Home Society This tiny loophole could give the EU a lot more money
This tiny loophole could give the EU a lot more money

This tiny loophole could give the EU a lot more money

by host
This tiny loophole could give the EU a lot more money

BRUSSELS — The EU will have greater power to convince governments to hand over cash for grand projects after a largely unnoticed change to spending rules agreed over the weekend.

The move, part of a deal brokered between the European Parliament and countries in the early hours of Saturday morning, “creates an incentive to do things through the EU budget” more than ever, said Nils Redeker, deputy director of the Jacques Delors Institute think tank.

Or, as one Parliament official put it: While it still needs governments to walk through the door to greater spending, “we just created the door.”

The deal ― an overhaul of the EU’s rules on national spending ― allows governments to exempt contributions to European Commission spending programs from a country’s official expenditure.

Officials said this could provide countries with a much greater incentive to agree to joint EU borrowing on anything from defense to green projects.

Global stage

The move had been pushed by the Parliament amid geopolitical tensions and pressure to shift to a low-carbon economy.

“Now we have to see what are our challenges are at the global stage and this is something which has to be reflected in the budget,” EU Budget Commissioner Johannes Hahn said.

The Parliament and officials from Belgium, which holds the six-month rotating presidency of the Council, representing the EU’s 27 capitals, spent 16 hours on Friday haggling over the bloc’s fiscal rules overhaul that offers countries more time to cut debt and deficit.

La guerre de tranchée continue (The trench warfare continues),” wrote a Council official in an email to a colleague on Friday evening, in a sign of how tense the negotiations had become.

A deal came into sight only in the early hours of Saturday.

Belgian Finance Minister Vincent Van Peteghem hailed the compromise by using the name “the Ghent Guidelines,” a reference to his hometown where EU finance chiefs will gather next week to give their political blessing to the hard-won agreement.

The loophole is a classic Brussels workaround. So-called frugal countries from northern Europe, led by Germany, swallowed the concession in exchange for strict numerical criteria to rein in spending, which were anathema for left-leaning lawmakers.

The new rule offers national capitals more wiggle room since co-financing for EU projects is kept out of the annual expenditure which determines plans agreed with the Commission to curb spending.

But the frugals insisted that does not offer a fiscal free-for-all as national spending toward EU projects would add to a country’s debt pile.

The new rules comply highly indebted EU members to bring down their debt-GDP ratio by 1 percent each year.

No cap

But the exemption is far from a legalistic quibble.

“The open wording and no cap [on the amount of spending that is exempted] could open several options for the future. It covers all EU programs funded by the Union,” the Parliament official, who was granted anonymity to discuss sensitive negotiations, said.

They speculated that national capitals might exempt their share of funding for a potential successor program to the EU’s post-pandemic cash pot — known as the Recovery and Resilience Facility (RRF) — that will expire in 2026.

Hahn said on Monday that the RRF “could serve as a blueprint for the future budget,” echoing remarks from a growing number of European politicians who support more joint borrowing.

But Redeker stressed that the impact of the new rule depends on the size of the EU’s new seven-year pot of cash. Budget discussions between national capitals will start in 2025.

 “[The exemption] only opens the door. Whether member states and Parliament will walk through is still an open question,” he said.  

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