EU budget battle paralyzes Brussels on AI chips, the Arctic and agriculture

BRUSSELS — Europe's push to accelerate AI chip production and plan to strengthen its Arctic presence are among the key EU policy files caught in the logjam of Brussels' seven-year budget standoff.

European policymakers say they can't move forward on their files without sufficient visibility on proposals linked to EU funding, as the negotiating impasse over the size of the EU’s 2028-2034 budget means financial allocations after next year are unknown.

“There’s an increase in sectoral legislation with objectives that require multiannual budgetary commitments,” said a person involved in talks on the EU budget, who was granted anonymity to discuss closed-door negotiations. “But the budget talks are disconnected from the policy discussions.”

EU governments are racing to find a deal among themselves over the total size of the money pot by the end of the year. The so-called frugal countries pushing for major budget cuts — Germany, the Netherlands, Austria, Sweden, Denmark and Finland — have publicly said that a proposal by the Irish presidency of the Council of the EU envisioning €159 billion cuts doesn’t go far enough.

The deadlock has not kept the EU’s executive from making multiple public declarations of its policy plans and ambitions, even though it can't reliably commit the cash necessary to bring such policies to life.

A prime example is the recent Commission presentation of its strategy to strengthen the EU's presence in the Arctic in the face of rising military and commercial activity in the region. It included plans to develop transport networks, critical raw materials projects and a maritime security hub in the region. But those plans came without any detail on funding. 

European Commissioner for international partnerships Jozef Síkela said at the time that it was “not possible” to commit to future funding because of the ongoing budget talks.

The same disclaimer appeared in the bloc’s grand chipmaking plan, which aims to reduce reliance on foreign technology and boost the production of chips that power AI models. The proposal stated clearly that it could not “pre-empt nor prejudge” the outcome of the talks on the EU’s next seven-year budget, and that funds for bringing the envisioned projects “can only be requested at a later stage.” 

The statements irked lawmakers from several national parliaments, who may not have been following the EU’s budget battles and legal intricacies. The German Bundesrat, the Italian lower house of parliament and the Czech Senate all filed submissions on the EU’s chipmaking plan, asking the Commission to clarify the available budget. 

The Czech Senate’s resolution pointed to “uncertainty related to the long-term financing of the proposed measures” and asked that the goals be “supported by adequate and predictable resources.” 

The budget uncertainty is not only creating frustration in the design of laws, but also in their implementation. Under the recent nature restoration law, for example, national governments must draft plans explaining how they intend to restore ecosystems like lakes, peatlands and forests. Several governments have complained that they cannot comply with the rules without knowing how much funding will be available at the EU level to make that happen.

“We have money now in our national context, but we will be needing more when you look at the 2050 goals [for nature]," said Dutch agriculture minister Jaimi Van Essen. 

During a gathering of EU environment ministers in Luxembourg last month, Cyril Piquemal, France’s deputy permanent representative, said: “We cannot adopt more rules without providing the means to put them into force.”

Uncertainty is spreading even among the perennial major beneficiaries of EU funds — farmers and regions — who don't know how much money they will receive in the coming years. 

The major new idea in the Commission’s next budget proposal is to give governments greater leeway to reshuffle funds across different priorities along the way. 

Commission officials regularly complain that the current budget, in which more than 90 percent of funding was ring-fenced at the start, left them ill-equipped to deal with the Covid-19 pandemic, multiple energy crises and the war in Ukraine. 

While the new budget is designed to make Brussels and national capitals better placed to deal with unforeseen crises, it has been criticized for its lack of predictability. 

For this reason, regional presidents and agriculture ministers — who jointly receive nearly half of total EU payouts — are pushing to increase their share of such secured funding in the ongoing negotiations. 

French Agriculture Minister Annie Genevard said in an interview with POLITICO that the "ideal solution" would be to increase the ring-fenced funding for farmers, which is currently €297 billion from 2028 to 2034. "That would give farmers genuine predictability, security and stability,” she said.

Under the new budget architecture, regions and farmers are largely competing for the same pot of money. While the Commission earmarked €217 billion for poorer regions over the next seven years, national governments have considerable leeway to determine funding for wealthier areas. 

These changes have upset regions, which are calling on the European Parliament to strengthen guarantees for local areas. 

Giorgio Leali contributed to this report from Paris.