Policy brief

Rethinking the European Union’s post-Brexit budget priorities

There will be a €94 billion Brexit-related hole in the EU budget for 2021-27 if business continues as before and the United Kingdom does not contribut

Publishing date: 19 March 2018
Authors: Zsolt Darvas Guntram B. Wolff

Download

This Policy Brief is a version of a paper written as a contribution to the Bulgarian EU Presidency conference on the Multiannual Financial Framework, Sofia, 9 March 2018. The authors are grateful to Yana Myachenkova, Nicolas Moës and David Pichler for excellent research assistance. This paper is accompanied by an annex available here.

The issue

The European Union’s budget is fundamentally different from the budgets of federal countries and amounts to only about one percent of the EU’s gross national income. The literature shows that the Common Agricultural Policy (CAP), which takes 38 percent of EU spending, provides good income support, especially for richer farmers, but is less effective for greening and biodiversity and is unevenly distributed. Cohesion policy, 34 percent of EU spending, contributes to convergence but it is unclear how strong and long-lasting the effects are. Spending on new priorities such as border control could require additional funds of at least €100 billion for the 2021-27 period. In addition, EU budgeting is based on a complex and outdated methodology.

Policy challenge

There will be a €94 billion Brexit-related hole in the EU budget for 2021-27 if business continues as before and the United Kingdom does not contribute. EU countries might be reluctant to increase contributions to fill this hole while also covering spending on new priorities. We show that freezing agriculture and cohesion spending in real terms would fill the Brexit-related hole, but new priorities would then need to be funded by an increase in the percent of GNI contribution. Freezing in nominal terms – thus cutting in real terms – would generate enough to cover most of the new priorities. This would be topped-up by a UK contribution if a EU - UK deal is reached. A fundamental overhaul of the EU budget, including its methodology, is crucial.

The reference to the work of Lars Hoelgaard (2018) has been corrected on 20 March 2018.

About the authors

Zsolt Darvas

Zsolt Darvas, a Hungarian citizen, joined Bruegel as a Visiting Fellow in September 2008 and continued his work at Bruegel as a Research Fellow from January 2009, before being appointed Senior Fellow from September 2013. He is also a Senior Research Fellow at the Corvinus University of Budapest.

From 2005 to 2008, he was the Research Advisor of the Argenta Financial Research Group in Budapest. Before that, he worked at the research unit of the Central Bank of Hungary (1994-2005) where he served as Deputy Head.

Zsolt holds a Ph.D. in Economics from Corvinus University of Budapest where he teaches courses in Econometrics but also at other institutions since 1994. His research interests include macroeconomics, international economics, central banking and time series analysis.
Guntram B. Wolff

Guntram Wolff was the Director of Bruegel. Over his career, he has contributed to research on European political economy and governance, fiscal, monetary and financial policy, climate change and geoeconomics. Under his leadership, Bruegel has been regularly ranked among the top global think tanks and has grown in influence and impact with a team of now almost 40 recognized scholars and around 65 total staff. Bruegel is also recognized for its outstanding transparency.

A recognized thought leader and academic, he regularly testifies at the European Finance Ministers' ECOFIN meeting, the European Parliament, the German Parliament (Bundestag) and the French Parliament (Assemblée Nationale). From 2012-16, he was a member of the French prime minister's Conseil d'Analyse Economique. In 2018, then IMF managing director Christine Lagarde appointed him to the external advisory group on surveillance to review the Fund’s priorities. In 2021, he was appointed to the G20 high level independent panel on pandemic prevention, preparedness and response. He is also a professor (part-time) at the Solvay Brussels School of Université Libre de Bruxelles, where he teaches economics of European integration.

He joined Bruegel from the European Commission, where he worked on the macroeconomics of the euro area and the reform of euro area governance. Prior to joining the Commission, he was coordinating the research team on fiscal policy at Deutsche Bundesbank. He also worked as an external adviser to the International Monetary Fund.

He holds a PhD in economics from the University of Bonn and studied in Bonn, Toulouse, Pittsburgh and Passau. He taught economics at the University of Pittsburgh and at Université libre de Bruxelles. He has published numerous papers in leading academic journals. His columns and policy work are published and cited in leading international media and policy outlets. Guntram is fluent in German, English, French and has good notions of Bulgarian and Spanish.