Montenegro’s accession finances may set EU budget precedent for future members

Montenegro is expected to set a precedent for how the expansion of the EU will be financed in the near future, introducing yet another complication to the complex discussion of the bloc’s next long-term budget.

Last month, the European Commission presented the financial package for Montenegro’s accession, the most advanced process of all the current candidate countries for EU membership.

The economic cost of the Western Balkan country, which has a population of around 626,000, was estimated at €3.2 billion – less than €1 per EU taxpayer, or, as Commission officials put it, less than the price of a coffee.

But while the financial impact might be minimal, dwarfed by the EU’s nearly €2 trillion long-term budget, Montenegro’s impact on the already sensitive budget talks could be far more significant than its size suggests.

“Montenegro’s financial package is set to be controversial, not so much because of the money involved but as a matter of principle,” an EU diplomat told EU News, speaking on condition of anonymity because of the sensitivity of the topic.

EU enlargement has been gaining fresh momentum after largely stagnating since Croatia joined the bloc in 2013. Commission officials boast that more progress has been made in the last six months than in the past 10 years.

But the renewed push has also fuelled calls to reform the accession process, with several EU capitals proposing new democratic safeguards and gradual integration for hopefuls such as Ukraine.

As a result, Montenegro, for which drafting of the accession treaty began a few weeks ago, has become the test case for what the next wave of enlargement will look like, even as the Commission prepares its own proposals to regain the initiative on that front.

“Montenegro is a precedent. It should not be, but it inevitably is,” said a second diplomat, arguing that member states want their positions in the negotiations over the new Multiannual Financial Framework reflected in this file.

Budgetary implications

The bone of contention is set to be how to finance the extra costs Montenegro would bring to the EU budget – whether by redistributing existing resources or finding new ones – and what the implications for the bloc’s funds might be.

Funding programs reflect the differing political priorities of member states and are a major faultline in the budget negotiations, with southern and eastern European countries pushing for more money for cohesion and agricultural policies, and northern capitals pressing to focus on competitiveness and defence.

Should Montenegro become an EU country, it would become a so-called “net receiver”, taking more money from the EU than it contributes. Under the Commission’s proposal, a significant part of the cohesion and agricultural funding would come from the resources Montenegro was set to receive under the Global Europe Plan, the EU’s development aid programme.

In other words, as Montenegro stops being eligible for development aid, the money already allocated to it would be redirected to agricultural and regional funding. How the other financial programmes are to be financed remains an open question.

The Commission proposes a proportionate increase in the money allocated to funding areas like defence and competitiveness, the aim being “to ensure there is no negative effect on the funding foreseen for EU-27”.

But the question remains where that extra money should come from. It would require either additional revenue from EU-wide taxes, known as own resources, or higher national contributions from member states.

“Net payer” countries such as Germany and the Netherlands, known as the frugals, have been pushing to scale down the overall size of the EU budget to keep national contributions minimal, and are likely to push instead for redistributing existing resources.

While the actual sum may be negligible for national budgets, the question is set to establish a precedent for future accession treaties – whether for countries like Albania and Moldova that are simply smaller, or a far more complex case like Ukraine.

The outcome may prove to be more than another power struggle over how money is distributed within the bloc. It could also have a chilling effect on richer countries considering membership, which would be net contributors from the outset.

Iceland, in particular, is holding a referendum on whether to reopen EU accession talks at the end of August, after suspending its accession bid in 2015.

“Montenegro sets the precedent,” another source with direct knowledge of the matter said. “The EU will have to be consistent in future accession processes. Which pot the money comes from will be controversial.”