EU budget negotiations could spell cuts for Horizon Europe

23 Nov 2023 | News

Insiders say Germany’s budget crisis means it is unlikely to agree €10B funding for the EU’s new tech fund, amid signs that government purses are tightening and support for pan-European research is dwindling

Charles Michel, president of the European Council (Left), with Olaf Scholz, chancellor of Germany. Photo: European Union

Alarm bells for the future research budget are ringing as Germany looks set to say no to the Commission’s proposal to put an extra €100 billion into the EU’s seven-year budget.

EU member states are currently negotiating the proposal as part of the mid-term review of the multi-annual financial framework. The top-up would include €10 billion for a new strategic technology programme, the Strategic Technologies for Europe Platform (STEP).

STEP would in turn inject extra cash into a number of EU technology investment funds, including €2.6 billion for the Horizon Europe start-up fund, the European Innovation Council.

But the top-up is unlikely to come through, with EU heavyweight Germany all but ruling out extra funding for anything other than support for Ukraine, which accounts half of the proposed €100 billion.

Without the backing of the single biggest contributor to the EU budget, STEP programme may be a no-go. And the move signals government wallets are tightening around the EU, casting doubts over future funding for research and innovation at a time when the research community and the European Parliament say current spending should double.

While researchers ask for top-ups, some governments want to lower research spending. Earlier in the negotiations in September, one member state proposed cutting all EU budget lines by 4%, including shaving €7 billion off the Horizon Europe research programme.

Other governments adamantly opposed the idea, and by the end of September, the member state in question resubmitted a proposal to cut all budget lines apart from Horizon Europe. There’s obvious support for research, but national governments are reportedly not ruling out smaller cuts to the €95.5 billion research programme just yet.

Germany, meanwhile, isn’t likely to budge. Last week a constitutional court ordered a freeze of any further payments from a €60 billion clean energy and industrial transformation fund, after ruling the money had been allocated illegally. This is due to a constitutionally enshrined ‘debt brake’, which restricts the federal deficit to 0.35 percent of GDP. In reaction, the government has frozen all spending.

Future spending plans

Now, the hanging question is whether EU budget woes and tightening wallets are going to undermine the bloc’s willingness to spend money on research and innovation at a time its green and digital transitions demand major investment.

The German court ruling may be a long-term issue and could jeopardise the country’s future spending plans, including paying into the EU budget, as prevents the government spending beyond its tax receipts. The government is looking for a way out, which could be as drastic as declaring an emergency, allowing it to override the debt brake.

Despite the increasingly dire situation, MEP Christian Ehler, the Parliament’s rapporteur for STEP, isn’t rushing to conclusions. Member states can’t take final decisions on the budget without the Parliament’s approval, and the latter usually tends to defend EU spending from cuts.

“Yes, there are member states that are critical, but the Parliament is usually able to get at least something out of them,” says Ehler.

Yet, this doesn’t mean there is no cause for concern as Brussels prepares to draft the vision and budget for the next EU research programme, FP10. “However, it indeed signals that we cannot take member state support for research funding for granted in the multi-annual financial framework negotiations for FP10,” said Ehler.

Long-term impact 

Reinhilde Veugelers, economics professor at KU Leuven and senior fellow at the Bruegel think tank, says the budget debate signals a growing desire for member states to put money into their own industries, rather than invest in development and innovation at EU level.

“It’s in general a reflection of the willingness of member states, and particularly bigger member states, on how much to do through Europe versus on their own,” says Veugelers.

She points to the ongoing debates on the Net-Zero Industry Act, where the discussion focuses on state aid rather than European-level measures. “It’s a trend that the bigger member states want much more control, and that’s why the fight is mostly on state aid relaxation,” she says. 

On the flip side, when it comes to more classic research, as funded through much of Horizon Europe, the value of joint projects is more established, Veugelers notes.

Yet, this line becomes blurry as EU-level support favours applied research that is closer to the market and at higher technology readiness levels (TRLs). Horizon Europe is increasingly funding higher TRL projects, because they’re politically more attractive.

This isn’t always a good idea, says Veugelers. Funding earlier stage research is important in the long-run. To ensure balance, governments must carry out careful monitoring and assessment on where subsidies and public interventions would be most effective. “It has to be a systemic approach,” she says. “This is why I’m a bit worried that the reasons we’re moving to higher TRLs are political.”

And governments run tighter national budgets, there may be less and less willingness to invest in EU-level research through framework programmes. “My advice is always to make a case why spending at EU level is the best way to spend national funding,” says Veugelers. “Whenever you want to do more at national level, there’s less contribution to the EU.”

MEP Maria da Graca Carvalho did not want to comment on the ongoing negotiations but acknowledged budget talks in Brussels are becoming increasingly difficult.

“What I can say is that I am well aware that the negotiations for FP10 will be even harder than the ones we had for FP9,” says Carvalho. “That said, it is critically important for us to commit to an ambitious FP10 budget, because all the major goals that we have, from health to industrial competitiveness, require a strong investment on Research and Innovation."

Mattias Björnmalm, secretary general of the university association CESAER, says that while the German budget woes are unfortunate, it does not change the facts.

“If we want Europe to be able to contribute global leadership at the cutting edge of science and technology, including through research and innovation activities and the talent needed to advance it, then the key programmes Horizon Europe and Erasmus must be reinforced with more funding,” says Björnmalm.

The heads of state will meet in Brussels on 14 - 15 December to try to broker a mid-term review deal. The Council will then enter negotiations with the Parliament before settling on a final agreement.

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