Written by Alessandro D’Alfonso, Angelos Delivorias, Magdalena Sapała and Andrej Stuchlik ,
This study presents the 2017 economic and budgetary outlook for the European Union, explores the most recent developments in EU budgetary negotiations, and focuses on the investment gap in the EU, as a major economic challenge for the Union.
In 2016, the EU and euro-area economies continued their moderate growth (less than 2 %), which was also accompanied by the creation of jobs. While these trends are projected to continue over the next two years, some positive factors which underpin them are, or may soon be, exhausted. Moreover, they may be further dampened by the broader economic, political and geopolitical challenges which the EU faces.
Amounting to €157.86 billion, the 2017 EU budget represents only some 2 % of total public spending in the European Union – approximately 1 % of gross national income (GNI). However, the budget has features that increase its impact, such as the capacity to leverage additional funding from other sources and to target areas where the pooling of resources can provide added value to the EU as a whole (e.g. research, innovation and development cooperation). Adopted by the European Parliament and the Council of the European Union following intense negotiations, the 2017 budget has a structure determined by the 2014-2020 multiannual financial framework (MFF). With a view to increasing the resources devoted to major policy challenges emerging in recent years, however, resort is made to the flexibility provisions of the EU’s financial planning tool.
These policy challenges include the European financial and sovereign debt crisis and its impact on growth and employment, and the growing instability in Europe’s eastern and southern neighbourhood, which caused an important increase in migration flows and numerous security concerns. The 2017 budget accordingly focuses on stimulating growth and creating new jobs, especially for young people, as well as addressing the migration crisis and security issues.
Taking into consideration the aforementioned challenges, and in the context of the discussion on the preparation of the post-2020 programming period, many would welcome further EU budgetary streamlining, to increase capacity to respond to the concerns of EU citizens and to the unprecedented challenges the EU faces. Relevant developments include the mid-term revision of the 2014-2020 MFF currently under negotiation, the proposal for the next MFF to be tabled by the end of 2017, and possible changes in the EU financing system.
This year’s economic focus examines investment in the EU and prioritises the subdued investment level in almost all EU Member States (i.e. gross fixed capital formation in relation to the gross domestic product (GDP), following the financial crisis of 2008. This investment gap, in turn, impacts the fragile economic recovery adversely and undermines the EU’s international competitiveness.
In this context, the EU institutions have tried, both through the EU budget and by other means (European Investment Bank operations, the European Fund for Strategic Investments (EFSI), or the Capital Markets Union), and in line with the philosophy of co-financing, to entice private investors to invest in strategic long-term sectors such as infrastructure, research or education, and to facilitate cross border investments and capital flows. While initial EFSI results are encouraging, and have led the Commission to propose an extension to 2020, concerns have been raised by the European Court of Auditors. Proposals have also been formulated by academia and other stakeholders, which involve either an additional goal, a different orientation for EFSI, or envision a complete overhaul of the fund.
Read the complete study ‘Economic and budgetary outlook for the European Union 2017‘.