Cyprus rejects three EU revenue proposals as Nicosia draws red lines over EU funding plans

Nicosia drew its red lines during a particularly divisive discussion among the 27 member states, which focused on both the size and composition of the EU’s “New Own Resources” (NORs), meaning the new revenue sources the European Union is proposing to use to finance the 2028-2034 European budget while partially reducing its reliance on direct contributions from member states. According to information obtained by “K”, at a meeting of the Permanent Representatives Committee, Coreper, a few days ago, Cyprus pointed out that it is among the member states most affected by the proposed package. It also stressed that the current proposal would put significant pressure on the country’s public finances.

According to information available to us, Nicosia raised three substantive objections with its partners regarding the proposals for the “New Own Resources”:

1. Cyprus cannot support the Brussels proposal under which part of the revenue from the Emissions Trading System (ETS) would be directed to the EU budget. The Commission expects this proposal to generate €9.6 billion in funds, based on its initial estimate.
2. Likewise, Cyprus opposed the adoption of the Commission’s proposal for a flat-rate graduated contribution from companies operating in the EU with annual turnover of more than €100 million. The Commission initially estimated that revenue from the introduction of this potential “New Own Resource” could reach approximately €6.8 billion per year.
3. Regarding the Commission’s proposal to amend the Existing Own Resource based on VAT, Nicosia made clear that it rejects the removal of the upper limit, or 50% cap, in the VAT calculation base. Cyprus said such a change would result in a significant increase in its contribution and would disproportionately affect member states with a high ratio of consumption to Gross National Income.

At the same time, Nicosia appeared ready to discuss allocating part of the consumption taxes on tobacco products (TEDOR) “within the framework of a balanced package,” with revenue initially estimated by the Commission at €11.2 billion. Cyprus also appeared to align itself with the Brussels proposals on revenue from the Carbon Border Adjustment Mechanism (CBAM), as well as the proposal concerning uncollected electronic waste (e-waste), with estimated revenue of approximately €15 billion per year based on the Commission’s initial calculations.

According to Nicosia, the basic principle that should guide decisions on the EU’s NORs is the fair distribution of the burden among the 27 member states and the avoidance of disproportionate effects. In any case, it said the discussion on the level of revenue cannot be considered separately from the overall financing needs of the next MFF. It stressed that the final distribution of the burden should take into account the ability of member states to pay.

Regarding the Common Agricultural Policy (CAP) and Cohesion Policy, Nicosia stressed that it cannot accept further cuts in these areas, citing the tangible benefits they provide to European citizens.

Coreper divided over NORs
More generally, the discussion in the Permanent Representatives Committee, Coreper, on the NORs showed that the only proposal receiving significant support is the one concerning revenue from the Carbon Border Adjustment Mechanism (CBAM). By contrast, the strongest disagreements, for obvious reasons, centered on the Commission’s proposal to direct part of the revenue from the Emissions Trading System (ETS) to the EU budget.

A group of six member states, France, Spain, Italy, Greece, Romania and Portugal, supported advancing an ambitious NOR package, saying it is necessary to maintain the level of ambition of the next MFF for 2028-2034. These countries rejected any consideration of significant cuts to the Common Agricultural Policy (CAP) and Cohesion Policy, while supporting further consideration of European Parliament proposals on digital taxation and cryptocurrencies. A large number of member states, including Cyprus, as mentioned above, supported maintaining the CAP and Cohesion Policy.

On the other side, the Netherlands, Germany, Sweden, Belgium, Austria, Finland and Denmark argued that the NORs alone cannot cover the budget gap in the next EU budget. They repeated their demand for “substantial cuts of hundreds of billions of euros” in the new Multiannual Financial Framework, which is currently under discussion and being developed. These seven member states argued that the Commission’s proposals would lead to a disproportionate increase in national contributions, while rejecting ideas involving the “recycling” of NextGenerationEU debt or new joint EU borrowing.

Towards a new framework
Against this backdrop, the Irish Presidency is preparing a revised negotiating framework, which it will present before the Summit scheduled to take place in Brussels on October 15-16.

As “Economic Kathimerini” previously reported, the Irish Presidency put two questions to its 26 partners at the recent informal Council of Ministers for European Affairs in order to prepare the revised negotiating framework:

1. Regarding the overall MFF package, what balance should be achieved among the four Areas? The four areas or pillars concern “Economic, Social and Territorial Cohesion, Agriculture, Rural and Maritime Prosperity and Security,” “Competitiveness, Prosperity and Security,” “Europe in the World” and “Administration.”
2. “Within each Area, there are specific elements that should be given priority and/or that should be assigned a lower priority,” the Irish Presidency asked, calling on the “26” to prioritize their “wants” in order to establish a compromise framework.

At the same time, Pedro Lourtie, director of the office of the president of the European Council, informed Coreper that contacts between Antonio Costa and the leaders of member states so far indicate a general willingness to negotiate and recognition that the NORs are a component of the final agreement, although several member states continue to have significant reservations about some of them. In the same context, the Commission presented updated revenue estimates for the proposed NORs and said that various adjustments to the parameters of the ETS, CBAM, e-waste, TEDOR and CORE proposals are being considered.