Up to 14 billion euros in debt to Finland – However, one thing can bring everything down

The so-called first negotiation box of the EU’s future multi-annual financial framework (MFF 2028–2034) has been finalized under the leadership of Cyprus, the EU presidency. It is based on the Commission’s presentation of a financial framework of approximately 2,000 billion euros, which corresponds to approximately 1.26 percent of the EU’s gross national income.

According to information from Kauppalehti, in the proposal prepared under the leadership of Cyprus, the EU presidency, the total level of the budget presented by the Commission would be cut only moderately, i.e. by about two percent (32.8 billion euros).

Most of the cuts would be targeted at new priorities in the budget, such as competitiveness and defense and border security, which would be a bad thing for Finland. Instead, agricultural and regional development funds would remain untouched in the Cyprus proposal.

The payment burden is heavy

As a net payer, the biggest pain point for Finland in budget negotiations is the size of the budget, and Finland strives to keep the total as close as possible to the current level of 1% of gross national income.

However, the net payment logic alone does not solve Finland’s interests. The structural change envisaged in the budget favors high-skill economies, such as Finland, and through the new 451 billion euro competitiveness fund, funding would be allocated to research, innovation and industrial scaling, i.e. sectors where Finland is strong.

According to EK’s estimates, Finnish operators could receive up to approximately 14 billion euros from the competitiveness fund in the years 2028–2034.

The situation creates a contradiction, because Finland opposes budget growth, but would benefit the most from the new financial instruments, which are the easiest to cut. This is due to the fact that, traditionally, in EU budget negotiations, old policy blocks, such as agriculture and regional development, are more protected and new programs are easily the first cuts.

Funding dividing lines

From the point of view of Finnish companies, the future MFF can be significant, because almost a quarter of the budget would be allocated to research, innovation and industrial scaling in the Commission’s original proposal.

For Finnish companies, this offers a significant opportunity, because the fund’s priorities – defense, green growth, digital leadership, and health and the bioeconomy – are aimed at precisely those sectors where Finnish companies have significant strengths.

Finland promotes the so-called excellence principle as the distribution principle of competitiveness funding, where the funds are allocated to the best projects based on quality. On the other side, there is a group of cohesion countries that want to expand the widening mechanisms and thus ensure that funding is also allocated to less successful regions.

This has a direct impact on the final results in euros, because if funding is guided more strongly on the basis of geographical balance, Finland’s yield could drop significantly, according to the Finnish Confederation of Business.

“Negotiations are still ongoing. The most important thing now is to ensure the impressive size of the fund and that funding is allocated to the best projects through open competition,” says EK’s leading expert Joanna Tikkanen.

He emphasizes that a strong investment effort at the EU level is a better option than accelerating national state subsidies.

An important negotiation win for Finland has already been getting a special criterion related to Russia and the eastern border included in the budget discussion. Even though it is not the largest item of budget policy on the scale of the Union, it is a significant political signal and can direct funding to projects important to Finland.

Controversy over debt instruments

The expansion of debt instruments brings a painful dimension to the MFF negotiations for Finland, as the commission’s proposal includes two key models.

The first is the loan instrument within the framework, the so-called Catalyst Europe, with a size of around 150 billion euros. In it, the Commission takes debt from the market and forwards the funds to the member countries without direct subsidies. The goal is to supplement national funding.

The second is a crisis instrument outside the budget framework of around 350 billion euros. It would be built in such a way that it would be established unanimously now, but it could be used later in a crisis situation with a qualified majority. The goal is to avoid sudden loan solutions like the corona crisis.

According to EU lawyers, it is not a full-scale collective debt, because the responsibilities remain specific to the member states and the instruments are based on loans and not grants. Politically, however, the situation is sensitive, because debt instruments are connected to the discussion about joint responsibility and the EU’s role as a financier.

Finland’s attitude towards new debt instruments is tenuous. The background is the traditional emphasis on the national responsibility of the member countries and the fear of the expansion of the instruments. Despite this, Kauppalehti estimates that the negotiations may force Finland into some kind of compromise regarding individual member states being able to take on debt at the hands of the Commission.

Finland may also have to be flexible regarding the repayment of the debts of the corona recovery package, because, led by France, some EU countries want flexibility in repayments.

Soft forerunner

Finland is considered to be constructive in budget negotiations, but compared to Sweden, a softer negotiator. Finland belongs to the group of countries that require strict spending discipline, but not to the core of it. For example, Sweden represents a stricter line and is more ready for a more direct confrontation than Finland in the negotiations of the member countries.

EU sources say that Finland’s line is based more on early influence and building compromises. The strategy has produced results in the preparation phase, but there has also been criticism of too much pacing and the lack of an own line. On the other hand, some sources emphasize that Finland’s tactic of not nailing too strict a position on the overall level of the budget has worked to Finland’s advantage in the negotiations.

Elections tighten the schedule

The ambassadors were currently wearing the first negotiation box on Sunday, and next week the matter will be discussed by the European Council. The Council gives the negotiation box the first political direction of the member countries. It is known in advance that the countries that emphasize fiscal discipline: Germany, the Netherlands, Sweden, Denmark, Austria and Finland will not accept a significant increase in the budget. It is also known that the net recipients of EU money, as well as France and Spain, intend to stick strictly to the traditional sources of expenditure, i.e. agriculture and cohesion funds.

During the summer, the aim is to form a preliminary compromise basis. In the fall, the first full-scale negotiation box is expected, which also includes all chapters. The actual solution will be sought in the European Council later, and the goal is an agreement before 2027, when the elections of several key member states will start to make political decision-making difficult.