Rome: The mid-term review of the current Multiannual Financial Framework has reached the phase where political reality begins to test the financial architecture. The framework was negotiated in conditions that no longer hold. The pandemic recovery instrument was designed as a one-off, the war in Ukraine has created sustained needs that no contingency reserve anticipated, the energy crisis required large reallocations across headings, and the longer-term competitiveness debate has converged on calls for an industrial financing capacity that the current budget cannot deliver at meaningful scale.
The structural problem is that the budget represents roughly one percent of European gross national income, a share that has remained almost constant for two decades while the policy ambitions placed on it have grown substantially. The recovery instrument’s exit, scheduled for the end of the current programming period, removes a significant source of common borrowing without a clear successor mechanism. Member state contributions remain politically constrained by domestic fiscal positions, several of which are themselves under pressure from energy spending, defence commitments and ageing-related expenditure.
Italy’s position is particularly delicate. The country is the largest beneficiary of the Recovery and Resilience Facility, and the absorption performance of the national plan has been mixed across the milestones. The political imperative to spend funds before the closure of the facility has run into administrative and procurement constraints that mirror those of earlier cohesion programming periods. The mid-term reallocations agreed at the EU level have provided some flexibility on milestones and on the use of unused envelopes, but the underlying question of how Italy’s investment trajectory continues after the facility ends has no settled answer.
The Council debate on the next MFF is structured around several competing imperatives. The first is a substantial increase in capacity for defence and security, where industrial cooperation programmes and stockpile rebuilding require predictable multi-year financing. The second is the continuation of substantial support for Ukraine, both in operational terms and in reconstruction planning. The third is the modernisation of cohesion and agricultural spending in ways that align with green and digital transitions without abandoning the convergence logic that has held the policies together politically. The fourth is the financing of accession-related expenditure if enlargement to Ukraine, Moldova and the Western Balkans progresses on the trajectory currently sketched.
These imperatives cannot all be reconciled at one percent of GNI without sharp redistributions between headings, and redistributions cannot be agreed without political losers. The proposals to introduce new own resources, including from emissions trading auctions, the carbon border adjustment mechanism and a corporate-based contribution, would partly mitigate the redistributive arithmetic, but their introduction has faced national parliamentary scrutiny that has slowed progress. Joint borrowing, after the recovery instrument, is politically toxic in several member states and constitutionally complicated in others.
The path of least resistance is a modest enlargement of the framework, financed through some combination of new resources and member state contributions, with substantial flexibility instruments and contingency reserves to absorb shocks. Whether that proves sufficient depends on the magnitude of the geopolitical and competitiveness pressures over the coming years. Budget choices are also political signals, and the framework that emerges from the next negotiation will indicate how much sovereignty member states are willing to pool when the alternative is incoherent national responses to shared challenges.
