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Can the 2020 budget boost the EU economy

Author: Wang Wei Hang Source: China Financial and Economic News Published: 2019-12-09

Recently, the European Council, the European Parliament, and the European Commission reached an agreement on the 2020 EU budget. In 2020, the total EU budget commitments and total expenditures were 168.69 billion euros and 153.57 billion euros, respectively, an increase of 1.5% and 3.4% over 2019, and will focus on increasing expenditures to address climate change, improve youth education and employment, and promote the further development of satellite systems. Strengthen European solidarity and security. Relevant persons in the European Commission pointed out that the keynote of the budget is "continuation of policies", which is characterized by "leveraging the resources of the entire Europe" and its role is "stably and continuously creating European value."

Overall Budget

From the perspective of expenditure breakdown, nearly half of the funds in the 2020 EU budget will be used to enhance the EU's overall market competitiveness, with expenditures reaching 83.93 billion euros, an increase of 4.1% over 2019. 58.65 billion euros will be used to reduce the development gap between EU member states, including promoting economic growth and job creation through the European Structural Investment Fund; 2.89 billion euros will be used to promote youth education and exchange programs, an increase of 3.6% over 2019; 166 million euros will be used for the "European Solidarity Team" project, an increase of 15.9% over 2019, and 145 million euros will be used for the "Youth Employment Initiative" to provide protection for home employment, EU extraterritorial employment and youth unemployment relief.

The 59.907 billion euros in the budget will be used to deal with climate change. For the second largest expenditure, the living environment and climate change plan will receive 589.6 million euros, an increase of 5.6% over 2019. The "Horizon 2020" will make a significant contribution to the achievement of climate goals. "The project will receive 13.46 billion euros, an increase of 8.8% over 2019; the energy chain connecting European facilities will receive 1.28 billion euros, an increase of 35% over 2019. This project is mainly used to invest in large-scale deployment of renewable energy, upgrade existing Have energy transmission infrastructure and develop new infrastructure. In addition, the transport chain connecting European facilities will be supported by 2.58 billion euros.

In addition, the European global satellite navigation system-"Galileo Plan" will receive 1.2 billion euros, a significant increase of 74.7% compared to 2019. The EU hopes that by the end of 2020, the "Galileo" navigation system will reach 1.2 billion users worldwide.

What are the highlights of the budget

First, the most noticeable change in the budget is that the EU's policy making is more "green". In recent years, the EU has pursued a proactive climate policy, while incorporating a large number of renewable energy technologies, such as solar and wind energy, into existing energy systems. European independent economic think tank Bruegel has pointed out that practice has shown that these efforts have been successful, but the EU now needs to carry out a deeper energy transition, further according to the Paris Agreement, and at the same time grasp the economic and economic benefits brought by the global energy transition Industry opportunities, and a clear path to energy competition and energy security. The think tank further points out that from an economic and technical perspective, the EU's comprehensive energy transition is feasible.

Second, increasing investment in science and technology is another highlight of the budget, which is in line with the spirit of the next long-term budget. The EU's long-term budget, the multi-year fiscal framework, is a stable framework for implementing the EU's annual budget. The long-term budget sets out the main EU policy priorities and translates them into fiscal terms over a period of several years, setting annual caps on the EU ’s overall spending and its main priorities. This shows that the EU hopes to provide new driving forces for economic growth through increased research and innovation.

Linked Budgets

It is not easy to reach an agreement in the 2020 Budget. The EU budget is co-funded by member states in accordance with certain standards and shares, and deficits are not allowed. According to the procedure, the European Commission usually submits a draft budget for the coming year every spring. However, due to disagreements, the 2020 EU budget did not form a draft until June of this year. Compared with the previous year, it increased by 0.6% and 3.3% respectively. The European Parliament and the European Council voted on the draft budget on September 3 and October 23, respectively. However, due to major differences in the size of the budget and the direction of expenditure, the two parties had to start a 21-day "mediation process" The agreement was finally reached on November 19, the deadline for mediation.

In fact, the budget also plays an important role in linking up and down. It not only determines whether the EU long-term budget can be successfully closed from 2014 to 2020, but also affects the formulation of the next EU long-term budget.

As early as May 2018, the European Commission has proposed a draft long-term EU budget from 2021 to 2027. In terms of funding allocation, the draft budget focuses on making major adjustments to issues such as innovation and development, youth employment, and boosting the economy. This also reflects the EU's policy priorities in the future from one aspect. In terms of innovation policy, the draft budget proposes a series of innovative measures such as the establishment of the “European Investment Fund” and the “EU Reserve Fund”, hoping to further improve the effectiveness of the policy. In addition, the draft budget also proposes corresponding solutions to the problems of the budget gap caused by Britain ’s “Brexit”. However, the European Council and the European Parliament are still unable to agree on budget arrangements. At present, the market generally has high hopes for Germany, which has assumed the rotating presidency in July 2020, and the German government has stated that it hopes that the budget can be reached before it "takes over" the European Commission.

According to data released by the Eurostat before, the GDP of the EU and the Eurozone increased by 1.3% and 1.2% year-on-year in the third quarter of this year. Among them, the growth rate of the EU was the slowest since 23 quarters, and the growth rate of the Eurozone was the same as the previous quarter , Also at a low value since 2014. In the third quarter, the EU and the euro area's GDP increased by 0.3% and 0.2% respectively, the EU's growth rate increased by 0.1 percentage point from the second quarter, and the euro area's growth rate remained unchanged from the second quarter. It remains to be seen whether the 2020 budget will boost the economy as the EU wishes. (Author unit: China Securities Investment Fund Industry Association)

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