The EU has just set its budget plans for the next seven years, running from 2021 to 2027.
Against a backdrop of new states waiting in the wings to join – all requiring pre-accession funding – the EU also has the challenge of counteracting the deficit caused by Brexit, and responding forcefully to increasing eurosceptism throughout the bloc.
There should be no surprise, therefore, at the propositions being made at the highest level to make the distribution of funds dependent upon acceptable governance. Here is clear evidence of the EU starting to flex its muscles to stifle any further disruption to its federalist dream.
Defiance of EU law and order is now deemed unacceptable – hence why Hungary and Poland, whose recent elections have resulted in nationalist, eurosceptic governments, are on the receiving end of potential financial sanctions and even bloc expulsion.
For those Balkan states seeking to join, the EU has made noises suggesting that money from the Cohesion Fund silo will be contingent upon the election of suitable governments.
Against this backdrop, the EU has to find ways of plugging the gap in its budget for the post-Brexit world, while keeping the biggest recipients of funds under control.
This conflict between finance and dogma will determine the direction of the EU for a generation, and it is impossible to say what will win.
To put the financial impact of Brexit into context, the official EU budget runs to €180bn each year, of which €10bn (net) comes from the UK.
But this is only the tip of the iceberg. The European Investment Bank has a loan book of €500bn (of which the UK is on the hook for 13 per cent in the event of default), and the European Fund for Strategic Investment plans to lend out up to €1 trillion over the coming years (the UK is the single largest contributor to this fund).
Brexit will make an enormous dent in the EU’s ability to raise and hand out money. This is a major worry in Brussels, and threatens to severely clip the wings of its expansionist ambitions.
The response from the EU so far – that to get EU funds member states must elect pro-EU governments – is an affront to the democratic process. It is nothing short of coercion. One may not like Hungary’s Viktor Orban or Poland’s Mateusz Morawiecki, but there is no denying that they were both elected freely, and the will of the people must be respected. It is of course the right of the club owners to set the rules for entry, but in this instance the rules are being changed after members have been admitted.
It also sends a worrying shiver through the candidate countries (Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro, Serbia, and Turkey), which may feel compelled to elect pro-EU governments if they are to join the club and get the cash. Of course, in doing so they must be prepared to “trade off” their right to object to the direction of the EU.
This flies in the face of any understanding of liberal democracy, as it prevents future governments, no matter the circumstances, from having a voice of dissent
But, despite these bully boy tactics, Brussels officials may have made a rod for their own back. Just suppose that Hungary and Poland refuse to play ball. Will they actually be expelled, or will the EU curl up into a ball and give in?
The EU is right to fear Brexit as the mechanism that could break up the cherished “Europa” dream. But its response, evident in the current hardline stances, could actually backfire and embolden eurosceptism in a way unimagined by the EU bureaucrats.