Multiannual Financial Framework (MFF) of the EU

What are the challenges and the consequences?

The Multiannual Financial Framework and the future EU-budget are amongst the EU’s biggest challenges at the moment. With the United Kingdom exiting the EU, 12 to 14 billion Euro will be missing in the European budget. At the same time the EU is planning to increase its investments, e.g. for the protection of its external borders or a common European Defence.

The EU plans three different measures for resolving its budgetary problem. The first part of the budget should be financed by higher contributions of member states. The problem is that Denmark, the Netherlands, Austria and Sweden have already built an alliance against higher contributions. Instead, they demand more budget cuts and a smaller EU budget. On the other hand, Germany and France indicated that they would be ready to pay higher contributions, if every member state would have to pay more.

The second part of the EU-budget should be financed by cuts, which would mainly focus on agricultural subsidiaries and cohesion funds. The five percent cut on the agricultural subsidiaries would mostly affect Spain and France. However, French President Emmanuel Macron indicated in his Sorbonne Speech in 2017, that France would be ready to accept such austerity measures. The Eastern member states would mostly be affected by the reduction of the cohesion funds. Especially Poland and Hungary would have to expect less money. Therefore, these states see the Commission’s proposal for the budget sceptical and they even perceive it as an attack on their national sovereignty.

The Commission is planning new sources of income to finance the last part of the EU budget. The Commission wants to introduce a corporate tax with an assessment base of three percent, as well as more incomes from the emission allowance trading and a new tax on plastic. It is important to emphasize that the idea of an EU-wide taxation system is not new, but has already existed for some time. However states such as Luxembourg, the Netherlands, Ireland or Malta always opposed its introduction. Furthermore, the idea of a taxation system on European level has always encountered significant resistance. Many feel that this lies within the responsibility of the member states. The main concern is the fear that a European taxation system could lead to the creation of a European superstate.

Even if the MFF will be one of the main focuses of the coming Austrian Presidency, experts are not expecting negotiations to conclude during its duration. An agreement after the European Parliament election in March 2019 would be more realistic. It remains to be seen to what extent the Commission’s proposals will be implemented.