As the EU prepares its next long-term budget for the post-2027 period, it stands at a crossroads. The next Multiannual Financial Framework (MFF) will be key to improving systemic resilience and long-term planning by equipping the EU with a financial envelope and architecture fit for its ambitions and challenges.
The EU must get it right
- On 16 July the Commission will present critical proposals for the post-2027 Multiannual Financial Framework (MFF); a second package of proposals will follow later in September. These proposals will serve as the basis for lengthy and politically charged negotiations in the next years leading to January 2028, when the new long-term EU budget will enter into force.
- This is a rare opportunity to align Europe’s resources with its priorities. The scale of intertwined climate, social, and geopolitical challenges must be met with a significantly increased and better-targeted, future-fit EU public investment plan. Only a budget that promotes climate resilience and preparedness and supports continued decarbonisation can help the EU retain global competitiveness.
- The Commission will put forward a new MFF architecture based on three main pillars: a plan for each Member State with reforms and investments, a European Competitiveness Fund and revamped financing for external action.
- New own resources (NORs, income streams for the EU budget) and a joint borrowing mechanism may be part of the Commission’s proposal.
Story
As the EU prepares its next long-term budget for the post-2027 period, it seems resolved to embrace deep reform in the face of global instability. In the current context of strained multilateralism and globalization, shifting geopolitical dynamics, climate change, energy crises, and the need for strategic autonomy, the next MFF will be key to improving the bloc’s systemic resilience and long-term planning.
Long-running orthodoxies, disagreements, and economic concerns need overcoming before member States reach a unanimous historical agreement on the next MFF:
- A traditional bloc of frugal Member States including Germany, the Netherlands, Denmark, Sweden and Austria, has long tended to emphasise fiscal responsibility, budget discipline and greater efficiency in using existing funds.
- France and Spain have been vocal in support of a bigger EU budget and emphasised climate finance allocations benefitting the transition as a driver of competitiveness, energy security and strategic autonomy.
- Denmark has partially moved away from its previous position, but much remains to be accomplished in the negotiations ahead: notably, matching thorny national political drivers with funding and EU-level priorities while competing on the financial re-dimensioning of traditional EU budget programs.
The soon-to-expire NextGenerationEU instrument has demonstrated how the traditional financing capacity of the EU budget is unfit to react to systemic crises. The post-2027 MFF represents a rare opportunity to equip the EU with a financial envelope and architecture fit for its ambitions and challenges.
A transformative EU budget must:
- increase in size, commensurate with the Union’s strategic goals: this will require expanding financing tools, through a combination of higher Member State contributions, new own resources (NORs) and joint borrowing;
- focus on prioritising investments required to achieve the EU climate targets and deliver funding for key sectors such as energy, buildings, transport and clean manufacturing that are central to the climate transition and to competitiveness;
- effectively leverage private sector financial resources by providing stronger investment signals through the MFF, mobilising private investment towards EU strategic priorities (competitiveness, climate resilience, economic security etc.);
- strengthen the incentives and capacity for national horizontal policy planning that integrates climate, energy, competitiveness, resilience and security objectives, by embedding climate and energy priorities in the new national and regional partnerships for investments and reforms; and
- champion a well-resourced budget for development and climate action, protecting the credibility of the EU as a reliable global partner and ensuring prosperity and security in the EU neighbourhood.
The new MFF architecture set out in the Road map to the next EU long-term budget will apply the RRF model of performance-based disbursements to a growing share of the EU budget, currently mainly pre-allocated to cohesion and agricultural policies. Member States will each design a ‘reforms and investments’ plan, prompting substantial changes to the governance architecture of the MFF. Delivering simplification, consistency and predictability, while respecting the essential role of local and regional authorities in the design and implementation of policy measures will need to be carefully balanced.
The EU stands at a crossroads – between a true ambitious European budget and a currently limited one, between the need for long-term predictability and the demand for rapid, flexible responses, and between the need to support a socially just green transition with a shrinking funding.
In the challenging geopolitical context marked by competitiveness, economic security and defence related concerns, the path ahead will shape the size of the EU market and enable common European interests to remain competitive. National interests must find common European ground and deliver the political priorities via the new budget structure and size, leaving fragmentation behind. The cycle kickstarted by the Commission’s proposal on 16 July will constitute a crucial test for a sustainable forward looking, future-fit Europe.
Quotes
Jurei Yada, Director & Head of EU Sustainable Finance at E3G, said:
“The EU must put its money where its mouth is and demonstrate its commitment to a policy agenda that combines decarbonisation, competitiveness and security by increasing the budget and maintaining a climate spending target of at least 30%, as called for by over 60 business and civil society organisations. We need this level of budgetary ambition to mobilise efforts among Member States, local and regional authorities and the private sector, to deliver a fair, fast and funded transition to a clean economy.”
Domien Vangenechten, Programme Lead – EU Industry at E3G, said:
“Twenty-seven separate strategies and fragmented budgets won’t deliver competitive European industries. Investing together is more effective, unlocking the full power of the internal market while building on regional strengths. To drive decarbonisation and deliver prosperity—through clean energy infrastructure and resilient manufacturing value chains at continental scale—we need a properly resourced EU budget and a shared industrial strategy to match.”
Rob Moore, Associate Director, MDBs/DFIs, financial architecture reform, climate finance geopolitics at E3G, said:
“In a turbulent period for global development, the EU has an opportunity to reassert its role. This is critical for sustaining clean development, resilience and security and building the supply chains and stability on which European prosperity relies. As USAID cuts create a gap in Africa and China builds greater influence, an ambitious external action instrument can leverage the Commission’s unique ability to provide predictable support into reliable partnerships in and beyond the EU neighbourhood.”
Available for comment
Jurei Yada (EN, PL, JP, FR), Director & Head of EU Sustainable Finance at E3G (overall framing, size of the budget, connection to private finance) m: +32 (0) 492 113 868 Jurei.Yada@e3g.org
Domien Vangenechten (EN, NL), E3G Programme Lead – EU Industry (European Competitiveness Fund, Innovation Fund, Modernisation Fund) m: +32 (0) 474 87 18 27 Domien.Vangenechten@e3g.org
Luke O’Callaghan White (EN) Head of EU Energy Transition, (Connecting Europe Facility) m: +32 (0) 49 52 94 331 luke.ocallaghanwhite@e3g.org
Rob Moore (EN), E3G Associate Director, MDBs/DFIs, financial architecture reform, climate finance geopolitics (external action) rob.moore@e3g.org
Michael Forte (EN, FR), Senior Policy Advisor, Climate Governance & EU Politics, (structure of the MFF, national reform plans) m: +32 (0) 499 67 99 81 michael.forte@e3g.org
E3G is also offering background briefings on the details and wider context. See notes on background to story below.
Relevant publications:
- Improving climate and energy policy coordination through the next EU budget – E3G
- https://www.e3g.org/publications/leveraging-private-transition-investment-through-the-eus-multiannual-financial-framework-mff
- https://gef.eu/publication/bridging-the-gap-matching-europes-budget-with-its-strategic-transformation-needs
