Ursula von der Leyen gives a press statement on the Commission’s proposals regarding ‘REPowerEU’, May 18, 2022

Ursula von der Leyen gives a press statement on the Commission’s proposals regarding ‘REPowerEU’, May 18, 2022 © Stephanie LeCocq / EPA

Conjuring up hundreds of billions without having a penny: here’s how Brussels does it

The European Commission is ‘mobilising’ hundreds of billions of euros, in order to tackle the enormous challenges facing the EU. But the staggering sums accompanying these plans can’t hide the fact that the commission has barely a dime to spend. So where is this cash coming from? Using three recent examples, Follow the Money analyses the modus operandi of ‘Brussels’.

This article in 1 minute
  • Over the past six months, the European Commission has presented plans to become independent of Russian gas (300 billion euros), to compete with China in Africa and in the rest of the world (300 billion euros) and to ramp up production of microchips in Europe (45 billion euros).
  • However, as the expenditure from the European budget is set for seven years, and the commission cannot borrow extra money, there is no budget to realise these great ambitions. The numbers in the plans, therefore, are based on creatively adding up existing expenditures of the EU and European countries, and small shifts within the European budget.
  • Time and time again, the European heads of government task ‘Brussels’ to come up with answers to the major challenges facing Europe. However, the EU Member States do not provide extra financial resources. So, time and time again, committee president Von der Leyen resorts to roaring announcements, but she’s packaging old wine in new bottles.
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The European Union has an odd budget cycle. For a seven-year period, it’s decided how much Brussels can spend and on what. Over the course of those years, the European Commission comes up with new plans, but barely has the financial resources to spend money on them.

Meanwhile, the world changes. Over the past six months, geopolitical circumstances – the war in Ukraine, the rivalry with China, the alarming shortage of microchips – have forced the EU to act. In doing so, Ursula von der Leyen’s European Commission does not shy away from announcing huge investments.

But when the budget is fixed for seven years, the question arises: where is that money coming from? An analysis of the plans shows that, time and time again, the commission resorts to creative calculations based on small budget shifts, repackaging old promises and adding up expenditures that do not come from the European budget, but from EU Member States, and companies. An approach that can best be described as packaging old wine in new bottles.

Example 1: Independence of Russian gas (cost: 300 billion euros)

Wednesday, May 18th, 2022. In a small corner, halfway between the entrance to the European Commission and the press room, Ursula von der Leyen stands in front of two carefully arranged European flags. This is the place the commission’s president often chooses (usually on Wednesday afternoons, after the weekly meeting) to launch ambitious plans. Only a handful of journalists and civil servants take the trouble to listen to her prepared statements. Questions are not allowed.

Today, Von der Leyen announces: ‘We must now reduce as soon as possible our dependency on Russian fossil fuels. [..] All of this will require massive investments and reforms. We are mobilising close to 300 billion euros.’

Those who would like to know more, might ask the European Commission’s civil servants. Off the record, they are willing to explain where all these hundreds of billions of euros are supposed to be coming from, so that Europe can end its dependence on Russian fossil fuels within the next few years.

‘We will ask Member States, or invite Member States, to transfer money from the cohesion funds and from agriculture funds to the Recovery and Resilience Fund, which will be the delivery vehicle,’ says a senior EU official.

The only thing that changes, is the justification of the expenditure

This requires some explanation.

The goal is to raise money in order to gain independence from Russian fuels. The reason for sudden invoking of the Covid Recovery and Resilience Fund (RFF), is that money from this fund can be spent more quickly than that from the agricultural and cohesion funds. As a result, the commission has decided that the RFF can also be used to fund other projects that are urgent – even when those projects are in no way related to the pandemic.

Oddly enough, moving money from one fund to another does not mean that it will actually be spent on other things. The commission emphasises that this shifting of money is ‘justified’, precisely because the goals of all the different funds boil down to the same thing: greening the European economy. Regardless of which fund money comes from, it can be spent on, for example, farmers who want to use renewable energy, or insulating houses in poor regions. The only thing that changes, is the justification of the expenditure: from stimulating disadvantaged regions, or financially supporting farmers, to independence of Russian fuels.

So that’s what Von der Leyen means when she talks about ‘mobilising’: changing a label. Nevertheless, the European Commission claims that this shift will yield 52.5 billion euros.

‘We will use them now, because we need the money and the investments right now’

As a second source of financing, Brussels is using emission allowances. Using, to quote another senior EU official, a ‘vacuum cleaner’, the EU is removing emission allowances from the market. This operation was created to increase the price of CO2, in order to accelerate the greening of Europe.

What the European Commission is doing now, is putting some of the ‘sucked up’ allowances back on the market. Doing this, it hopes to earn 20 billion euros. This will lead to more greenhouse gas emissions in the coming years, and jeopardise meeting climate targets. To prevent this, fewer emission rights will have to be sold in the years following the extra auctions. So in fact, the commission is advancing future income; they are not new funds. ‘We will use them now, because we need the money and the investments right now,’ the EU official said.

​Put together, the shifting of money between funds and the sale of emission allowances bring in over 70 billion euros. For the vast majority of the 300 billion that Brussels is ‘mobilising’ to gain independence of Russian gas, the European Commission is once again turning to the Covid Recovery and Resilience Fund, money that really was meant to prop up economies hit hard by the pandemic.

Roughly 225 billion euros from that fund is still on the shelves, in the form of loans for which individual EU Member States can apply. But many countries, especially the richer ones like the Netherlands and Germany, prefer to borrow money on the financial markets at low interest rates. In doing so, they also avoid the reforms demanded by the European Commission in exchange for the loans.

According to the European Commission, the war in Ukraine and our associated desire to end fuel imports from Russia justify the appeal to the EU Member States to take out the 225 billion euros in loans.

If countries do not do this – and there are no indications that the Netherlands is now eager to borrow money from Brussels – the European Commission wants to grant the loans to other countries. Last year, Italy already applied for the maximum of 122 billion euros in loans, due to the interest rates, which for them are quite attractive. If the Netherlands or Germany decline their share, Rome would be allowed to borrow extra money (Italy would, of course, have to repay the loan).

And so the calculation is complete and Von der Leyen has ‘mobilised’ 300 billion euros.

Example 2: The European Silk Road (cost: 300 billion euros)

Wednesday, December 1st, 2021. This time, Von der Leyen has not chosen the small corner with the two European flags. Today, the commission’s president is using the large press room. Here, she announces the Global Gateway, the European counterpart of the Chinese New Silk Road. It entails a system of ‘investments around the world to support our priorities,’ according to Von der Leyen. The fight against climate change is one such priority, but so is the 'security of global supply chains'.

Brussels is mainly focusing on infrastructural investments in Africa, the continent where the Chinese have a strong presence. ‘It does not make sense for Europe to build a perfect road between a Chinese-owned copper mine and a Chinese-owned harbour,’ Von der Leyen says, in her September 2021 State of the European Union speech. ‘​​We have to get smarter when it comes to these kinds of investments.’

‘Mrs Von der Leyen spoke of 150 billion over the next seven years. How does such a number come about? I’m not exactly sure, but she would know.’

Even for people who know their way around in Brussels, the financial pictures outlined by the European Commission are sometimes difficult to grasp. This is also true of the Global Gateway initiative. ‘Mrs Von der Leyen spoke of 150 billion over the next seven years,’ said a senior EU diplomat. ‘How does such a number come about? I’m not exactly sure, but she would know.’

150 billion is the share for Africa, but the EU also wants to get to work in other parts of the world. Once again, the Brussels calculation comes to 300 billion euros, which – there it is again – will be ‘mobilised’ over the next six years.

Here, too, one needs a magnifying glass to find any ‘fresh money’ in the plans. ‘Don’t be fooled,’ the Centre for Global Development think tank warns. ‘The Global Gateway is a mere packaging exercise of things that have already been planned.’ The columnist of the British magazine The Economist went a step further, calling the entire plan ‘bullshit’.

In an extremely succinct explanation, the commission explains that 135 billion euros of the 300 billion in investments are ‘made possible’ by EFSD+, the European fund for sustainable development aid. In the corridors of Brussels, the scheme behind this promise is called a lever. The EU is issuing guarantees, primarily to the Luxembourg-based European Investment Bank (EIB). This investment bank can then borrow money on the financial markets which, thanks to the EU guarantees, are confident that the money will be repaid. The EIB can then invest the money in Global Gateway projects.

The European Commission is earmarking 40 billion euros for these guarantees – money that the EU will only lose if problems arise in repaying loans. According to the commission, this ‘lever’ will yield 135 billion euros in investments. The previous European Commission, headed by Jean-Claude Juncker, used a construction such as this, too. This so-called Juncker fund was heavily criticised because it did not lead to the additional investments that Brussels had promised. 

But that’s not enough to build the European Silk Road. A further 18 billion euros are available from the EU budget, to be spent as grants. Again, these are not ‘new funds’, but budgets that were previously reserved for development aid. The development aid remains, only Von der Leyen has slapped a Global Gateway sticker on it.

The largest sum of money the committee has come up with for this project is 145 billion euros. An impressive amount, not a penny of which comes from the EU budget. It is the sum of ‘planned investments’ by European investment and development banks, such as the EIB. No further substantiation is provided.

The European Silk Road, too, appears to be mainly a calculation exercise, whereby existing funds and expenditures already promised by others are given the Global Gateway stamp.

Example 3: Dreaming about microchips (cost: 45 billion euros)

Tuesday, February 8th, 2022. Von der Leyen is again in the small corner with the two carefully arranged European flags. This time, she states that the EU wants to become a leader in the microchip market. ‘An additional 15 billion, on top of the 30 billion in public investments previously planned,’ the commission’s president announces at the presentation of the so-called Chips Act.

But how much of that comes from the budget of the European Union and was therefore already allocated? According to the spokesperson for the European Commission, that’s 5.8 billion euros, 3.3 billion of which is taken from funding for innovation and research (Horizon Europe) and digitization (Digital Europe Programme). As a result, less money is available for, among other things, innovations in the field of climate and power, and investments in infrastructure for transport.

The commission takes into account money from the next seven-year EU budget. This budget does not yet exist

To find the next 2.5 billion euros, the creativity of the Brussels’ accountants came to full fruition. The commission takes into account money that has already been invested in collaboration with the chip industry, and – even more startling – money from the next seven-year EU budget. This is a budget that does not yet exist, and which has not yet been negotiated with the EU Member States that have to pay for it. A highly unusual way to come up with cash, but the first 5.8 billion of the promised 45 billion euros has been found.

Next, the committee ‘expects’ the chip industry itself to invest 2.5 billion euros in their collaboration with Brussels. Brussels is also counting on a contribution from the EU Member States of 5.3 billion euros, which should partly be reflected in the next EU budget. (The budget that does not yet exist.) Add to that 2 billion euros that will be ‘mobilised’ by two European investment funds and that’s 15 billion.

The remaining 30 billion euros will come entirely from previously planned investments that now fall under the Chips Act, admits Von der Leyen. Incidentally, these are not EU investments, but money that the individual Member States are willing to spend. For example, the Dutch government investing 230 million euros in microchip projects from, among others, NXP (6G technology) and ASML (machines for the production of advanced chips).

For projects that fall under the Chips Act, the European Commission is relaxing the conditions for state aid so that European competition regulations do not get in the way. The Netherlands, with the above 230 million euros, and 19 other EU countries make use of this and distribute state aid.

And hey presto, there is the 45 billion that Von der Leyen promised.

The Brussels lobbyists of the digital industry are critical of the Chips Act. A month and a half after the plans were published, they complained that it’s ‘still vague’ where exactly the money will be coming from. Two months later, the situation has hardly improved and researchers from Brussels think tank Bruegel conclude that it ‘remains unclear how much funding is available’.

Deep pockets

These are just three examples of the creative ways in which Brussels counts their chickens. The plans, announced with much fanfare, barely hide the fact that the European Commission is completely dependent on the EU Member States for financial resources. And in the national capitals there is no interest in sending extra money to Brussels, beyond the regular contributions to the EU budget.

At the same time, it’s the Member States that are asking ‘Brussels’ to solve major challenges. European government leaders, meeting at the palace of Versailles two and a half weeks after the start of the war in Ukraine, called for an end to dependence on Russian gas and oil.

Not mentioning impressive amounts would diminish the decisiveness that ‘Brussels’ tries to radiate

The Global Gateway came about at the urging of European foreign ministers after EU leaders discussed China for the first time in 30 years at an EU summit, two years earlier. And in October of 2020 and in March of 2021, government leaders demanded more ‘digital sovereignty’, leading to the Chips Act.

Consequently, when presenting a financial statement, the European Commission can do little more than move money around within the seven-year EU budget. And there isn’t much room to do so. By adding the already planned expenditures of Member States and financial institutions, EC-president Von der Leyen is polishing her reputation. Because not mentioning impressive amounts would diminish the decisiveness that ‘Brussels’ tries to radiate.

The commission is a regulatory machine that likes to pretend to be a government with deep pockets. But those pockets have been carefully stitched up by the EU Member States.

Translation: Chris Kok