The colour of money: Green deals, cohesion funds, and the populist challenge

The year may have only just begun but is already shaping up to be a difficult one for the European Union. As if all the geopolitical challenges the bloc faces – from hostility between the United States and Iran to tough decisions on how and where to work with Chinese technologies, to how to stabilise Libya – were not enough, the EU will have to find a compromise on at least two major issues that threaten to deepen divisions between its member states.

The first of these is, of course, the Multiannual Financial Framework (MFF), the EU’s budget for the next seven years. The deal that the Finnish presidency of the council of the EU presented in December has left everyone with a bad taste in their mouths. This includes both member states that favour a reduction in the overall size of the budget to 1 percent of the bloc’s GNI – which saw the Finnish proposal as a decadent and wasteful use of taxpayers’ money – and those that are keen to return home from Brussels as triumphant protectors of the support their citizens receive through cohesion funds. Meanwhile, the European Commission was shocked at the lack of ambition in the Finnish proposal and called into question its ability to fulfil its agenda with such a small budget. But the parties must reach a deal in the coming months, lest the EU’s administrators be forced to stop spending on their programmes in the second half of the year.

The second compromise they must find is on climate change. Ursula von der Leyen’s Commission has nailed its colours to the mast on the need to hit an ambitious target for transitioning to climate neutrality – in its rhetoric, its appointments, and her focus on the issue everywhere she has visited since becoming president in December 2019, from Addis Ababa to Davos. Yet her efforts encountered resistance almost immediately, with Poland blocking a deal on the issue at the European Council that month. The country remains reluctant to absorb the cost of meeting this target for its industries – as do several other member states. As the end of the first 100 days of the Commission’s mandate nears, the discussion on how to meet climate change targets – which voters indicated was very important to them in the May 2019 European Parliament election – needs to happen sooner rather than later.

Given the heated political environment, the Commission will need to lead with and through member states.

To find a way forward on these two issues – one that doesn’t result in further disharmony within the EU in 2020 – ECFR convened a meeting of its expert researchers based in the bloc’s 28 member states in Berlin last week. Below are the top three conclusions from their discussions:

• The MFF and climate talks are inextricably linked. This is true in terms of not just how the EU spends its budget to achieve climate goals but also how member states approach the negotiations. Some member states who feel they face an uphill battle to achieve their national aims in both areas – Poland and Hungary – are considering how to prioritise. In these countries, which have carbon-heavy industries and are major beneficiaries of the MFF, there is a growing feeling that cohesion funds are of slightly greater national importance. So, they might accept a deal in which they receive the right level of financial support in return for implementing the changes needed to achieve climate goals – and as part of a broader package of guaranteed support through cohesion funds. (In Hungary’s case, the EU’s recognition of nuclear power as a form of clean energy would help.)
• The populists are onto the challenge. Von der Leyen has some allies in her attempts to deliver the European Green Deal – the Netherlands chief among them (rhetorically, at least). Dutch commissioner Frans Timmermans, who has cross-cutting responsibility for green issues in the European Commission, ran a very green campaign as a socialist candidate in the European Parliament election. Another of von der Leyen’s supporter is Finland, whose national government is strongly committed to tackling climate change. Both Finland and the Netherlands are under pressure from nationalist parties at home, which are increasingly ready to portray climate change as another refugee crisis – an occasion for Brussels to impose standards on member states that will penalise citizens by reducing their living standards. Both pro-European national governments and nationalist opposition parties will need to show in the coming months that they speak for the people. This tough battle may not leave them free to support the Commission’s efforts in Brussels.
• Everything depends on who bears the cost. The Nordic and Baltic states now see the effects of climate change at home – though this isn’t necessarily all bad news for them. Heating bills are falling in Estonia and Latvia, the winters there are becoming more clement, and there is less need to travel for warmth in the summer. These developments have not yet reversed the green wave that created such excitement following the European Parliament election, but they have led some voters to take a less urgent approach to climate change. In Latvia, Greta Thunberg is reportedly starting to arouse irritation rather than admiration. Some voters are asking whether action this year is essential when they currently have more money at the end of the month. Nonetheless, at an industrial level, energy-intensive businesses that may pay a large part of the cost of a transition to carbon neutrality are rallying – from the shipping industry in Malta to the agricultural sector in Ireland and the Netherlands, to long-distance haulage companies in Poland and elsewhere.

Governments will have to filter out the noise from all these sources and really focus if they want to find a compromise on these intensely tricky issues. Given the heated political environment, the Commission will need to lead with and through member states rather than by trying to impose solutions on them. Any other approach threatens to be counterproductive: there is little good in striking a deal on matters where there is a real need for cooperation at the European level if this stokes anti-European sentiment in the process.

And the likelihood is that neither deal will be perfect – there will need to be trade-offs between the EU budget deal and the European Green Deal to keep all 27 players on board. The upside is that, if von der Leyen’s Commission makes it through this first set of challenges, it will be well placed to achieve its goals in the remainder of its term.

The author is grateful to all ECFR’s associate national researchers whose ideas contributed to this piece.