Brexit could destabilise CAP and other EU programmes

Brexit could destabilise CAP and other EU programmes

The UK exit from the EU will leave holes in the Union budget which are unlikely to be filled without significant changes, according to research carried out for the EU AGRI Committee. “Possible impact of Brexit on the EU budget and, in particular, CAP funding” stresses that budget outcomes cannot be known until the conclusion of talks on Britain’s exit bill, which are clearly not going very well:

“At the moment of writing, negotiations on the Brexit financial settlement are in deadlock. The EU has published its position on the matter but the UK has so far refused to detail which obligations it recognises.”

Researhers estimate that Brexit will leave a permanent shortfall of €10.2 billion per year in the EU budget. This gap has to be filled either through higher national contributions, spending cuts, a combination of both, or the introduction of new Own Resources (EU income from duties or charges).

An increase in contributions disproportionately affects some of the largest net contributors such as Germany, The Netherlands and Sweden, because they currently benefit from a ‘rebate on the rebate’ on their contributions that will no longer apply once the UK leaves. Brexit not only increases the financing burden on the EU-27, it also changes how the burden is shared.

Large spending categories like CAP are likely to come under pressure if the EU budget is cut. The British net contribution to CAP amounts to €3 billion annually. However, spending cuts after Brexit could exceed that sum if other EU programmes are prioritised.

“If the current CAP spending levels are maintained after Brexit, Member States’ contributions to the CAP must increase by €3 billion. We estimate that in this scenario, large net recipients like Poland and Greece are almost unaffected. Austria, Germany, The Netherlands and Sweden lose the most in relative and in absolute terms.”

Reducing CAP spending puts a higher burden of adjustment on CAP net recipients. Cutting expenditure by €3 billion has a mixed effect. Among the largest losers in this scenario are CAP net contributors like Germany and The Netherlands, but also net recipients like Spain and Poland. If CAP expenditure is cut by €10 billion, net contributors gain.

The researchers conclude that there is no pain-free way of adjusting CAP spending to the Brexit gap. They then lay down a forthright warning about the current talks:

“The EU should be careful about linking the agreement on the Brexit bill to an agreement on a future and hypothetical transitional period, as proposed by the UK. Moving to the second phase without any clear agreement on the Brexit bill could enable the UK to use money as a bargaining chip when negotiating the future relationship between the EU and the UK.

“The EU’s first priority … should be to minimise the adverse financial impact of Brexit on the current and future MFF (Multiannual Financil Framework). If concessions are needed, they can come from other elements of the deal such as the UK’s participation in EU bodies and funds, payment for pensions and other employees’ benefits or payment for contingent liabilities.

“While Brexit can provide the narrative for a profound reform in the architecture of the CAP, aimed not only at reducing overall CAP spending but at rendering CAP more effective and sustainable, a major revision of CAP might not be feasible before 2022 or 2023, with implementation starting in 2024 or 2025.”