On February 7 and 8 of this year, the European Council agreed upon the core figures and main rules of distribution for the EU’s next long-term budget. The new “Multiannual Financial Framework” – the Union’s budget for the period of 2014-2020 – should be ready by the second half of this year, including the detailed rules of implementation. The decision-making process is behind schedule, as the high ranking EU forum of the heads of state or government originally met on November 22-23, 2012 with the same agenda, but was not able to find an overall compromise then. After several rounds of talks, coordinated and guided by the permanent president of the European Council, Herman van Rompuy, an agreement could be reached between and among the 27 EU member states.

The seven-year “financial framework” lends stability to the EU, but in the negotiation phase the tension is high as there is obviously much at stake. With the above agreement the Union has determined its receipts and spending until the year 2020. The political effect of the budget talks is a sharp polarization of the EU member states. At first sight, a ‘zero sum game’ is being played between the net contributors and the net recipients. Wealthy countries have a net contribution to the EU budget. For example, in the period of 2014-2020 Austria will pay 0.31 % of its GDP. At the same time, net recipients, like Hungary, earn additional external sources from the EU of around 2.5% of their GDP.

Under the pressure of the economic crisis, the net payers’ main endeavor was to reduce the overall extent of the EU budget. On behalf of the UK, David Cameron declared that “spending cuts taking place across the different countries had to be replicated in the EU budget”. The German Chancellor, Angela Merkel, representing the biggest net contributing country, stipulated that the payment ceiling of the EU budget should not be more than 1% of the Union’s total Gross National Income (GNI). After several reductions, the 27 member states agreed upon €960 billion as a ceiling for commitments for 2014-2020. For the first time, the EU has reduced the amount of its long-term budget in comparison with the preceding period.

Hungary is again among the net beneficiaries of the EU budget. At the beginning of the negotiations her position was rather discouraging, but by the end the overall amount of her net receipts had increased. Some improvements of the general conditions of distribution helped: the EU’s share in support of the poorest regions has been increased from 75% to 85%, VAT can be included in bills to be settled by the EU and the ‘absorption limit’ has been determined at 2.6% of the GDP.

The benefits for a net recipient country can be calculated by deducting its contributions to the Union’s budget from the payments received from the EU. For Hungary, in the current period of 2007-2013, the calculated outflow to the EU budget was €8.3 billion and the inflow €32.8 billion which gave a net result of €24.5 billion. For the next period of 2014-2020 it could be lower by several billions of euros, but no final data is at hand yet. The EU budget still has to be approved by the European Parliament, and Martin Schulz, the EP president, has raised concerns about a “structural deficit” in the EU budget. Obviously, the recent budget cuts are not in harmony with the high ambitions of the citizens, member states and EU institutions concerning the “added value” expected from the EU in reaching objectives of growth and jobs. But the recent deal of the member states shows the final limits of their flexibility.

The contributions of Hungary (as of any member state) to the EU budget are based on a share of the VAT, customs duties and agricultural levies collected by the country and a payment based on GDP. Hungary’s contribution could be lower, partly because its declining economy has been showing a sharp decrease of growth for more than a year. Consequently, the net balance could improve in spite of the cuts in payments from the Union’s budget. Anyway, the EU funds represent valuable additional resources offered by wealthier EU members to countries below the EU average on the moral basis of European solidarity.

The author, Prof Péter Balázs is Director of the Center for European Enlargement Studies at the Central European University, a former Minister of Foreign Affairs of Hungary, and a former Member of the European Commission.