EU Countries Push Back Against Commission's €2 Trillion Budget Conditionality Plan

BRUSSELS — France, Italy and Spain are among 10 countries pushing back against a European Commission plan to link EU payments to policy overhauls in the bloc's next seven-year budget, four diplomats with knowledge of discussions told POLITICO.

Under the Commission’s budget blueprint currently being negotiated by national capitals, EU countries would have to jump through multiple hoops, including potentially highly sensitive issues such as raising the retirement age, to receive payouts.

The 10 governments came out against the idea during a meeting of EU ambassadors on Wednesday, opening a new battleground in fraught negotiations among countries over the bloc's 2028-2034 budget, which is worth almost €2 trillion.

It’s yet another thorny issue to solve for the EU's 27 countries racing to reach a deal before the start of 2027, when national elections are due in France, Italy, Poland and Spain, which could make discussions even more difficult.

Major contributors to the budget including Italy, France and Spain, and net recipients of EU funds such as Hungary, Malta and Poland, spoke out against the cash-for-reforms model during Wednesday's meeting. Critics say that the approach could increase the power of national governments at the expense of regions, and result in the EU imposing reforms with no political backing.

“We don’t want [the Commission’s] recommendations to become impositions,” said an EU diplomat who, like others quoted in this article, was granted anonymity to speak freely.

One the other hand, Netherlands defended the plan during the meeting, according to the diplomats. Other fiscally conservative states, such as Sweden and Denmark, have long argued that conditionality could help poorer EU countries become economically more efficient

But two EU diplomats from the rival camp argued that their real motivation is to slow down payments to less affluent regions.

The RRF model

The cash-for-reforms model was tested in the EU’s post-Covid recovery fund, the Recovery and Resilience Facility (RRF), where payouts were linked to judicial and pensions reforms among others.

Italy in 2021 undertook a much-awaited reform to speed up judicial proceedings to secure part of its allocation. And Belgium recently approved a controversial reform to make its pensions system more financially sustainable.

The Commission hailed the operation as a success as it compelled countries to carry out an annual set of Brussels recommendations that were previously ignored. On the other hand, EU countries complained that reform conditionality caused huge delays and a lack of accountability.

The current text under negotiation compels countries to "address all or a significant subset of challenges identified" in their annual recommendations to secure the funding.

But this is seen as a deal-breaker for several countries. Luxembourg, which is seen as the most critical state by officials involved in the negotiations, voted against the new budget blueprint last month over opposition to reform conditionality.

“If European money will be dependent on implementing the Semester recommendations you will make the best campaign for populism,” Luxembourgish foreign minister Xavier Bettel said during a ministerial meeting in June.

In further criticism, Belgium pointed out that the proposed model is ill-suited to its federal structure where regions play a big role in handling EU funds, said two diplomats with knowledge of the discussions. Regions from across the bloc have long complained that they could lose money from governments failing to carry out the EU-mandated reforms — although the Commission has dismissed such fears as overblown.

Several leaders are expected to push back against the model in upcoming summits, after the summer break, which are aimed at paving the way for a final deal.

“There seems to be a wake-up call,” said one of the diplomats.