How EU leaders think the bloc’s bigger budget should be spent

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Good morning. Today, I explain last night’s summit debate over how to pay for the EU’s busted budget, and our technology correspondent unpacks the arguments over regulating artificial intelligence in Europe.

More money, more problems

The problem with setting a faraway deadline in December, and then holding a debate in October on that decision, means that debate won’t feel particularly important.

But last night’s argument over how to increase the EU budget was worthwhile to decide on priorities and “splatter some blood on the walls”, in the words of one negotiator.

Context: The EU budget for 2021-27 is overspent, thanks to the Covid-19 pandemic, the war in Ukraine, and unexpectedly high interest payments on EU joint borrowing. The European Commission has proposed a €100bn top-up — made up of €67bn in budget cash plus €33bn in loans — to cover the estimated shortfall.

Member states have, in the main, told the commission there was no chance of it getting all of that. Fifty billion to keep Ukraine running through 2027 (€17bn in cash and the €33bn loan package) is largely fine, Hungary’s reluctance notwithstanding. But last night was a chance for the other 26 leaders to list their priorities — and the bits they think can be cut.

Migration was raised by many leaders as the next priority. The commission has proposed an additional €15bn for this.

Where the debate starts is over the necessity of an extra €10bn for competitiveness initiatives, such as an investment fund for business, and almost €20bn for the unforeseen interest charges on the EU’s joint borrowing.

Mainly southern states who lack the fiscal firepower of countries such as Germany or the Netherlands are keen on the competitiveness initiatives. It’s partly seen as a sop to compensate for the lifting of EU state aid restrictions that benefited the bigger, richer countries.

There’s a strong push against forcing member states to cover the extra cost of the EU’s borrowing — especially as the member states themselves are being forced to pay for the extra costs of their own borrowing. Unsurprisingly, there’s an even stronger push against additional cash to increase the salaries of EU institution staff.

Meanwhile, member states are circulating their own versions of the impact on existing budgets if the commission could just tweak its planned spending to cover the extra financial demands.

A Swedish study being passed around member states yesterday reckoned a 4 per cent cut would suffice. That’s significantly less than the 30 per cent the commission has threatened member states with.

“It is taking shape,” commission president Ursula von der Leyen said last night. “Of course it will be a mixture of redeployment and national contributions.”

Get your spreadsheets out; see you in December.

Chart du jour: Flying high

Since the October 7 attacks carried out by Hamas in Israel, the Swiss franc has risen from already lofty levels to new all-time highs, reflecting its long status as a haven on currency markets in times of turmoil.

Digital deadline

Legislators in Brussels are under pressure to get crucial rules on artificial intelligence approved by early December. But the bickering and back-stabbing continues, writes Javier Espinoza.

Context: Regulators have struggled to regulate AI. One point of contention is whether facial recognition should be banned. While some countries are keen to use the technology for law enforcement purposes, the European parliament wants it banned over concerns of human rights violations.

Privately, EU legislators drafted a hard position as a bargaining strategy. Member states are not changing their stance either. “MEPs will have to understand that countries must have access to the technology,” said a person with direct knowledge of the discussions. “This is not China.”

There is also a debate over how to regulate so-called foundation models and general purpose AI platforms, such as ChatGPT.

The commission, whose original proposal did not mention ChatGPT, is pushing for Brussels to hold the regulatory reins. MEPs are pushing to make sure that copyrighted material used by ChatGPT gets properly remunerated, while member states have argued for a code of conduct to tame AI.

Time is running out. Brussels is aware it needs to come up with a final text by the end of the year, given the speed at which AI develops. “We have one shot,” said a negotiator.

A confidential draft by the EU to be presented at an AI summit in the UK next week warned of the dangers of not regulating AI: “There is potential for serious, even catastrophic harm, either deliberate or unintentional, stemming from the most significant capabilities of these AI models.”

“Given the rapid and uncertain rate of change of AI, and in the context of the acceleration of investment in technology, we affirm that deepening our understanding of these potential risks and of actions to address them is especially urgent,” the draft read.

What to watch today

1. Second day of EU summit featuring meeting of eurozone leaders.

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