EU should double budget size and cut farming subsidies, experts say

Good morning. A scoop to start: The EU should overhaul its €387bn agricultural subsidies to base handouts on farm income rather than size, according to a European Commission report seen by the FT to be unveiled today. That’s one of a slew of measures aimed at responding to violent farmer protests earlier this year.

Here, I reveal other far-reaching policy recommendations for the incoming commission from the Bruegel think-tank, and report on the scramble to shore up Ukraine’s infrastructure in the face of daily Russian missile barrages against civilian targets.

Blueprint

The EU should double its budget but cut the amount of direct subsidies it doles out to European farmers, one of the bloc’s top think-tanks has urged the European Commission in order to achieve its strategic goals.

Context: Led by returning president Ursula von der Leyen, the next five-year commission term is set to begin in November. Its priorities have been broadly sketched out, but member states, lawmakers, lobbyists and analysts are all working to get their ideas in the policy melting pot.

Bruegel, one of Brussels’ most influential think-tanks, reckons the time is nigh for some tough decisions in its traditional policy proposals for a new commission published today. The EU must address tricky issues like its budget and overhaul unanimous decisions, if it is to thrive in a time of deep uncertainty.

“The needs are overwhelming, and public resources are scarce. This implies that political red lines preventing common action, common financing, and single market deepening must be challenged when the gains from doing so are high,” said Jeromin Zettelmeyer, Bruegel’s director.

“To deliver the EU’s ambitious priorities . . . a budget worth 1 per cent of [gross national income] is insufficient,” Bruegel writes. While acknowledging that a “dramatic increase is politically unrealistic,” its proposal is to double it to cover higher investment needs and include a “flexibility reserve”.

At the same time, there should be “fundamental reform” of the Common Agricultural Policy — which hands roughly a third of the EU budget to farmers — that would force national governments to take on half the cost of existing direct payments to farmers, Bruegel writes.

Those major overhauls must come alongside a revolution in decision-making, Bruegel adds: “You should use the legal leeway under the treaties to move the adoption of the [budget] from unanimity to majority voting, to avoid the risk of decision-making paralysis,” it says, noting a loophole in the rules for that specific purpose.

The think-tank also calls for the UK to be included in a “single market for defence production”, in order to maximise the EU’s ability to rearm.

And while European domestic producers should be helped to scale up, purchases of US weapons will still “serve important strategic goals in the transatlantic relationship,” Bruegel notes.

“Improving the EU’s economic security and accelerating the green transition requires greater recourse to industrial policy and trade policy than in the past,” Zettelmeyer said. “But a ham-fisted approach that embraces protectionism . . . will hurt EU growth.”

Chart du jour: Slick business

Russia has been secretly acquiring sensitive goods in India and explored building facilities there to secure components for its war effort, according leaked state correspondence.

Winter is coming

Russia’s brutal rocket attack on an educational institution and a hospital in central Ukraine yesterday killed at least 51 and injured more than 200. It was the latest grim reminder of the country’s looming winter crisis, and the need for European allies to provide air defence and infrastructure.

Context: Russia has systematically attacked Ukraine’s power and heating grids with missiles and drones all year, in a concerted effort to cripple the country when average temperatures drop below freezing. Kyiv’s limited air defence systems mean it must choose between protecting its soldiers or its civilians.

Even before yesterday’s strike, the EU began mobilising. Sweden is sending two gas turbines and is in talks with other member states who are contemplating doing the same, its foreign minister Tobias Billström told the FT.

Brussels is drawing up ways to purchase energy equipment to compensate for Ukraine’s potential energy shortfalls, officials said, in a rerun of last winter’s scramble.

But the most important issue of more air defence supplies remains unresolved. Despite pledges of missile batteries and fighter jets over the summer from western allies, new systems are yet to arrive, and Ukraine’s air space remains vastly under-protected.

“Air defence once again comes into focus,” said Billström. “This is where we have to put our emphasis, if we are to secure a winter for Ukraine which is not going to be disastrous.”

What to watch today

1. Irish Taoiseach Simon Harris visits Kyiv for talks with Ukrainian President Volodymyr Zelenskyy. 

2. Mario Draghi outlines his report on EU competitiveness to EU representatives and parliament group leaders.

Now read these

• Brexit blues: The EU won’t change rules complicating UK musicians touring in the EU, dealing a first blow to Sir Keir Starmer’s hopes for a “reset”.

• Treacherous waters: At least 12 people have died while trying to cross the Channel from France to England, the deadliest accident in months.

• Conservatives seething: Spain is set to appoint government minister José Luis Escrivá to lead its central bank, in a process marred by political enmity.