EU Financing for Next Decade Beyond the MFF 2021-2027 and the Next Generation EU EDITED BY Brigid Laffan Alfredo De Feo European University Institute, Florence, Italy © European University Institute, 2020 Editorial matter and selection © Brigid Laffan and Alfredo De Feo, 2020 Chapters © authors individually 2020. This text may be downloaded only for personal research purposes. Any additional reproduction for other purposes, whether in hard copies or electronically, requires the consent of the Robert Schuman Centre for Advanced Studies. If cited or quoted, reference should be made to the full name of the author(s), editor(s), the title, the year and the publisher. Views expressed in this publication reflect the opinion of individual authors and not those of the European University Institute. Published by European University Institute (EUI) Via dei Roccettini 9, I-50014 San Domenico di Fiesole (FI) Italy ISBN:978-92-9084-935-3 doi:10.2870/750252 Contents Abstract i Forward iii Brigid Laffan Introduction v Part 1. The Multiannual Financial Framework: a driver of reform xv The Multiannual Financial Framework 2021-2027: Ambition or Continuity? Alfredo De Feo 1 The Awakening of the Sleeping Beauty? Alain Lamassoure 15 The Dual Nature of the EU Multiannual Financial Framework Stefan Lehner 21 The MFF Process and Global Challenges Pier Carlo Padoan 43 Innovations in Financing the EU Wilhelm Molterer 53 The Importance of Own Resources in The EU Budget Ivailo Kalfin 61 How and Why Did the European Parliament Influence the Reform of the Own Resources System? Anne Vitrey 71 Improving the Effectiveness of EU Policy: the Challenge of Auditing the 2021-2027 MFF James McQuade 89 Part 2. Shaping EU Policies Toward 2030 99 The Reinforced Conditionality Approach of the 2021-27 MFF Viorica Viță 101 The Budgetary Impacts of the Common Agricultural Policy Alan Matthews 115 Cohesion and Stabilisation in the Future MFF László Andor 127 Cohesion, Values and Natural Resources – Pld Policies or Perspectives for All Regions of Europe? Reimer Boege 139 Climate Action: A Policy With the Potential to Redefine the EU Budget Alessandro D’Alfonso 145 Reactions to the Commission’s Proposals on the Financing of Migration and Foreign Policy. Ferdinando Nelli Feroci 159 EU Migration Policy: Will More Money Solve Old Conflicts? Florian Trauner 167 EU Funding for External Action.The Evolution of Governance and Prospects for the Next Decade Myriam Goinard 177 Part 3. MFF 2021-2027: The Transnational Challenges – the Euro, the Green Deal, Covid-19 189 Euro Area Macroeconomic Stabilisation and the EU budget: A Primer Johannes Lindner & Sander Tordoir 191 Building a Euro-area Budget Inside the EU Budget: Squaring the Circle? Grégory Claeys 219 A Relevant MFF in the Long Term: Innovative Yet Feasible Reforms Marta Pilati and Fabian Zuleeg 231 Maximising Innovation Funding in the EU’s Next Long-term Budget Eulalia Rubio 241 Strengths and Weaknesses of the EU Budget Flexibility ‘toolbox’ Magdalena Sapala 253 Innovation Investments for the Future Leena Sarvaranta 267 An Innovative Financing Mechanism to Boost Sustainable Development Carla Montesi 281 A Package Deal to Exit From Net Balances in the EU Budget Giacomo Benedetto 293 Innovative Options for a Sustainability-oriented Reform of the EU Own Resources System Margit Schratzenstaller and Alexander Krenek 307 The MFF 2021-2027: A Game Changer? Alfredo De Feo 323 Abbreviations 345 Biographies 349 Programme 365 i Abstract This edited volume on the EU Multiannual Financial Framework 2021- 2027 is the outcome of an initiative by the Robert Schuman Centre for Advanced Studies at the European University Institute of Florence. In mid-October 2019, academics, think tankers, practitioners and experts in European finance and politics discussed how to improve the Multian- nual Financial Framework for the next decade. The discussion was both conceptual and policy-relevant. It was therefore not limited to the MFF but also reflected on the objectives and needs of major EU policies. This discussion was timed to coincide with the renewal of the 2021-2027 MFF, which was being negotiated by the EU institutions. Subsequently, events changed the timeline. The arrival of the Von der Leyen Commission added a new dimension to the initial proposal (May 2018) by adding the Green Deal, and later, following the pandemic crisis, another new layer: Next Generation EU, which created the exceptional opportunity for the Commission to borrow capital on the financial market and offer it to the Member States partly in grants and partly in loans. The contributions gathered in this edited volume go beyond the situation in mid-October and take into account the severe impact that Covid-19 has had on the European economies, and in particular the new proposals by the Commission of May 2020 and the European Council agreement of July 2020. Therefore, the present volume offers a global comment on all the issues touched by the MFF and Next Generation EU (NGEU), highlighting the potentialities of the new situation. It provides insights into the ideas of key actors and experts on the practical functioning of the MFF and their reflections on its future development. A common thread links all the chapters: how the MFF and NGEU can drive reform to make the European Union more resilient to face the new challenges of the next decades. The reader can navigate through the three sections of the book. The first is rich in ideas on how to enhance the MFF as a governance tool which could drive reforms of the EU. The second part focuses on the impact of long-term planning on the most relevant EU policies. The authors highlight current challenges and offer their views on how to make policies more efficient. Finally, the third part presents ideas on how to introduce innovation in the financing of the European Union with additional creative financial tools. iii Foreward Brigid Laffan1 The EU is frequently classified as a regulatory state and there is no doubt that law and regulation plays a central role in EU governance. That said, the budgetary politics of integration have been vital in promoting and sustaining European governance. The internal market project was accom- panied by a major change in the EU budget with a doubling of funds des- tined for Europe’s poorer regions. The budgetary bargain of 1988, known as the Delors 1 package, initiated a Multi-annual Financial Framework (MFF) that persists to this day. This volume analyses the MFF for the forthcoming period 2021-2027. The analysis began with a Workshop at the European University Institute (EUI) in October 2019 on the MFF and the funding demands of big EU programmes. No-one at the Workshop could have envisaged how quickly the budgetary politics of the Union would change in the first half of 2020. Covid 19, which hit Europe in February 2020, dramatically altered the conditions and outcome on the next funding period. In February 2020, the European Council struggled to agree a financial framework but by July was agreement on the MFF and a Recovery Fund, Next Genera- tion Europe. The agreement included the issuance of common debt to support economic and social recovery and build a post-Covid political economy. This was a seminal moment, a game changer, in the finances of the European Union. This edited volume provides an in-depth assess- ment of the MFF and the major policy fields and provides a framework for thinking about reform and innovation in the EU budget. The next decade will be pivotal for the finances of the Union as the potential for enhanced budgetary resources and common debt will depend on how effectively the resources of Next Generation EU are used 1 Director Robert Schuman Centre for Advanced Studies iv Foreword to invest in Europe’s recovery and future. In addition to the question of the effective use of EU funding, the issue of rule of law breaches in a number of member states became part of the political agenda. The Council and European Parliament finally reached agreement in November 2020 on this highly divisive and contested issue, the conditionality that should be attached to EU funds in the member states. The Union has struggled to find effective mechanisms to counter act the deterioration of the rule of law in a number of member states, notably Hungary and Poland. Given the increase in financial resources it is imperative for the legitimacy of the process that the Union has a robust mechanism to enable it to cut EU funding in the event of breaches of the rule of law that might effect the financial interests of the Union. I would like to thank all of the authors for their participation in the October 2019 Workshop and their contributions to this volume. A spe- cial thanks to Alfredo De Feo, a Fellow of the Schuman Centre, without whom the Workshop and book would not have materialised. My thanks also to the staff of the Schuman Centre, especially Giorgio Giamberini who formatted the volume. v Introduction This edited volume on the EU 2021-2027 Multiannual Financial Frame- work is the outcome of an initiative by the Robert Schuman Centre for Advanced Studies at the European University Institute of Florence. It gathered a mixture of academics, think tankers, practitioners and experts in European finance and politics. The workshop was held in mid-October 2019, about 18 months after the ‘outgoing’ Commission had presented its proposals for the MFF and the accompanying legislation and about three months after the appoint- ment of the new president of the Commission and before the entire col- lege formally took office on 1 December. The workshop therefore took place in the middle of the political debate on financing and policy choices, and the participants’ contribu- tions were rich in ideas, suggestions and criticisms that go well beyond the current debate and will continue to be a source of inspiration for the future.