According to the budget chief of the Commission, on Wednesday, interest rates will increase and the EU’s debt costs will double by 2024. This raises concerns about the ability of the EU to deal with future financial shocks.
In recent years, the EU borrowed heavily to finance NextGenerationEU Grants as part of a historic €800bn COvid-19 recovery program agreed by member states for 2020.
The European Central Bank has raised interest rates since July 2022 due to rising inflation linked to Russia’s invasion in Ukraine. This has resulted in unexpected financing costs for EU, said Johannes Hahn on Wednesday, the commissioner responsible for the budget.
He said that the cost of borrowing had almost doubled in comparison to what was initially predicted for 2024. “All of us relied on the interest rates of 2020.”
Hahn claimed that all EU programmes will be funded until 2024. However, with the increase in interest costs from €2.1bn predicted previously to €4bn, there is little room for manoeuvres or to provide funds for unexpected events.
The €189.3bn 2024 draft budget is published ahead of a review on the longer-term budget of the EU from 2021-2027, the multiannual funding framework (MFF), to be presented on 20 June.
Hahn stated, “We will present a new proposal for funds.” We’ll need to talk and see what we can do.
MEPs warned Hahn that the long-term funding plans of the commission should be adjusted to allow for more flexibility.
“We hope that nothing bad happens, but, dear colleagues, hoping is not a strategy,” said Siegfried Muresan. He’s the MEP in charge of the budget, and he’s a conservative member of the European People’s Party group. “It is clear that we need to work together in order to adjust the MFF. . . We must avoid this from becoming a ticking-bomb.”
Nicolae Stefanuta is the budget leader for the Greens in 2023. He said that the interest payments have now exceeded the total expenditure of €3.7bn for Erasmus, the popular student exchange program of the EU. This shows how other programs are not increasing in line with inflation.
He retorted, “Young people are going to understand that they’re less important than union financial debt.”
As interest rates rise, the Commission will be forced to ask for extra funding from its member states or find new sources of revenue.
Member states would fiercely contest any cuts to agriculture funding, or support for states with lower incomes known as cohesion funds, which together form the bulk of the EU’s budget. They would also strongly oppose asking for additional contributions from member states.
Valerie Hayer is the spokesperson for Renew Group’s centrist Renew Group on budgetary matters. She said, “There is only one solution that makes sense.” . . To increase the budget of the union by creating “own resources”, such as through proposals for carbon tax.
Muresan said: “We expect that the commission will resist any calls by the [European] Council of member governments to reduce the budget, as this would be unjustified.”