The European Union's 2028-2034 Multiannual Financial Framework Proposal

Touted as a significant increase in EU spending, the proposal for the 2028-34 Multiannual Financial Framework (MFF) in fact represents an approximate 18% decline[1] in real terms, once incorporating additional Covid-related spending into the 2021-27 spending plan.

Furthermore, the headline figure of approximately EUR 2 trillion for this proposal includes EUR 168 billion for the repayment of Next Generation EU (NGEU) debt. Subsequently in cash terms, spending on EU initiatives is projected at EUR 1.8 trillion in the proposal compared to EUR 2.01 trillion in the previous budget[2].

The MFF has undergone significant reform aimed at achieving greater simplicity and increased flexibility. The Commission has redefined the EU budget to reduce over-lap between different programmes, with the number of EU programmes slimmed down from 50 to 16. A new National and Regional Partnership plan encompasses both the Common Agriculture Policy (CAP) and cohesion spending, whilst the new competitiveness fund will support defence spending and EU competitiveness in line with the Draghi report.

The plan for a single EU funding portal has the potential to increase absorption rates of EU funds by consolidating information and streamlining the process for identifying relevant programmes and accessing EU funds. Further flexibility is provided by a higher share of unprogrammed/unallocated funds and buffers built into the budget, in addition to further special instruments to support new unexpected needs that are unable to be met within the existing ceilings.

Security, Defence and Space spending (including military mobility) is set to increase significantly with defence spending set to be at least EUR 130 billion, five times higher than what it is currently. With a larger proportion of this funding going to countries bordering non-EU countries, this is likely to benefit Eastern European countries.

Research and Development is another key priority area for the commission in line with enhancing the bloc’s competitiveness. The flagship Horizon fund is set to increase by 75%[3], with EUR 179 billion allocated for the next 7-year period. Countries such as Germany, France, Spain and Netherlands are currently the largest recipient nations of EU horizon funds and are set to benefit most from this increase (see Chart 4).

Germany, Belgium, Italy and France are positioned to benefit from increased spending on digital technologies as the largest recipients of these funds currently. Spending on digital technologies is proposed to increase by approximately 500% to a proposed a budget of EUR 54 billion. The EU digital initiative covers areas such as cybersecurity and artificial intelligence, where the EU has lagged behind other international competitors.

Under the newly reformed MFF, development and agricultural funds form part of the ‘National and Regional Partnership Plans’, making up approximately 44% of the funding envelope, down from around two-thirds of the previous EU budget. The agricultural sector is set to face particularly steep cuts in subsidies and income support as total CAP spending could fall by 38% in real terms according to our analysis.

Funding for regional development and cohesion is unclear. Whilst the National and Regional Partnership Plans is a EUR 865 billion programme, only EUR 218 billion has been ringfenced for the poorest regions in the union. This leaves uncertainty surrounding funding available to other EU regions, particularly in some of the poorer Italian and Spanish regions, who were previously significant beneficiaries.