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Technical briefing on-the-record (for accredited journalists only) on the EU’s next long-term budget

Brussels, 5 November 2019

with Mr Gert Jan Koopman, Director-General for the EU Budget and chaired by Mina Andreeva, Chief

Spokeswoman of the European Commission

The Powerpoint and Excel spreadsheet referred to by the Director-General are available here:

https://ec.europa.eu/info/publications/technical-briefing-eus-next-long-term-budget_en

Opening statement by Director-General Koopman

First, I will walk you through a couple of slides that Commissioner Oettinger presented last

week, to provide a bit more technical background to these slides.

I would like to start with the slide that you see behind me, which has given rise to a little bit

of discussion, to make two or three very basic points [Slide N2 in the published PowerPoint

presentation].

First, what you see on the slide is the size of the MFF in the past, the present and the

proposed future one, expressed as a percentage of GNI. There was a whole debate about the

proposed size of our budget, which includes the European Development Fund. That is the

0.03% which we are integrating this time and which was outside of the budget in the past.

For reasons of comparison, you should actually add it to previous MFFs.

Second point: A lot of you queried what this second but last column on the right hand side

actually means. This 1.13% plus 0.03% does not represent the entire budget we have today

divided by 27, leaving out the UK, it represents expenditure in the 27 today according to the

present MFF, and that stands at 1.13% plus 0.03%.

The budget as it exists for the 28 stands at 1%, plus obviously the EDF on top of it, to reach

1.03%. The difference between these two columns effectively measures the Brexit gap. This

simply shows that we spend more on the continent today as a percentage of GNI than the

budget for the 28 currently entails. That is the challenge we are confronting. That is an

objective fact, and the question is: How do you deal with that challenge?

Some say: Tough luck, a Member State is leaving, just cut it down to what it is today in terms

of what the 28 pay: 1%. There are others who say: The reference point is the expenditure

level. Then you should be at 1.16%. Hope that is clear, this is not what some of you in the

questions were saying – that this is the entire budget divided by 27.

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Last point I want to make about this slide is the historical perspective. The first two MFFs

stood at 1.11% and 1.15% of GNI respectively. So, our proposal of 1.11% of GNI is actually

not high at all in a historical perspective and it is worth reminding ourselves that when the

present MFF was agreed and negotiated, this happened after the worst economic and

financial crisis since the end of the Second World War, when public finances in all Member

States were in massive disarray. That, of course, led to a very difficult discussion. We all know

that the public finance situation today is different.

Then, this slide is very important [Slide N3 in the published PowerPoint presentation]. I have

just explained the Brexit gap – the tension between where we are today in terms of

expenditure and where we are today in terms of contributions, financing. What the

Commission has done is a combination of quite significant cuts for the CAP and for cohesion.

So cuts, but equally – because we have very serious pressing needs for research, innovation,

migration, security, defence, digital and of course climate – we have intensified those

policies. When you add it all up, you see that there is a very significant shift in the structure

of the budget.

There is a strong downward trend in the share of the Common Agricultural Policy and

Fisheries which falls below 30% in our proposals. Cohesion expenditure also drops down to

29.2%, and these policies that you see here at the bottom from Horizon Europe down

altogether, they represent in our proposal 35.1%. That is a significant increase from the

present where they stand at about 24%, but equally these policies individually are relatively

small still today [Slide N4 in the published PowerPoint presentation].

So the budget in terms of adjustment is adjusting strongly, but just like national budgets, the

speed of adjustment is not unlimited. Therefore, we believe that we have tried to strike the

right balance between reducing expenditure where we believe it can be reduced, intensifying

expenditure where it is absolutely needed, and keeping this to a level which is both in a

historical perspective and today absolutely acceptable.

On national contributions: The budget is essentially financed by traditional own resources

which are resources of the budget of the European Union – not Member States’ resources.

Then their national contributions which come from a variety of sources, the main source

being a share of GNI.

When we look at the distribution of these national contributions in 2020 - [slide N5 in the

published PowerPoint presentation] – this is based on our proposed budget for next year –

you see a very interesting pattern in terms of the distribution of Member States'

contributions on the one hand, and the level of wealth on the other hand. What we see is,

basically, that there is an inverse correlation between GNI per capita on the one hand and

contributions on the other hand. So the countries that contribute least after the UK – which

of course in our budget for next year is still contributing as if it were a Member State – are

the Netherlands, Sweden, Germany, Denmark and Austria. This is simply a fact and worth

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keeping in mind. It is not immediately intuitively obvious that the richest countries should

pay the least.

Another way of looking at this [Slide N6 in the published PowerPoint presentation] is that if

we lump them together, the countries that benefit from a correction stand together at a

contribution share of 0.70% in our proposed budget. The average contribution next year for

all Member States would be 0.85%, for those countries with an average below the EU-wide

average. The average for the Union as a whole stands at 0.81%.

To put it in very simple terms: Countries with a rebate have a contribution share of 0.70%,

poor countries have a contribution share of 0.85%, the average is 0.81%. We think this

situation is not justified and that is why in our proposals we have proposed to phase out

these rebates over time, so that in 2027 all countries, roughly speaking, would be a paying

around 0.90% of GNI.

That obviously requires an adjustment that is proportionately larger for those countries

benefiting from a rebate, which is why we have proposed to manage that carefully over time

by phasing out these rebates over 5 years. What you see on this slide [Slide N7 in the

published PowerPoint presentation] is how these rebates are phased out and how – for the

countries that presently benefit from these rebates – the share of GNI that goes to the

financing of the Union increases gradually over time and then stabilises at the level I just

mentioned. A gradual adjustment over time going forward.

A lot of the debate in the press is about comparing 2027 – the last year of the next financial

perspective – with 2020, so this gives you the full adjustment over seven years. That is of

course pertinent but it is important to remind ourselves that it is a 7-year step. National

budgets – often used as a reference point – have a one-year horizon, so don’t forget that the

adjustment takes place over a longer period of time

The MFF proposal actually brings everyone to a level of contributions that is comparable at a

level of expenditure that is a bit below the levels pertaining in the first 14 years of this

century. Therefore, we think that whilst there are obviously increases, this is actually a fair

proposal, because it addresses the strategic needs that the European Council set in the

Strategic Agenda in July. No one doubts what the priorities are. These are incidentally also

the priorities of our President-elect Ms von der Leyen, and they are reflected in the

adjustments that are proposed in the budget.

What does this mean if you look at national contributions at the level of individual Member

States? [Slide N8 in the published PowerPoint presentation] You will have all this data online.

It includes the European Development Fund in the 2014-2020 period – as I said before, we

need to compare like with like. We are basing ourselves on the Spring Forecast 2019, which is

the latest available data, and we have also included, just to be on the conservative side, ETS-

based resources as a national contribution going forward. The ETS-based resources are those

that we have proposed should come from the Emissions Trading System where we have

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proposed that 20% of these revenues should flow into the budget. We are proposing this,

and we are considering this for the time being as a national contribution.

Rather than simply comparing 2020 with 2027, which is relevant, it is also worth comparing

2014 with 2021, 2027 because with growth, GNI changes. Therefore, it is probably more

relevant for the purpose of comparison to work with these GNI percentages. They are also

comparable across Member States unlike the billions of euros you see on the left hand side

of this slide [still slide N8 in the published PowerPoint presentation]. You see increases

everywhere, but you see that they are gradual, and that over the period as a whole, the

increase is actually relatively measured.

If you look at the drivers of change in these contributions and you break them down, then I

think it is relevant to see where the changes actually come from.

First point: If you look at current prices then you compare it with prices in 2027. Obviously,

you will have 7 years of inflation with the working hypothesis that inflation averages 2%. So

there is a considerable part that simply reflects inflation, as you can see in this slide[Slide N9

in the published PowerPoint presentation].

A further important contributor is economic growth. Even keeping GNI shares of contribution

stable, growth simply leads to more euros that are available.

Then, there is a Brexit gap. The Commission proposal is based on savings that are taking

place in the CAP and in cohesion for about 50% of the Brexit gap, but the other 50% should

be financed through contributions. Only at the top, we are putting the reinforced priorities

which are representative of about 25% of the increase in the national contributions. Again,

keep in mind these are nominal prices, this is 2027 versus 2020, and it shows that the bulk of

the adjustment is simply growth and inflation and that the Brexit gap is actually a relatively

small part of it, given the savings and that the remainder comes from reinforced priorities,

for things like innovation, migration, defence and the like.

Another point that I would like you to have very firmly in your minds is the size of the

budget, compared to a government spending in our Member States [slide N10 in the

published PowerPoint presentation]. We have taken a handful of countries and the EU

average. What you basically see is that the budget of the Union is between a 40th and a 50th

of national expenditure. It is true obviously that a lot of expenditure in national budgets

cannot be adjusted very easily from year to year. But looking at these orders of magnitude it

is also very hard to believe that somehow the increase in financing of 0.1% over 7 years

would be crowding out expenditure at national level. With every respect, this is an argument

which simply mathematically and quantitatively cannot be sustained, if you look at these

figures.

Another way of looking at the size of the budget is to try to translate it to what it costs per

European and what happens with this [slide N11 in the published PowerPoint presentation].

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We have simply calculated this by looking at the national contributions expressed in 2018

prices, and we are looking at the present MFF, where the national contribution per EU citizen

across the Union amounts to EUR 241. In our proposal, this would rise for the next MFF to

EUR 289 per citizen per year. That amounts to a growth per year of about 3%. If you want,

you can also translate it to a cost per day that averages out at 66 cents per European per day

in 2018 prices today. For the future, it will be 79 cents and that means that it increases by 2

cents per year.

Another factor that is important in this regard are the traditional own resources [Slide N12 in

the published PowerPoint presentation]. The bulk of the financing of our budget comes from

Member States' contributions. In some of the numbers that are floating around, Member

States have included traditional own resources, mainly customs duties going forward, which

for reasons that frankly speaking escape me are presented as national contributions. Legally

this is simply wrong.

The Own Resources Decision which is the fundamental act that governs the financing of the

budget is very clear about what these traditional own resources actually are. It says

unequivocally in Article 2 (1a) that these customs duties constitute own resources entered in

the budget of the Union. So they are not a Member State contribution. They cannot be

considered as a Member State contribution and frankly speaking anyone who presents these

traditional own resources as a Member State contribution is actively misleading the

European citizenry. What is true is that Member States get to collect 20% of these revenues

as a proxy for collection costs. This percentage is deducted from what they pay to the budget

and does not figure in our numbers.

Why is this relevant? Here you see the numbers [Slide N13 in the published PowerPoint

presentation]. It is quite relevant, because we have a number of Member States for whom

the collection of traditional own resources is rather significant. These are essentially the

countries with large ports and airports that are entry points for trade in the European Union.

The Netherlands and Belgium, proportionately speaking, are obviously important in this

regard. As you can see in Belgium, in 2020, this represents about 0.47% of GNI and in the

Netherlands, it represents about 0.33% of GNI. You have just seen the figures for the national

contributions, which for the Netherlands stand at 0.65%.

So if you were to add these traditional own resources to your national contribution, then you

inflate the national contribution illegally by 50%. This is a bit like a tax inspector collecting

taxes from citizens on behalf of the state, trying to deduct these taxes from his own tax bill.

That is essentially what these Member States are trying to pretend.

So it is significant in volumes: They get a fairly hefty 20% commission to collect this, but let us

be very clear about this, these are not Member States' contributions to the budget.

Interestingly, as you can see, this is a source, which is not completely negligible: It stands at

0.13% of GNI at the present MFF and it is projected to rise slightly to 0.15% of GNI. As you

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know, you have just seen that Member States' contributions amount to 0.9% of GNI. This is

not small.

Another favourite topic are the so-called ‘net contributions’ [Slide N14 in the published

PowerPoint presentation]. The technical term is actually not net contributions, but operating

budgetary balances (OBB). This is a concept that was developed and led to the inclusion of a

formula in the Berlin European Council Conclusions in 1999. What this method essentially

attempts to do is to translate the budget into a sort of zero-sum redistribution mechanism

and to work out who pays in what and who gets what out of it.

The problem, as you have seen already, is that some of the financing of the budget does not

come from Member States, because it is customs duties. So that you cannot really take into

account. Then, even at the time, it was considered that some expenditure you simply cannot

attribute to Member States. Because obviously, if you try to make these calculations, you

need to decide what expenditure can be attributed to Member States. So at the time, it was

decided that administration and expenditure for third countries should not be taken into

account.

I have taken data from 2017 to show you what this methodology means and how it works

[still slide N14 in the published PowerPoint presentation]. The way it works is that you strip

out administration and payments to third countries from the expenditure side. Then, for the

EU28 in 2017 you arrive at EUR 103.63 billion. You then look at national contributions –

actual national contributions, net of customs duties, because they do not represent national

contributions – they stand at 94.97%. As you see, there is an imbalance there. To correct this,

to make this a zero-sum calculation, you stretch the national contributions to match the

corrected expenditure. So in this year, it was increased by about EUR 8.6 billion. Otherwise,

you cannot make this calculation. Once you have done that, you arrive at zero for some of

the net balances for the EU28. This is by construction, this is what Member States wished to

do at the time. Then you can actually produce the numbers for individual Member States.

Take the example of Ireland: It can lead to very technically misleading results. So according to

this calculation, the relevant national contributions for the purposes of establishing the

operating budgetary balance stand at EUR 1.94 billion, which is EUR 0.17 billion more than

the cleaned expenditure. So that would make Ireland in these calculations a net contributor

with a deficit of EUR 0.17 billion. However, in reality, the actual national contributions do not

stand at EUR 1.94 billion, but they stand at EUR 1.78 billion. So already, this shows you that

there is a bit of a problem with this methodology in that these adjustments – even if they are

not massive – can lead to significant movements in the position of Member States. If you

took the actual national contributions of Ireland, it would be essentially at zero.

Belgium is also an interesting case: We all know that the EU institutions are largely located in

Belgium, and that adds some 5 billion euro annually to their economy from the

administrative expenditure. That is actually not visible at all, because the method excludes it

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by definition. Belgium, according to this, is a net contributor. All the expenditure that takes

place from the EU institutions in Belgium is simply excluded from this calculation by default. I

am mentioning this because it is important that when you talk about net positions – which

for some are the holy grail – that you actually realise that this is a statistical construct that is

designed to represent the budget as a zero-sum redistribution tool.

If you are more of a graphical person [Slide N15 in the published PowerPoint presentation]:

This is essentially the same story explaining how we arrive at these national contributions

corrected to allow these net balances to be calculated. On the left hand side, we strip out

payments to third countries and administration to come to this corrected expenditure. On

the right hand side, we adjust the national contributions to ensure that they actually match

the expenditure that is allocated to Member States. This is how the method works.

The method in the past was reasonably easy to operate for the bulk of the budget, because

the bulk of the budget, as you have seen in my earlier graphs, essentially at the time

consisted of agricultural expenditure and cohesion expenditure. There it is relatively

straightforward to allocate this expenditure to Member States. You know that the MFF works

with pre-allocated envelopes in these areas, so you know on an ex-ante basis who gets what.

The problem is – and now I come to the critique [slide N17 in the published PowerPoint

presentation] – that our proposal for the MFF comprises a much larger share of policies,

where this is very, very difficult to do, especially going forward. We are integrating the

European Development Fund – so external expenditure – in the budget. As you have seen, it

is very, very difficult to allocate this to individual Member States. We have increased the

share of the modern policies to 35%. Whilst today – if I look backwards –, I can work out with

a lot of difficulty which research consortium got what share of the Horizon programme. It is a

little bit difficult, because this is a competitive allocation process.

To answer that question for 2027, the only thing you can do is simply assume that the shares

stay the same. So you just extrapolate the past into the future. That is essentially what I think

a lot of Member States are doing. But that becomes very difficult if you genuinely introduce

new programs like Digital Europe, which is a program that does not really have a reference

point in the present MFF; or the European Defence Fund, that presently does not exist. So

how are we going to allocate national expenditures to things for which we do not even have

reference points?

I would also like to draw your attention to the financial instruments, where there are two

problems. As you know, the Juncker Plan has introduced a whole new means of efficiently

financing investment in Member States. Technically, this works through the creation of a

provisioning fund, which is a pooled fund that backs the exposure that third party actors like

banks and development banks take. They are backed by the budget in respect of their

investments. But it is a single fund that is pooled, this gives you a much more efficient

outcome. It is simply not possible to allocate the provisioning fund to individual Member

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States. That is one problem. Again, another argument why it is not possible to allocate in a

meaningful manner what is going back to individual Member States.

I am not even talking about the leverage effects the Juncker Plan – InvestEU, as proposed by

the Commission – aims at crowding, private and public money, into investment. Given the

huge multipliers that this policy generates, these sums are really enormous. The projection

for InvestEU is that we would be looking at an investment volume of EUR 650 billion. All of

that is completely excluded and ignored by the methodology that I have just outlined.

Whilst in the past, when we had a simpler budget – a budget that was dominated by

agriculture and cohesion –, on a backward-looking basis, you could probably produce these

figures with all the caveats that I have mentioned about upward adjustments and questions

about what you do with administration. Going forward, looking at the future – for the type of

budget that we have proposed –, frankly speaking, this is really not meaningful. So there are

inherent technical limitations that make this methodology irrelevant as a basis for informing

decisions about national contributions for the next MFF.

But there are also substantive conceptual problems with trying to interpret these net

positions as indications of what you actually get out of the budget and therefore as a basis

for what you should be paying into the budget, because that is the underlying logic.

The first point is that this methodology assumes that the benefits of EU cohesion

expenditure only accrue to Member States who receive cohesion expenditure. But that is a

little bit problematic in reality, because a lot of the tenders and a lot of the direct

expenditure actually goes to companies from the old Member States. German companies

have won many tenders for cohesion expenditure in Poland. So if you actually ask yourself

the question which economic actors receive the cohesion expenditure, it is not only those

located in the Member States in question. This is actually rather significant.

Other important indirect benefits are also not included. I have mentioned here the example

of the European Medicine Agency, which is largely fee-financed, it figures in the budget. The

fee-financing is actually something on which decisions are taken. It has an annual budget of

EUR 350 million and approximately EUR 25 million comes from the budget; the rest is fee-

financed. So the EUR 325 million that – according to European law – have to be paid for the

operation of this Agency, are completely excluded from any of these calculations and that

really is problematic. It is very hard to sustain the argument that somehow this is not a

benefit to the Member State that hosts the Agency. Anyone who observed the intense

lobbying for which millions of euros were spent to attract this Agency, will understand that

there was a clear economic rationale for doing so. So EUR 325 million in direct expenditure

are ignored. Then, there are very significant indirect effects of that expenditure: tens of

thousands of visits, hotel bookings, but also the country hosting the Agency will be a much

more attractive location for companies that are involved with innovation in the area of

medical sciences. That is actually already happening. All of that is excluded. Therefore, if your

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starting point is ‘we need to pay a fair share of the budget, based on what we get out of it’,

you cannot simply ignore this.

The last point – that is maybe even the fundamental point – is that the budget is not a zero-

sum game. The European Union is not a zero-sum game. The European Union is probably

what Niall Ferguson, the famous Scottish historian called a ‘killer app’ in terms of generating

economic benefits.

If we just look at the internal market [slide N19 in the published PowerPoint presentation],

you will see that estimates of the benefits of the internal market to Member States are

orders of magnitude larger than the contributions they pay.

These benefits are actually typically based only on assumptions regarding increases in trade.

We know that trade between old Member States and new Member States since 2004 has

grown twice as fast as average trade in these Member States.

So in terms of export markets, what you see in the statistics is simply what these models

predict: that the internal market leads to a huge uptake in trade.

What these models typically ignore, because it is difficult to model, is foreign direct

investment.

But we will put on our website for you to look at an extremely interesting study that was

done by our colleagues in DG ECFIN about foreign direct investment in Czechia, a very factual

assessment of FDI and dividend flows in Czechia on the back of the internal market. It is

Economic Brief 42, published in February 2019.

What it shows is that dividend payments to multinationals, 90% of whom are located in EU15

Member States, 90% of these benefits accrue to EU15 countries. This amounts to 5% of

Czech GNI. Whatever you may think of it, that is larger than the contributions the Union

actually pays to Czechia in terms of its financial envelope for cohesion and agriculture.

Of course, you cannot compare this like to like, they are not the same concepts. But it is clear

that these repatriated profits are massive. The rate of return on these investments is 13%,

well above the rate of return on investments anywhere else in older Member States.

This shows that the internal market, when you look at it from an FDI perspective which is

excluded by these models, is not a zero-sum game. Obviously, Czechia has grown

tremendously as a result, but equally the older Member States and their successful

companies have benefited massively.

If we just take the Dutch multinationals in Czechia, they represent 30% of the stock of foreign

direct investment. They also have the highest extraction rate for dividends, so they get 80%

of their profits back in dividends since the beginning of the 2010s.

So the dividend payments to Dutch multinationals amount to 1.6% of Czech GNI since the

start of this decade.

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Considering that roughly speaking Czech GNI is about a quarter of Dutch GNI, that is

equivalent to 80% of the Dutch contribution to the budget.

All of this is completely ignored in these analyses. But in terms of what the economies of our

Member States actually experience as a result of the internal market, what the actual

benefits of the EU are and what should guide discussions about fairness, I would sustain that

these things have to be taken into account.

Having said all of that, because you obviously want to see the numbers, we have presented

these numbers on operating budgetary balances for 2014-18 [slide N16 in the published

PowerPoint presentation]. What they reflect, as you would expect, is that according to this

methodology, the newer Member States receive a positive budgetary balance, especially

large for Hungary, Poland, Romania and Bulgaria, and that the older Member States have

negative operating budgetary balances.

All of these figures for all of the years, all of the past years are available on our website.

What might be interesting for some is that the ‘Frugal Five’ are not the only ones who have

negative operating budgetary balances. Italy for example, which is sometimes seen as a

country that benefits disproportionately from EU financing. I read this in the German and

Dutch press. Actually, it is a significant net contributor according to this methodology and it

is worth keeping that in mind as well.

We can do this for the past. As we move to the future, we are having a lot of technical

difficulties and as a guide for fairness, it is frankly speaking really completely meaningless.

What can we do for the future? What can we give you to look at what our proposal actually

represents? [Slide N18 in the published PowerPoint presentation]

As I have said before, the CAP works on the basis of national envelopes. We have made

proposals for this, also available on our website. For ease of reference, I have put them here.

So those are national envelopes. The same is true for cohesion, with all the caveats that I

have just been discussing. Those data are available, you see the numbers here and you can

compare that with the national contributions.

For those of you who want to do some number crunching, you will get an Excel spreadsheet

to work the magic. This is something you can say with reasonable accuracy going forward.

You cannot with reasonable accuracy say anything about operating budget balances.

Finally, I promised you some further information of the benefits of the Single Market [slide

N19 in the published PowerPoint presentation]. I think that is important and is very hard to

estimate. Most of these models exclude foreign direct investment, but they do look at trade.

When we built the QUEST model in DG ECFIN where I worked, there were huge discussions

about trade elasticities, price elasticities, so you have to take this with a pinch of salt. That is

why we have taken three of the most recent studies we could find: A study produced by our

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colleagues in DG ECFIN, a study by the Ifo Institute and a study by the Bertelsmann-Stiftung.

We have simply averaged them out.

If you want, the data for the individual studies will also be made available. There is quite a lot

of variation across them. But the basic take-away point is that, whatever way you look at it,

for any single Member State, the benefits of the single market alone – even if you take the

most conservative estimate – are multiples of their national contribution.

What is also interesting to note is that for countries like the Netherlands and Austria, the

benefits are disproportionately higher, which is not surprising, because the way these

models work is that they look a trade. These are very open economies, they trade a lot, so

they also benefit a lot, like Belgium does.

Interestingly, Germany being a very large economy, is actually comparatively speaking to

these countries a little bit closed. So they benefit a little bit less as a proportion of GNI, but

still multiples of their national contribution.

Of course, the newer Member States benefit a lot, because the internal market gives them a

growth impulse, also on the back of a cohesion expenditure, which is precisely why we have

it in the first place.

With this, I hope I have not bored you too much, a lot of data here. I am happy to answer any

questions.

Questions and Answers

Q1 Going back to the operating budget balances, you have very comprehensively laid out why you

think this is a meaningless figure. I think a few Finance Ministers have already said – and you know

that Finance Ministries have been doing this calculation ever since we have an EU budget – that when

they want to plan their national budgets, this is the number that is most important for their fiscal

considerations when they have to decide how much of spending and revenues they might need to

take out of some domestic pot to make sure that it is then being used for the EU pots. So even though

it is probably meaningless when we think about the EU budget, for them, from a national Finance

Ministry’s perspective, it is something that they have to work out and they have always been doing

this. I guess it is more contentious now, because some of the numbers a bigger. Just to sort of sum up,

I do not want to put words in your mouth, but to sum up that slide: Are you effectively saying that any

idea of a net contribution is meaningless, because effectively EU membership is priceless?

Q2 I have a couple of questions. First: The budget proposal you are working on, is it the one from last

year or is it some kind of update? Because as you know, Ms von der Leyen and previous

Commissioners here already pledged to give more to Erasmus compared to what was proposed last

year, for example. So it is still EUR 15 billion more, so we had EUR 45 billion instead of EUR 30 billion.

Or even for Horizon Europe, if I am not mistaken, Mariya Gabriel said in a statement to the European

Parliament that the Commission line is now to go from EUR 94 billion to EUR 120 billion. If we add up

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all the pledges of recent years, which are negotiated and which are also part of the parliamentary

proposal, the figure has already increased by the annual contribution of Germany in a year. So I was

just wondering if you can provide some details on that. Secondly, is it also because of the frustration

or the lack of clarity? For example, Poland and Hungary receive a lot of money from the EU, it has an

importance for a competitive GDP. Is the Commission offering to the Council or to some countries

right now some estimations of, for example, what it means if the rule-of-law mechanism is applied,

what it means for the conditionality of funds? How many billions of euros should be frozen from those

countries if they continue on this path of democratic backsliding?

Q3 I saw the national contributions of most European countries are rising by approximately 50%, for

instance for Bulgaria or Estonia. Why? It cannot only be connected with the expected economic

growth and inflation.

Chief Spokeswoman Andreeva: Just also to recall we are on the record, so you can quote Director-

General Gert Jan Koopman for whatever he says, unless he tells you otherwise.

Director-General Koopman:

I am starting with the first question. Let me correct you: Finance Ministers are interested in the

OBBs, but the value of OBBs for national budgetary planning is actually rather limited, because most

modern Member States' budgets make a distinction between the expenditure and the revenue side

of the budget. Actually, the country I know best introduced this under the Finance Minister who I

think was very much involved in setting up this OBB methodology back in the Berlin days, Mr Zalm.

He introduced – and many Member States have this – a very significant distinction between the

expenditure side and the revenue side on the budget. So what that means is that on the expenditure

side of the budget, of a national budget, you have the contributions to the EU. And what you have on

the revenue side of the budget is receipts for cohesion and agriculture, and then money that flows

into research or into other activities of the economy you are responsible for in your country, they do

not go through your national budget, and they are actually – on a backward-looking basis – covered

through the OBB. So the OBB can never be a guide for national budgetary planning. You would make

a terrible mistake, you would have huge difficulties with your own national fiscal frameworks, if you

used that as a guide. You look at what you spend, which is the national contribution, and you look at

what flows into your budget on the revenue side of the budget. These two things, with every respect,

in most modern budgets in the Member States are separate. So am I arguing that the budget is

priceless? No, I am not arguing that the budget is priceless. What I am arguing is that, if the objective

of the OBB methodology is to develop a fairness criterion to inform decisions on national

contributions, then it is fundamentally flawed, for the technical reasons I have mentioned – there are

a lot of technical reasons –, but also because it excludes very significant benefits that are very

important indeed, and orders of magnitude larger for some Member States that shout the loudest.

This is problematic, because – coming back again to the country I know best –, if these numbers are

anywhere near the mark, then the benefits from the internal market would be ten times larger than

the contribution to the national budget. We are talking here about changes in the contribution to the

national budget. So we are comparing a change in something that is one tenth of the benefits that

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the country derives from the internal market. Therefore, it is very hard to see how the OBB concept

can be a guide towards fairness on national contributions. On a backward-looking basis, in the old

budget, it told you something about where the money went, with all the limitations it had. But on a

forward-looking basis, as an allocation mechanism for deciding on a fair basis what Member States

should pay into the budget, it is fundamentally flawed. That is what I am saying.

Now on the numbers, on the second question. These are the numbers from our 2018 proposal. They

are actually only updated for the 2019 Economic Forecast and they do not take into account the

various suggestions that have been made by the Parliament and the incoming Commission for policy

intensification. They also do not take into account the calls of some to reduce the budget. At the

moment, we are in the middle of a negotiation and therefore it is very difficult to work out, with any

degree of precision, at this level of precision at least, what the budget would look like at this point in

time. Negotiations are ongoing and we will obviously update these numbers as soon as the

negotiations start to converge. You mentioned the rule of law and other conditionalities. They are

very, very important as part of the Commission's proposal. I did not go into this in this technical

briefing, because there is so much to be said already about the numbers, but there is no link

between these conditionalities and the allocated amounts that you see here. The only way of

thinking about this, is that these allocated amounts are not a blank check. They actually have to be

spent on well-designed and well-defined policy objectives. They are subject to a lot of conditionality

and obviously, if, according to the Commission's proposal, there are significant problems with those

government bodies that are responsible for the rule of law and that pertain to the capacity of a

country to execute the budget, then the Commission would be in a position, according to this

proposal, to suspend and eventually cancel parts of these payments. But this would only be in case

there are problems. There is no link between the proposal as such and these mechanisms.

On the third question, why the increases for the new Member States, 50%? Why are they high? It is

important to point out that in these proposals we have also included, as I mentioned in passing, a

new own resource from revenues from the Emission Trading System and one factor behind the

slightly higher increase for the new Member States is that their economies are relatively carbon-

intensive, so that contributes to it. That is one factor. If you want to go into a detailed breakdown of

what is driving individual Member States, we would need a little bit more time, so I propose we do

that bilaterally.

Q4 We have two camps here. We have what you called the ‘Frugal Five’ who say they do not want to

spend more than 1% of GNI. We also have the ‘Friends of Cohesion’ who are meeting in Prague today,

who want to defend cohesion and agriculture. They all have vetoes. So given the layout of that

chessboard, which piece of the budget is most vulnerable? Which piece of the budget is most at risk of

cuts in order to satisfy both sides?

Q5 As a percentage of GNI, we can see that all Member States will increase their contributions, and

we will also have an increase compared to the current MFF in terms of traditional own resources. So

how is it possible that your estimates for commitments, spending, are actually lower than in the

current MFF? I just cannot understand why this apparent discrepancy exists.

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Q6 I am sorry for the probably very naive question, but I wonder why you put the annual average

contribution for each Member State in there, and not the total for the 7-year budget? Because I tend

to take the average, take this number per 7, and then see how much each country gives to the budget

during the 7-year period. So can you please explain to me why it is not correct to do this?

Director-General Koopman:

On your first question, I think history shows that unfortunately, I would say, Member States tend to

have a relatively short time horizon and do not take account of the spillover effects of EU

expenditure, and therefore focus on money that flows to them in an identified manner, which means

that Member States fight harder, to put it in simple terms, for cohesion and agriculture than they

fight for innovation, research, migration and the like. So if there is a lot of pressure on the overall

budget volume, then in the past, what we have seen is that these modern policies have essentially

paid the price and have been cut proportionately more than agriculture and cohesion. And I think the

dynamics we are witnessing at the moment are not totally dissimilar to what we have seen in the

past in this regard.

Coming to the second question, I am very glad you asked it, because I am never quite sure whether

this is clear: Why is it that if we are reducing expenditure at 1.16% in the 27, we are still seeing higher

national contributions? The answer to this question is: Because of Brexit. Because at the moment,

we, 28 [Member States], pay 1.03% of GNI. That is what the national contributions are, but because

the UK transfers a lot of money that is spent on the continent – approximately, in simple terms, EUR

13 billion, Brexit means that in the future, that money disappears and will have to be found from

higher national contributions after it having been reduced by savings to 50%. You have a follow-up

question to that?

Q7 I was referring to the comparison you made to the current MFF for EU27 countries, which already

excludes Britain. So now it is 1.13[%], it will be 1.11[%]. How is it possible? Britain is already out of

this calculation now. Why are we spending less if states contribute more?

Director-General Koopman:

Britain is out of this calculation in terms of expenditures. The 1.13% are expenditures from the EU

budget in the 27 Member States. But it is not out on the financing, because it finances part of this

expenditure. It transfers a lot of resources into the budget and therefore, there is a financing gap of

approximately, roughly EUR 13 billion a year as a result of Brexit. So the numbers you are looking at

compare national contributions of the 27, which are based on 1.03%. Those are going to be based on

1.11% in the future. So because of the departure of the UK, there is actually a financing gap that will

partially have to be met by higher contributions from the remaining Member States. That is the

answer to your question.

To answer your colleague’s question on annual versus 7-year periods [Q6]: We presented it by year,

because Member States pay by year. So we think it is more pertinent to present these figures by

year, but you can also present them over a 7-year period and then you simply multiply them by 7.

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Both are of course possible, but you do not have to pay your 7-year membership fee in one year –

that needs to be clear.

Q8 I go back to the perspective of national capitals and national Finance Ministries in particular. The

reality is that even if they do not use the method of talking about net contributions, Finance Ministers

are being asked to contribute far more in percentage terms than they were contributing in the last

round of the budget. I looked at the Irish experience here, and it looks like Ireland will be expected to

contribute another EUR 760 million a year on average to the EU budget in the course of the next

budget term. That is deducting one average from another average, maybe that is simplistic, but that

is what I see. This is a very hefty contribution at a time when the EU itself is telling Member States

that they have to cut back on their public spending and rein in their spending. How can you justify

that? And again, I think your argument about net contributions is impeccable and the logic is perfect,

but in a sense it avoids the real issue, which is the substantial increases that are being asked for by

Member States.

Q9 Actually, it is a kind of a follow-up to both questions from my colleagues. Because I understand

your arguments that if you look to net payments or net benefits, it is a flawed concept. But actually

what you do – and I say it a little bit more black and white – is that you say to the Member States,

especially to those who call themselves the ‘net payers’: ‘Please give us the money, do not worry, it

will be okay. You will profit!’ Do you really think that this is convincing enough for the Dutch Minister

of Finance?

Chief Spokeswoman Andreeva: We will need you to help explaining.

Q10 Two questions. First, how could you put the contribution to the rebate or the rebates in those

calculations, because I cannot see it on the slides? Some countries like Italy have quite a lot of money

that goes to rebates. Second, I look at the figures and I am wondering if Italy is the country where the

net position is improving more, compared to the other 26 Member States or future [26] Member

States.

Director-General Koopman:

I am very glad that you asked this question, because that is the real question. Are these reasonable

proposals in terms of what Member States need to pay for the Union? And what we should talk

about are the national contributions. Yes, there is an increase – and it is a significant increase,

absolutely true. Is it justified? The argument that we are making is: One, if you look at these figures,

please keep in mind that we are talking about 7 years. So you know, the national budget of Ireland in

7 years’ time will also be a lot bigger, just on account of economic growth. That means a lot of the

expenditure in Ireland is also going to be bigger, on account of economic growth. That is simply the

way national budgets work. But even accounting for that, there is still an increase – as I showed on

the slide, which broke down the increases by different sources. About a third of the increase is due to

the Brexit gap and to new priorities. And yes, we think that this is entirely justified. Because we know

that if you want to have an efficient migration policy, you better have a strong European component

in it. If you do not have that, the migration problem is not going to go away. So if you save this

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money on the EU budget, you will still have the problem – the problem will actually get bigger. You

will then have to have national policies to finance the consequences. We saw a real life experiment

of this in 2015, when hundreds of thousands of people were walking on the highways in Europe and

Member States had to invest very considerable amounts in terms of providing shelter, dealing with

the problem and the fall-out. I am not talking about the political fall-out, which was also very big, but

I am talking just about the economic fallout. So the point here is that it is more efficient to do it. So

actually, this increase should not be compared with zero, which is the implicit counterfactual which I

think people have in mind, it should be compared with the real counterfactual, which is that if you do

not do this, you will simply have to fork out much more money from your national budget to finance

inefficient national policies. The same is incidentally true for research and innovation. It is a very

basic argument that the Horizon Europe programme is based on competition for excellence. We

organise competition amongst 27 Member States, it is pretty ruthless. It is also not at all a matter of

distributing the money, according to some pre-set key. It is really excellence. Now, if you want to

replicate this at the national level and you have 27 competitions, you are going to get worse results

simply by virtue of the fact that the market is a lot smaller. You will have competition amongst Irish

researchers, amongst Dutch researchers, Italian researchers – all very good and well, but if they

compete against each other, you will get better results. They are also forming consortia, which

means spillover effects. So arguably, if you look at the economic evaluations of these programmes,

you see that they have been vastly successful. So every euro you put into these programmes pays

extremely rich dividends. So yes, you can cut it, but what you are really doing is: You are cutting

potential growth. That does not really make sense in an aging Union. So I guess the answer to this is

that you have to look at the policies that we put forward for additional funding and ask the question:

If we do not do these policies, what are the implications? Are you actually going to save money in the

national budgets, or are you going to be damaging your growth potential? Or are you going to be

impeding your policies in the area of migration and defence?

So that is the relevant benchmark and the question to pick up on what your colleague asked: Are

national Ministers of Finance sensitive to this? They’d better be sensitive to this, they should be

sensitive to this. Because if they just keep an accounting perspective and if the objective is to present

oneself as the toughest possible negotiator, to aim at a 1% budget which, as you can see behind me

[slide N2 of the published PowerPoint presentation], has actually never existed in the European

Union. Then, I ask myself: Honestly, are you actually serving the economic interests of your citizens? I

am not so sure.

Coming to more mundane questions: The rebates. So I think the question was, can you tell us what

the financing is by individual Member States of the rebates? I do not have this data here on the

slides. But we can obviously produce those calculations, because the rebates are typically largely

financed proportionally by the Member States that do not have a rebate. So if you add up all the

rebates – very simply speaking, I am simplifying quite a bit –, then you will simply see that the other

Member States pay for these rebates. It is in that sense a zero-sum game on the rebate front.

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Why is Italy's position changing in terms of contributions? I am afraid there is a little bit of bad news

here. Our long-term growth forecast has Italy well below the Union average and therefore its

contributions also grow less fast than the average contributions. It is a reflection simply of the fact

that the GNI key plays an important point in financing.

[END OF THE TECHNICAL BRIEFING]