Summary: Europe’s elites warned that Britain would suffer for daring to leave the EU. Suffer severely and soon. Four months have passed since the June 23 vote and Britain has felt no ill effects. Britain might have the last laugh, since the EU has to redo its budget following the loss of its second largest contributor. The EU is already under stress. Cutting the budget and raising taxes will make it worse. Perhaps sparking more exits.
A Bitter Budget Battle Looms in the EU
Stratfor, 13 October 2016.
- Because of the Brexit, the European Union will lose a net contributor to its budget, forcing the remaining members to rethink the bloc’s spending limits and priorities.
- EU members will have three options for dealing with the loss of the United Kingdom’s income: increase national contributions, trim the budget or look for new revenue sources. Each choice carries political risks.
- Budget-related issues will create new sources of friction in the European Union as national interests shape the negotiations.
When Britain leaves the European Union, it will take with it the sizable financial contributions it makes to the bloc’s budget. That will leave remaining member states with some difficult choices to make about how big future budgets should be, what they should pay for and how much members should pony up for them. In all likelihood, key policies — from agricultural subsidies to development funds — will have to be redesigned. And as members decide how to proceed, new sources of conflict will arise that will do little to help reverse the bloc’s political fragmentation.
The EU budget is organized around the Multiannual Financial Framework, which establishes spending priorities and limits for a seven-year period. (The current one lasts through 2020.) Every year, the European Commission, the European Parliament and EU member states negotiate annual budgets based on the spending limits and priorities established by this framework.
About 75% of the EU budget comes from payments made by member states, calculated based on their gross national incomes. This means that, in absolute numbers, the largest economies make the largest contributions. But not all member states contribute the same proportion of that income, which leads to imbalances in contributions per capita. Moreover, since the budget is used to finance most EU programs, many countries give more money to the bloc than they get from it. In 2015, for example, 10 of the bloc’s 28 members were net contributors to the budget. The others received more in program spending than they paid in.