If the European Parliament wants more funding for the Horizon innovation fund, they will have to fight for it. Image: still live streaming

Even before the sweltering summer heat set in, the European Parliament was already on fire. One day after the emergency European summit held in July, the various political factions were already heatedly debating the Multiannual Financial Framework (MFF) that the 27 Member States had agreed on as the European Union’s future budget.

As the gatekeepers of the European Union, this democratic body has the authority to reject the agreement. Which they intend to do. At least, if the Council of European heads of government does not consent to their demands to amend the budget.

Negotiating an increased budget for Horizon

First of all, many MEPs are outraged at what they view as too low a sum that the heads of government want to earmark for the Horizon Europe research program and the EU’s investment vehicle for start-ups, InvestEU. The heads of government want to allocate €81 billion to these two projects. On balance, this is more than in the previous period because part of that Horizon money was then used for other objectives, with the European Parliament’s approval.

But it is less than the €108 billion for the coming years that the European Commission originally proposed to the heads of government. “How can it be that we are cutting back on that when the economy needs to be pulled out of a slump?” MEP Siegfried Muresan exclaims. Muresan is a rapporteur for the Committee on Economic and Monetary Affairs. This means that he will advise the European Parliament negotiators on the terma and conditions that they should be demanding of the 27 heads of government before the European Parliament approves the agreement. This is scheduled for September.

Tough lobby wants more Horizon funding

For those concerned about the budget cuts to Horizon and InvestEU, there is a chance that this demand made by the European Parliament will be met. After all, Member States themselves also benefit economically from these sorts of EU investments in start-ups and scientific research. Muresan is supported in his stance by the German Rasmus Andresen, the direct negotiator working on behalf of the European Parliament. Andresen stated that he wants the heads of government to reverse the proposed cuts to the research budget for Horizon, InvestEU, and the Erasmus+ funding program for the youth.

Another persistent complaint that MEPs reiterated during last week’s debate concerns the cutback in the public health program. In this, money is made available for research into combating diseases such as cancer along with the ongoing digitalization of health care. Digitalization is a key tool for the exchange of, for example, (anonymous) patient data for research into e.g. effective treatment of COVID-19 infections. Andresen said that he could not comprehend that decision, especially now when the world is being crippled by the corona pandemic.

The question is whether the unrelenting criticism from MEPs of the 27 government leaders’ agreement is justified on all counts. The 2021-2027 MFF, with a budget of €1074 billion, will soon have about the same budget as the current EU MFF, which was initially decided by 28 Member States. (The EU MFF encompasses the current period which is to end on 31 December this year). That amount of money, despite the fact that the net contribution from the UK is no longer factored in owing to Brexit.

Where will the money come from?

What’s more, the 27 heads of government have approved the formation of the Next Generation EU Fund, also known as the Corona Fund or Recovery Fund. It will soon hold €750 billion, of which €390 billion will be made available to the Member States in the form of subsidies. In other words, donations. The remaining € 360 billion will be granted to them as loans.

The EU will raise the money for this fund out of the capital market and repay it from 2021 onwards. How this will be done is as yet unknown. Members of the European Parliament, including the chair of the budget committee and economist Johan van Overtveldt, are also concerned about this. “There’s nothing down on paper yet.”

Macron as a liability

A negative aspect regarding this fund was mentioned by the German MEP Manfred Weber, who said that 90% of the money goes directly into the Member States’ bank accounts. He fears that some Member States will misuse the money for their own hobbyhorses. He cited the French president Emmanuel Macron, who according to him wants to use the money for social projects. Other countries, in his opinion, are likely to build highways from the money.

Fear that EU money will be misused by Hungary’s Victor Orbán

A painful side to this is that the heads of government did not include in their agreement a commitment to ensure that the Member States spend the money correctly. They fear harrowing scenarios whereby the much-detested Hungarian prime minister, Viktor Orbán, siphons off money from EU subsidies to companies of befriended entrepreneurs even though it is unclear what they spend that money on.

Terms and conditions for expenditure of EU funds

The good news is that the European Parliament’s negotiating committee can impose terms and conditions on grant disbursements in order to prevent their abuse. Weber also recognizes that. “The agreement of the 27 heads of government is a bitter pill that we are not going to swallow. We plan to negotiate.”

If the results are favorable and the expenditure is in line with the intentions that the 27 government leaders had formulated their agreement upon, 20% of the MFF and the Next Generation EU Fund will be directed towards measures to combat climate change. At least this is what the President of the European Commission, Ursula von der Leyen, has asserted. This will amount to a total of € 360 billion, a staggering amount of money.

This relates to money that is in the agricultural and cohesion funds, among other things, which will need to be revised in order to meet the climate targets set by the Paris Accord. For enabling farmers to focus on circular agriculture and getting transport companies to operate with clean CO2-neutral transportation, as examples. It is imperative that this goes hand in hand with innovation. Money can be indirectly channeled this way to start-ups, researchers, and companies who want to invest in R&D for climate-neutral production.

Also read: EU wants €20 billion extra for the Horizon innovation fund, but will it happen?

The difference between InvestEU and Horizon is that the funds are not deposited directly from the European Commission into the bank accounts of researchers and start-ups. But is that such a bad thing? On balance, this Next Generation EU Fund would free up several billions for innovation. Hence the disclaimer that it is not yet clear whether member states will be obligated to submit a plan showing that their subsidy applications are entirely bona fide and, therefore, any abuse by mala fide politicians can therefore not be ruled out for the time being.

Brussels wants to tax plastic and CO2

Another factor that could bolster innovation is the tax that the European Commission intends to levy on plastic production and CO2 emissions from 2021 onwards. This should raise billions and help to repay the loan for the Next Generation EU Fund. Indeed, if the use of plastics and emissions from CO2-producing companies is going to cost them money, they will need to come up with alternatives in order to save money. That means they are going to have to innovate. That in turn will help start-ups in the sustainable energy and sustainable packaging fields in gaining a substantial foothold in the market.

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