Open the fridge: Two con­tain­ers lock up the EU’s bil­lion-euro budget

Imagine a fridge shared by 27 people.   When you open the door, two large food containers take up most of the space, which leaves very little room for anything else. And the contents rarely change.

Everyone using the fridge knows it should be updated, new recipes should be added, and new needs should be reflected, but nothing much happens.

Part of the reason is that the system is stable. Nobody goes hungry, and the people who benefit most from those two boxes have little interest in moving them.

Changing the setup is also difficult because all 27 people sharing the fridge effectively have a veto.

Two areas dominate

In many ways, that is how the EU’s budget policy works.

In a new study, Mads Dagnis Jensen, Associate Professor at CBS, and a colleague have gone right into the EU engine room to analyse how the long-term budgets are created and managed.

The researchers focused on why these budgets have been dominated by two policy areas for more than 30 years, even though the EU has gone through major enlargements and political shifts along the way.

The explanation comes down to the two big food containers or rather – to two major parts of the budget: the EU budget for agricultural support and the budget for cohesion policy, which is a form of regional support for poorer areas in the EU.

Different interests

“Together, these two items account for around 70% of the EU’s total budget, which means there is very little money left for new priorities,” says Mads Dagnis Jensen.

He adds that the two budgets also help keep countries in certain roles. This particularly applies to agricultural support, which major countries such as France, Italy and Germany are very interested in preserving.

“These countries are what we call net contributors. That means they pay more into the EU than they get back, but they can claw some of that money back through agricultural support because they typically have many hectares of farmland,” the CBS researcher explains. He adds:

“By contrast, countries such as Portugal, Greece, Spain and a number of countries in Eastern Europe are interested in preserving cohesion policy because it gives them funding to develop some of their poorer regions.”

Stability comes at a price

According to Mads Dagnis Jensen, there are pros and cons of this system

“The advantage is that, over many years, there is a high degree of stability in the EU budgets. Countries do not have to spend a disproportionate amount of resources on negotiations, and each member state can also predict, to some extent, what lies ahead in terms of EU-related income and expenditure in the years to come,” he says and adds:

“The weakness is that the system is not particularly good at dealing with unforeseen crises or new priorities. It is a relatively reactive system in which individual countries defend the areas where they receive funding, and it is important to remember that each country looks after its own interests and can veto new proposals.”

“The consequence is that there is not much focus on innovation, and that is why the United States and especially China have had more success with an active industrial policy, where they allocate funding to specific goals aimed at becoming a leader in a given area within a set number of years. In the EU, by contrast, we tend to patch up areas where we feel we are falling behind and fail to set our own agenda,” says Mads Dagnis Jensen.

Agricultural support dominates

As the study progressed, one of the things that surprised him the most was how strongly France stands behind agricultural support.

“The French have a very strong agricultural lobby that sustains the idea of a society that should produce its own cheeses, charcuterie and bread. The same applies in several other countries, and there is hardly any doubt that EU policy helps sustain a larger agricultural sector than is strictly necessary,” the CBS researcher says and points out that the most realistic way for the EU to create funds for innovation is by borrowing.

“In addition, it would help if the more affluent countries – the net contributors – did not see their contributions only as a cost. They also gain access to the single market, and some of the money they send to poorer countries in Southern and Eastern Europe comes back when they sell goods to them. That is especially important at a time when markets outside Europe are becoming more uncertain because of geopolitical tensions.”

Next budget under discussion

EU countries are currently discussing the next long-term budget, covering the period from 2028 to the end of 2034.

Although a majority broadly agree that there is a need for greater fiscal flexibility, the debate has reached a standstill because several countries oppose cuts to funding for agriculture and poorer regions.