The budget required for EU activities is determined in the long term and set out in the Multiannual Financial Framework. This seven-year plan defines the financial scope of the EU’s activities and ensures that EU spending is foreseeable for both the EU and the recipients. The Multiannual Financial Framework serves as the framework for the annual budgets of the EU, which allocates funding to the more than 50 spending programmes and the EU institutions.

The most important portion of the EU budget is the EU’s ‘own resources’. These are composed of tariffs and other levies, a small amount of the VAT collected by the Member States and – most importantly – a share of Member States’ gross national income. This share is determined annually. The EU budget must always be balanced, meaning that spending is only possible where there is the same amount of revenue.

The current Multiannual Financial Framework, on which the EU institutions agreed in December 2020 under the German Council Presidency, stretches from 2021 to 2027. Its total volume is €1,200 billion (current prices) for all 27 Member States and over seven years. The following figure shows the EU’s areas of activities, including Structural and Cohesion Policy, and the amount of funding available for this up to 2027.

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The agreement of 2020 goes beyond the regular Multiannual Financial Framework to include a one- off, temporary recovery instrument called Next Generation EU (NGEU), which has a volume of
roughly €800 billion. NGEU will expire in 2026. Until then, it is intended to cushion the economic impact of the COVID-19 pandemic and promote forward-looking technologies, particularly in the field of climate action and digitisation. Unlike other instruments, this one is financed via bonds issued by the European Commission. These must be re-financed from the EU budget by 2058 at the latest. The Member States contribute to the EU budget through ‘own resources’ payments.

As part of the agreement on the Multiannual Financial Framework for 2021 to 2027, the European Commission announced that it will conduct a revision of the Multiannual Financial Framework by
1 January 2024. Proposals to this effect were tabled on 20 June 2023. In late February 2024, the European Parliament and the Council reached agreement on a revision of the Multiannual Financial Framework, which now has a special focus on continued financial support for Ukraine and measures to cover the rising cost of NGEU. Additionally, a decision to establish a new ‘Strategic Technologies for Europe’ (STEP) platform was taken as part of the revision. This platform is to strengthen and mobilise existing EU funding instruments so as to supportthe EU’s technological sovereignty.

Part of the agreement on the MFF for 2021 to 2027 is an agreement on the introduction of new own resources, for instance from emissions trading, a carbon border adjustment levy and a levy on certain non-recyclable plastics (the latter has already been introduced). These are mainly to be used to pay back the loans taken out for NGEU. In June 2023, the European Commission presented an adjusted package of new own resources, which includes a proposal for the generation of own resources from the gross operating surplus of financial and non-financial corporations. The new proposals on own resources are currently being negotiated at the EU level.

At the heart of NGEU is the Recovery and Resilience Facility (RRF), which has a volume of almost €725 billion, of which €338 billion is paid out as grants and €386 billion as loans. This money is used to support investments and reforms in the Member States so as to cushion the social and economic impact of the crisis and ultimately strengthen their national economies. The focus is on implementing the country-specific recommendations issued as part of the European Semester and on the green and digital transitions: at least 37% of the funding Member States receive from the RRF is to be used for climate action, another 20% or more for digitisation.

The amount of RRF funding allocated to a given Member State depends on how hard this Member State was hit by the pandemic. To be eligible for funding, Member States must submit Recovery and Resilience Plans (RRPs), in which they provide detailed information on planned investments and reforms and the extent to which these will bring them closer to attaining the objectives of the RRF.

In connection with REPower EU – the EU’s response to the disruption of the energy market caused by the Russian invasion in Ukraine – another €20 billion has been added to the funds for the RRF. Member States wishing to benefit from this funding must add a further chapter on energy policy to their national RRPs (REPower EU Chapter).

The Federal Government has drawn up a comprehensive RRP, which was approved by the Council on 13 July 2021. Once the funds to be allocated had been recalculated in 2022, Germany expanded its plan for 2023. A further addition – a chapter on REPowerEU – is planned for 2024. Germany is expecting to receive €30.3billion in grants.

At present, the German RRP comprises 40 measures from six focal areas:

1. Climate policy and energy transition
2. Digitisation of the economy and infrastructure
3. Digitisation of the education sector
4. Strengthening of social participation
5. Strengthening of a pandemic-resilient health system
6. Modern administration and removal of impediments to investments.

The Federal Ministry for Economic Affairs and Climate Action has made key contributions to the German RRP by planning ambitious projects in the fields of climate policy and the energy transition and digitisation of the economy and infrastructure. These also include cross-border Important Projects of Common European Interest (IPCEIs) on hydrogen technologies, microelectronics and cloud services. Projects for the energy-efficient retrofitting of buildings and an innovation bonus promoting sales of electric vehicles make a strong contribution to climate action. The expansion of the German RRP at the end of 2023 is also based on investment measures taken by the Federal Ministry for Economic Affairs and Climate Action to support heat networks and electric mobility.

The following measures taken by the Federal Ministry for Economic Affairs and Climate Action make a key contribution to the German RRP: 

Fig. : German RRP measures for which the Economic Affairs and Climate Ministry has lead responsibility

The European Investment Bank (EIB) is the bank of the European Union. Its activities aim to promote important EU objectives, such as cutting-edge research or allowing less developed regions with the EU to catch up. Another key focus is placed on promoting European integration.

Since its establishment in 1958, the EIB has invested more than €1 billion to support projects, especially with a focus on:

• Climate and environment
• Cohesion
• Innovation, digitalisation and human capital
• Small and Midsize Enterprises (SMEs)
• Sustainable cities and regions
• Sustainable energy and natural resources.

The EIB operates in more than 160 countries within the European Union and beyond, seeking to promote EU policy goals. Among other activities, it promotes cross-border projects to foster better integration of the infrastructure within the single market.

The green transition and measures to mitigate climate change play a key role. The EIB is one of the most important investors in climate action, ecological sustainability and the EU Climate Bank: the EU has set itself the goal of becoming the first climate-neutral continent by 2050. The associated ecological restructuring and modernisation of the economy and of society requires investments on a significant scale. The EIB and its activities are tasked with generating these. By 2030, the EIB wants to mobilise at least €1 billion in climate action and ecological sustainability.

The focus of the EIB’s activities to strengthen Germany’s role as a home to businesses and industry is on financing for innovation and climate action. Projects for the expansion of renewables, for better energy efficiency and for research and development support the transition towards a greener economy. The European Investment Fund (EIF) is part of the EIB groups, and focuses on small and medium-sized enterprises and innovative startups.

The EIB is owned by the EU Member States, which means that the Federal Government is also involved in the decision-making and governance structures of the EIB.

The European Investment Fund (EIF) is also part of the EIB group. There has been longstanding and successful cooperation with the EIF, in particular with the aim of improving access to capital for young, innovative and fast-growing companies in Germany and Europe.

The European sovereign debt and financial crisis of 2010 laid open the structural weaknesses of the Economic and Monetary Union. The European Semester was introduced in 2011 to serve as a monitoring and coordination process that is to help discover negative developments early and stop them effectively.

It consists of three pillars: first, coordination and monitoring of EU Member States’ economic policies; second, the macroeconomic imbalances procedure; third, compliance with the budgetary rules set out in the Stability and Growth Pact. To the extent that they are of macroeconomic relevance, horizontal issues and aspects such as the green and digital transition or the Sustainable Development Goals (SDGs) are also taken into account. The European Semester begins with the autumn package in November. The spring package is published in May and contains the country- specific recommendations. The cycle ends with their adoption in the summer. The Member States incorporate the recommendations into their national economic and fiscal policies.

The European Semester has changed over the course of the years. NextGenerationEU (NGEU) was established in the face of the COVID-19 pandemic, so as to make Europe stronger and more resilient against crises. At the heart of NGEU is the Recovery and Resilience Facility, which is interwoven with the European Semester.

Beyond this, the ongoing revision of economic and fiscal governance by the EU, the Economic Governance Review, will also have an influence on the European Semester. In the future, Member States are to coordinate their economic and fiscal policies through multi-annual medium-term fiscal structural plans. The European Semester will play an important role in this, as it allows for an in- depth debate on structural challenges, macroeconomic risks, reforms and investments.

Further information on economic and fiscal governance by the EU can be found here.

The 2023 National Reform Programme: a secure energy supply system and modernisation

In their National Reform Programmes, the Member States describe the measures they have taken to meet the challenges that their economies face and to implement the country-specific recommendations made by the Council of the European Union. The EU Member States also make reference to the UN Sustainable Development Goals.

Within a regular Semester cycle, the National Reform Programmes make reference to

• the respective country report by the European Commission in which the Commission analyses the economic policy of EU Member States and outlines major overall economic policy challenges in the Member States;
• the respective country-specific recommendations, which are usually adopted by the Council of the European Union in July of the preceding year;
• the European Commission’s annual sustainable growth strategy;
• the UN Sustainable Development Goals.

Germany’s 2023 NRP was adopted by the federal cabinet on 29 March 2023 and can be found here.

This German NRP focuses on the relief measures taken to cushion the effect of elevated energy prices on the one hand and on the measures taken to strengthen growth in the German economy in times of decarbonisation, digitisation and demographic change.

The various relief packages adopted by the Federal Government have made a decisive contribution to ending the energy crisis whilst also allowing for a diversification of the energy supply through the expansion of the LNG infrastructure. Germany’s dependency on fossil fuels has been reduced. Through its public-sector investments, funding programmes and reforms, the Federal Government is promoting the modernisation of digital infrastructure, fostering the decarbonisation of the industrial sector and laying the groundwork for bridging the skills gap.

As the Federal Government wants to avoid duplicate structures, the 2023 NRP mostly makes reference to the contents of the Annual Economic Report.

It is important to both the European Commission and the Federal Government to involve parliaments and stakeholder groups early on, as the NRP is being drawn up. Apart from the Länder, which have reported on measures of their own, the Bundestag, various associations and the social partners have also been involved in this process. The comments of the associations and the social partners can be found here.