Special Report, CEE: What could CEE lose with new EU budget?
At the beginning of May, the European Commission presented the proposal of the new budget for 2021-27. The EU's Budget Commissioner, Oettinger, hinted at a 5% cut in agricultural and 7% in regional & cohesion funds. We calculate that such a cut would, if applied to the current allocation, decrease the annual flow of funds by roughly 14-34% to CEE, depending on the country in question.
While we are aware of the limitations of the calculations, we have aimed to illustrate the potential size of the proposed cuts based on current flows. The calculations are subject to change depending on the final size of the savings in particular funds, implying new criteria for allocations and other possible requirements of the Commission.
The main and most controversial change in the new budgeting period for at least some CEE countries will be linking EU funding with the rule of law requirement. The Commission is proposing a tool that would allow the Union to suspend, reduce or restrict access to EU funds depending on the extent of rule of law violation. Further, the Commission plans to extend the set of indicators based on which the funds are allocated. Although GDP per capita will remain the main criteria, unemployment rate, in particular youth unemployment, climate change and the reception/integration of migrants will also be taken into account. These additional criteria do not favor the CEE position.
Overall, the changes make it quite certain that CEE countries will get notably less in EU fund inflows. Indeed, in the longer run, it is not quite justified for CEE countries to expect the actual fund inflow levels to persist: normally with economic convergence the share of such inflows to GDP should decrease. Additionally, the Commission aims to foster structural reforms in the EU by creating a EUR 25bn fund for such purposes, which could also be beneficial to CEE. Our calculations are also purely technical at this point. However, the considerations of a stricter and less appealing disbursement mechanism indicate a considerable amount of risk that the loss in EU fund utilization could be even stronger than our illustration.