EU budget 2016: 4 key takeaways

The European Union has reached an agreement on its 2016 budget. After marathon discussions which lasted into the wee hours of Saturday morning, the European Parliament and the 28 EU member states finally struck a deal on the bloc‘s spending plans for next year, paving the way for a record 155 billion euros ($166.9 billion) in commitments and 143.8 billion euros in payments.

Every year, the parliament and EU governments debate the spending amounts proposed by the European Commission — the bloc’s executive arm — for the following year. The outcome of such discussions is unpredictable, but the process is well-known: EU governments, collectively represented by country ministers at the European Council, seek to limit the bloc’s expenses, while parliamentarians push for more generous spending.

But with the worst refugee crisis since World War II showing no signs of abating, and a series of fragile states — including Yemen and Burundi — on the brink of humanitarian disaster, the circumstances of this year’s EU budget negotiations were exceptional by all standards. Meanwhile, the absence of any political solution to the deepening Syrian crisis leaves the EU with no better option than to continue ramping up aid.

So what are the key takeaways of the 2016 budget deal for the EU’s aid agenda, and what factors will make the difference between success and failure? Below, Devex highlights four major developments you should be aware of.

1. Member states played hardball, and the battle isn’t over.

In the words of Pierre Gramegna, president of the European Council and minister of finance for Luxembourg, the 2016 budget is “a concrete expression of solidarity both within the EU and with third countries.”

But annual EU budget negotiations are growing increasingly difficult each year. And while aid defenders might have won the battle for now, ongoing austerity measures across the continent are set to make member states even less compromising on the bloc’s annual spending in the near future.

Member countries initially pushed for a 500 million euro decrease of the commission’s 2016 budget proposal. The amendment — which would have had development cooperation, humanitarian aid and civil protection bear one third of the cuts — triggered a strong backlash from civil society and parliamentarians alike.

The EU’s budget line for development assistance is often the first spending area to be on the chopping block and the last to be resolved. National aid budgets are also being trimmed, as was recently the case in the Netherlands and Finland.

2. The EU stepped up action on the migration crisis — but will it be enough?

Europe’s migration crisis was a defining issue in this year’s budget talks. Over the past few months, the EU has set forward a series of long-term priorities aimed at stemming migration flows. Now, Brussels is trying to put its money where its mouth is.

The 2016 budget deal sets aside 2 billion euros worth of assistance next year to help front-line countries cope with the influx of migrants and refugees. Of this, a 300 million euro package of humanitarian aid will cover the essential needs of refugees and internally displaced people in Syria and neighboring countries. The budget also anticipates some additional spending room should the crisis spread.

Overall, European institutions and EU member states are likely to collectively remain the leading donor to the Syrian crisis and other flashpoints across the globe. However, the bloc’s ability to successfully implement a comprehensive, long-term strategy will also depend on European governments’ willingness to play their part.

A flagship initiative of the EU’s new agenda on migration, the Emergency Trust Fund for Africa aims to address the root causes of forced displacement and illegal migration by investing in job creation, vocational education, food security and conflict prevention. But while European states are expected to match the 1.8 billion euro contribution made by the EU, they have so far only committed 81.3 million euros.

Similarly, European countries have yet to keep up their end of the bargain when it comes the EU’s Madad Fund. The trust fund aims to defuse the destabilizing effects of the Syrian refugee crisis by sponsoring a range of resilience and early recovery activities in the region, but has barely received any financial support from Europe’s top donors.

Meanwhile, the decision of some major donors to redirect a portion of their official development assistance to cover the costs of hosting refugees also spells bad news for the bloc’s ability to live up to its promises. This is notably the case of Scandinavian countries, traditionally known as the “northern lights of development.”

3. The EU’s payment backlog is solved, at least for now.

The EU has accumulated an unsustainable pile of unpaid bills over the years. In 2015, these debts reached a whopping 25 billion to 30 billion euros, causing budget negotiations to break down after member states refused to give into Brussels’ demands for an increase in payments.

Earlier this year, the European institutions and EU member states agreed to reduce the backlog of outstanding payments to around 2 billion euros by the end of 2016. But whether the EU will actually manage to fully bridge the gap remains an open question.

The mismatch between the EU’s commitments and actual payments is especially problematic and acute in the aid sector. In the past couple of years, the EU’s humanitarian and civil protection department — known as ECHO — has been suffering under the weight of funding shortfalls. Development programming is also affected, European NGO confederation Concord told Devex, as NGOs continue to struggle with delayed payments from Europeaid.

To alleviate the backlog of invoices and cover additional expenses in its external action spending, the commission suggested 9.5 billion euros in payment appropriations for 2016. Encouragingly, the preliminary 2016 budget agreement provides 10.2 billion euros, or 700 million euros more in payments — an amount which will allow the commission to start closing the gap in arrears.

4. The 2016 aid budget allows flexibility, but opens up a tough question.

From 8.9 billion euros in commitments and 9.5 billion euros in payments, the EU’s external action budget will reach an all-time high of 9.2 billion and 10.2 billion euros respectively in 2016.

Such exceptional funding will allow the EU to react to the unprecedented number of crises the world is currently facing. But with an all-time peak of humanitarian crises, these funds are likely to run out fast — and the EU budget has already been stretched to breaking point.

Speaking at a press conference shortly after the closure of talks, the head of the parliamentary committee on budgets shared a note of caution on the road ahead, as funds from the 2014-2020 multiannual financial framework — the framework regulating the EU’s annual budget — risk being exhausted by 2016.

“Next year, we will use up all the available means under the seven-year budgetary framework, and even go beyond it,” Jean Arthuis said, adding: “The seven-year budget agreed in 2013 no longer meets today’s challenges: a full-on revision is overdue.”

Check out more insights and analysis for global development leaders like you, and sign up as an Executive Member to receive the information you need for your organization to thrive.