Commissioner Hahn: EU should expand budget, link payments to structural reforms

The EU should expand its budget and consider linking all member state payments to structural reforms, EU Budget Commissioner Johannes Hahn said on Monday (29 April).

In a speech delivered at the EU’s annual budget conference in Brussels, Hahn urged policymakers to overcome the “informal taboo” that the bloc’s seven-year regular budget – the Multiannual Financial Framework (MFF) – should not exceed 1% of its total annual GDP.

In a briefing with reporters, Hahn refused to say how much the current €1.2 trillion budget should be increased upon expiring in 2027 but emphasised that “the task of a reasonable […] politician is to explain what is needed and what it costs”.

He stressed that additional budgetary resources will be required to meet the bloc’s climate and digital ambitions, which “should run like a golden thread in every [future] programme”.

He also urged EU policymakers to “leave their comfort zone” and support hikes in defence spending, as Europe “can no longer leave [its] security largely in the hands of the US”.

Extending performance-based mechanism to cohesion funds

Hahn, set to retire this year after serving as a commissioner for the past 14 years, added he had “a lot of sympathy for [the] idea” of making all budget payouts “performance-based” like with the bloc’s €723 billion Recovery and Resilience Facility (RRF).

Agreed at the height of the COVID-19 pandemic in December 2020, the RRF is the first EU programme to be financed through debt jointly underwritten by member states.

Running until 2026, it aims to boost member states’ economic recovery by funding critical, green and digital investments in exchange for targeted reforms.

Hahn’s comments come amid growing pressure to make Europe’s budget payments similarly conditional on reforms.

A recent report by the Commission urged policymakers to make the bloc’s cohesion funds, which aim to support growth in poorer member states and account for roughly a third of the regular EU budget, “more performance-based”.

In its mid-term evaluation of the RRF, published in February this year, the Commission similarly noted “broad support from member states and other stakeholders for [its] performance-based nature.”

Echoing comments by IMF chief Kristalina Georgieva and Economy Commissioner Paolo Gentiloni, Hahn praised the RRF but stopped at suggesting it should be renewed.

However, he noted that the EU should “explore all options to increase investments triggered through financial instruments, ” including the issuance of joint EU debt.

Joint calls for ramping up EU budget flexibility

The commissioner also repeatedly emphasised the need to make the EU budget more “flexible” to better respond to crises.

“If I take the current MFF, 99% have been pre-allocated at the beginning of the cycle,” he said, adding, “So 1% was not already allocated. If we have to reallocate money based on new developments, then we have to take money from somewhere, which comes always with political pain.”

“And if we have more flexibility, we could save the first part, not creating any political pains, and immediately propose something where the money should be now allocated,” he added.

Other top EU officials repeatedly emphasised the theme of “flexibility” at the conference.

Director-General for Budget at the European Commission, Stéphanie Riso, said no one “could have foreseen the situation in which we are today” when the current MFF was designed in 2018.

“This inflexibility of the EU budget today contrasts a lot with the speed of the changes of the world around us and the depth of the changes with the world around us,” Riso said.

“If we look back over the last four years, [we] have been through… the deepest crisis in modern history [with] COVID-19, a full-blown war on our continent, and another one in our neighbourhood,” she added.

Enrico Letta, the former Italian prime minister and author of a much-discussed report on the future of the bloc’s single market, also agreed.

“One takeaway of this conference until now, for me, [is] the word ‘flexibility’,” Letta said. “We need to change completely how we work with the EU budget.”

He added: “The needs and the crisis we are facing are crises where we need to react in immediate terms and not to say in three years we will react because it is not possible [now]. Our citizens will not permit that.”

[Edited by Anna Brunetti/Alice Taylor]

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