Leaders roll up for the EU budget circus

Every seven years, European Union heads of state and government enter the ring for the budget circus in Brussels. Every seven years, the EU budgetary framework is set. The next phase covers 2021 to 2027 and concerns billions of euros that member states either pay into the bloc's common budget, or receive as aid from the EU.

Every EU leader is interested in defending their respective interests, but in the end, a compromise must be reached. "There are many interests, many concerns, and they are all legitimate," European Council President Charles Michel said before the summit began on Thursday.

Read more: EU budget breakdown: What you need to know

"But I am convinced it is possible to make progress in the next hours or in the next days." In the run-up to the meeting, officials had already "worked very hard," noted Michel, who like a ringmaster will have to hold the summit strings together.

An agreement is needed

The seven-year budget is also supposed to be proof that solidarity within the EU is working. That means dealing with the bloc's loss of the UK, its second-largest contributor. The start of the open-ended summit is a bit like performers entering the circus tent. Every government leader again has to present their position, then the doors close. The money is negotiated over in secret. In the meantime, EU diplomats stream out to scatter information about the status, or alleged status, of the talks to pile pressure on opposing sides.

German Chancellor Angela Merkel still sees big obstacles ahead: "We on the German side are still not satisfied with the status of the negotiations, because we believe the balance has not yet been worked out among the net payers." It is clear, she said, that as a net payer Germany puts in more money than it takes out, but that difference has to be comparable to other net payers. Germany wants a rebate system that reduces the amount of its contribution, Merkel added.

Frugal towards friends of cohesion

Roughly speaking, three groups of EU states are wrestling with each other. The "frugal four" of the Netherlands, Denmark, Sweden and Austria do not want to pay any more money to the EU. They made clear on Monday that after Brexit, they will not be eating a bigger piece of the financial pie.

Read more: EU leaders reach agreement over 2020 budget

The 17 "friends of cohesion" — "cohesion" meaning structural aid — want to get as much as possible from the EU budget. Portugal is leading the charge, along with Southern and Eastern European states such as Poland, Bulgaria, Hungary and Latvia, which are the main beneficiaries of EU funds distribution.

Between them stand the net payers such as Germany, France, Italy, Finland, Belgium and Luxembourg, who would all be willing to pay more than they had previously, but are pursuing very different goals. Germany wants a "modern" budget with more funds for research, climate protection, digitalization and border protection. France wants more money for agriculture — its own agriculture.

A trillion or more?

For nearly two years, the European Commission has had a draft budget on the table that envisions spending €1.135 trillion ($1.24 trillion) over seven years. Nobody finds this proposal particularly attractive, because it includes cuts for agriculture and cohesion, and demands more contributions from payers. The referee in this financial competition is the chairman of the summit, European Council President Charles Michel. The former Belgian prime minister suggested a compromise proposal worth €1.094 trillion, but was criticized by all sides.

The European Parliament has put forth its own proposed budget of €1.324 trillion, but it has been rejected by net payers as too expensive. However, the European Parliament still has to ultimately approve the budget worked out by the elephants in the ring.

Payment terms

Poland and Hungary pose a special problem. Both countries have been accused by the European Commission and most EU member states of undermining the rule of law. They are supposed to be disciplined financially — the idea being the more they violate the rule of law, the fewer EU funds they receive.

However, Hungarian Prime Minister Viktor Orban has resisted this notion, and called for a "fair" budget, where his country provides less cohesion money. Orban has reminded EU leaders that every country has veto power over the budget, which must be agreed upon unanimously. In his recent State of the Nation speech, he vowed to stand up to the "tired Brussels elite." Poland, Hungary and other member states are supposed to pay up even if they don't accept refuges. How exactly this will work in the budget, however, remains unclear.

Sleep well

This first special summit for the 2021-2027 budget has no official end date. Chief negotiator Michel wants to up the pressure a little. His aids say the circus could last four days. However, experienced EU diplomats believe that member states and their respective leaders will say by Friday at the latest that an agreement is too far away, and a second summit will be needed.

Read more: How the EU funds its economically disadvantaged regions

"Everyone has to show that they fought," said one EU diplomat. "You can't give in until the second or third round." Lithuanian President Gitanas Nauseda, for example, said he wanted to get more for his farmers. "I have slept well and am ready for a long night of negotiations."