you factor in inflation and the increased interest rates that have added billions to the bloc’s repayment of €800 billion in pandemic recovery cash, it is a smaller budget.

It essentially means that in crucial areas like research & innovation, education, climate and more, it will be business as usual next year even though it is clear that this is insufficient for the EU to meet any of its main goals, across the board.

That is why the Commission is counting on its own Barcelona-esque levers, the first of which it will pull on the 20 June when it reviews the current long-term, €1.2 trillion multiannual financial framework.

Essentially, the EU executive thinks what it has always thought: that the current MFF is too small to meet targets, grow the economy and allow Europe to compete on a global scale with the likes of China and the United States.

National governments, which hold most of the cards when it comes to budget talks, think the warchest is perfectly adequate and are more inclined to make cuts than commit new money to the EU coffers.

So how the review at the end of the month will marry all these diverging viewpoints and assessments of the current situation remains to be seen. The Commission will have to find a way to make 1 + 1 = 3.

Another lever that the Berlaymont will pull, also on 20 June, is a new plan to manage the repayment on that €800 billion debt. Costs have swelled from under €2bn to nearly €4bn thanks to interest rate hikes so new financing sources are desperately needed.

This is where so-called own resources come in. These are instruments where the EU is actually able to generate revenues that either go directly into the budget vault or, in this case, are used to pay off the big debt.

When the €800bn fund was set up, there were all sorts of bright ideas floating about. They ranged from using emissions trading profits and carbon border tax revenues to make repayments to setting up plastic and digital levies.

Other ideas have since embraced social priorities, such as a ‘fair border’ tax that would require companies to pay charges for any workers in their supply chains that are paid below the poverty line, as well as a levy based on gender equality standards.

MEPs passed a resolution last month urging the Commission to take into account new streams of revenue in that new proposal. Once it is published, national governments will have to approve it.

Yet again, therein lies the problem. EU member states are loath to grant the bloc’s institutions any powers to generate their own revenues, as they too often see it as an unacceptable step towards a federalised state.

The EU Council will have to finally grow up and stop acting like sulky brats when it comes to this issue, because it is their crown jewels on the line here as well.

National leaders agreed to let the Commission borrow serious money for the very first time back in 2020 and to make repayments on the massive debt. That includes using own resources.

So when talks about using billions in ETS profits or setting up a cryptocurrency tax come around, they will have to be serious about that too and put aside the pointless politicking and power plays that are the hallmark of these types of high-level negotiations.

Maybe that is asking too much or maybe the Council is finally in the mood to join the adults in the room. Ministers finally agreed to the long-stalled migration rules reform earlier this week so perhaps anything is possible.

We will know for sure by the end of the year.

BRUSSELS BEHIND THE SCENES includes weekly analysis not found anywhere else, as Sam Morgan helps you make sense of what is happening in Brussels. If you want to receive Brussels Behind the Scenes straight to your inbox every week, subscribe to the newsletter here.