What changed

18.2.2025

19.2.2025

Mr Johan VanVAN OvertveldtOVERTVELDT

Chair

BRUSSELS

Subject: Opinion in the form of a letter on the Guidelines for the 2026 Budgetbudget –- Section III (2024/2110(BUI))

Dear Mr Van Overtveldt,Chair,

Under the procedure referred to above, the Committee on BudgetaryIndustry, ControlResearch and Energy has been asked to submit an opinion to your committee. At its meeting ofOn 1819 February 2025,2024, the committee decided to sendadopted thean opinion in the form of aletter letter.during its regular meeting.

The Committee on Industry, Research and Energy calls on the Committee on Budgets, as the committee responsible, to incorporate the following suggestions into its motion for a resolution.

Yours sincerely,

Niclas Herbst

Borys BUDKA

CONTITRE Chair

Rapporteur for the Commission Discharge

SUGGESTIONS

OPINION

1. Recalls that the Union Budget for 2026 should concretely reflect the political priorities of the new legislative term, considering also the various pledges made by Commissioners during their confirmation hearings in Parliament in November 2024; insists that the 2026 budget needs to fully implement all programmes agreed under the current Multiannual Financial Framework (MFF), as well as set in motion and finance new strategic EU initiatives, such as the Clean Industrial Deal for competitive industries and quality jobs; underscores that the 2026 budget must be aligned with the Union’s objectives and international commitments;

1. Recalls its strong commitment to the fundamental principles and values enshrined in the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU);

2. Notes that multiple challenges facing Europe require greater investment and coordination at European level, as well as more concrete action by Member States; calls on the Commission to propose a Union Budget for 2026 that reflects the urgent nature of these challenges; among others, the ongoing Russian invasion of Ukraine and hybrid attacks on Member States and their energy and digital infrastructure; maintains this requires multiple forms of EU and national level investments and preparedness, including improving the resilience of digital and energy infrastructure, direct support for Ukraine, accelerated investment in Europe’s defence industry, and support for the EU's Eastern border regions most directly impacted by the war and Russian hybrid operations; the need to strengthen Europe’s economic competitiveness and industrial base in a volatile environment where global competitors benefit from extensive state support, leading to unfair competition for European companies; the urgent necessity to improve Europe’s research and innovation capabilities, including greater support for SMEs, start-ups and scale-ups; the digital revolution, including the acceleration of artificial intelligence and growing concerns about cybersecurity; and the need to achieve a just climate transition, as we adapt our economy to the Union’s long-term energy goals and climate neutrality by 2050, by accelerating the decarbonisation in Europe’s energy markets, implementing European Green Deal legislation and achieving a circular economy;

2. Stresses the fundamental importance of respect for the rule of law to protect the financial interests of the Union in the implementation of EU funds; recalls the improvements needed in the application of the Rule of law Conditionality Regulation and a swifter follow-up by the Commission on breaches of the rule of law principles that affect or risk affecting the EU financial interests, including the Single Market dimension, as for example procurement and state aid;

3. Notes that EU companies face considerably higher electricity and gas prices compared with the USA, China and other global actors, which presents a significant competitiveness disadvantage, especially but not only for Europe's energy intensive industries; emphasises the need to tackle energy poverty and limit the damaging effects of high energy prices on European consumers, many of whom are already struggling with a high cost of living; stresses the importance of reducing EU dependence on fossil-fuels and improving energy efficiency; underlines that security of supply concerns remain paramount and should be addressed in the 2026 budget, given that energy supplies are easily weaponised by state actors; insists on the need to improve energy interconnections, modernise energy grids, integrate a higher share of renewables while ensuring sufficient clean baseload energy and system flexibilities, therefore calls for significantly increased funding for the Connecting Europe Facility - Energy, which is the flagship EU programme in this field but currently has limited resources to credibly advance Europe towards an interconnected, resilient and decarbonised energy system, able to deliver affordable prices; calls for urgently ending any remaining EU import dependencies on Russia:

3. Stresses that the sound and timely implementation of the budget contributes to addressing more efficiently and effectively the needs and challenges faced by the Union and its citizens in different policy areas; warns that the implementation of the budget under time pressure may lead to an increase in errors and irregularities;

4. Recalls the need to strengthen the resilience of the EU economy and the competitiveness of Union industries, with ambitious EU industrial policies that can create quality jobs and contribute significantly towards achieving the EU's social, digital and green objectives, whilst preserving a level playing field in the Single Market; therefore believes that the Union Budget for 2026 should mark the start of the investment boost recommended in the Draghi report by investing strongly in industrial competitiveness, open strategic autonomy and creating pathways towards decarbonisation, while securing EU supply chains for strategic sectors and technologies and improving access to critical raw materials; insists that the 2026 budget must continue strengthening the Union’s competitiveness with increased support for SMEs, midcaps and start-ups, including greater support for scale up to compete globally, in particular through the European Innovation Council;

4. Recalls that for the last years all available flexibility measures in the EU Budget were used; reiterates the need for flexibility in the EU Budget to address potential new circumstances where EU action is necessary; notes that increasingly the headroom in the EU Budget is used to provide funding to respond to crises; notes in addition, that exposure of the EU Budget to guarantees and contingent liabilities is projected to rise in the coming years, putting additional strain on the headroom in the Budget which further limits the flexibility of the EU Budget, as are the increased interest payments for NGEU related borrowing; urges the Commission to work on a more stringent risk assessment framework to define the exposure more accurately to prevent over-burdening of the EU Budget;

5. Recalls that the 2026 budget for Horizon Europe will be the first after the mid-term review of this strategic EU programme, and therefore needs to offer sufficient investment in fundamental and applied research, foster collaborative research and facilitate the scale-up and commercialisation of research results to ensure Europe can retain and further develop the necessary knowledge base to confront the scientific and economic challenges of the coming decades; regrets that the existing level of Horizon Europe funding is ultimately insufficient to develop the ideas and technologies necessary for the twin green and digital transitions, or to fully deliver on the stated EU goals of sustainable growth and open strategic autonomy; calls for an increase in the 2026 budget for Horizon Europe, including through the reuse of all available decommitments allowing each sub-programme to fund at least 50% of all excellent proposals, given that presently a majority of excellent proposals remain unfunded; calls for maintaining stable and sufficient funding of the ITER project;

5. Stresses the need to protect the EU Budget from any misuse, particularly fraud and corruption, and calls on the Commission to continue to be vigilant and proactive in the current and future cases when the lack of respect for Union values and the Rule of Law affect or threaten to affect the Union’s financial interests;

6. Stresses that significant investments are necessary to address Europe’s connectivity gap and other Digital Decade 2030 targets; recalls that the European Commission estimates that achieving the full gigabit target could exceed €200 billion; calls therefore for adequate resources to be allocated to provide high speed connectivity including gigabit and 5G services, in addition to investments in next generation digital infrastructures and emerging technologies; calls for further investments that foster the development of European digital sovereignty and an EU-based digital sector in order to catch up in crucial areas such as quantum computing and Artificial Intelligence; calls on the Commission to allocate sufficient resources to ensure the full implementation and robust enforcement of the Digital Services Act and the Digital Markets Act; stresses the importance of tackling foreign interference, addressing the dangers of biased algorithms, and safeguarding transparency, accountability, and the integrity of the digital public space.

6. Stresses the importance of the EU anti-fraud architecture and the need to provide increased resources and to strengthen the role of the European anti-fraud office (OLAF), the European Public Prosecutor's Office (EPPO), the European Union Agency for Criminal Justice Cooperation (Eurojust) and the European Union Agency for Law Enforcement Cooperation (Europol) in the fight against fraud and corruption; stresses the need for a comprehensive cooperation between all these institutions;

7. Underlines that a strong and sustainable European space sector is fundamental for European security, open strategic autonomy, secure connectivity, protection of critical infrastructure and advancing the twin green and digital transitions; regrets that EU and its Member States funding for space programmes is highly fragmented and only a fraction of the level in the US, while other global actors including China are rapidly increasing investments; calls on the Commission and Member States to ensure sufficient funding for the European space industry, which includes fostering investments from the private sector; calls furthermore for a sufficient level of EU investments supporting R&I in the field of space;

7. Notes that while the digital transformation is indispensable to increase the efficiency, control and transparency of the EU Budget, this shift has also heightened its exposure to cyber fraud affecting the financial interests of the Union; calls on the Commission to allocate sufficient funds to strengthen EU digital infrastructure, research and development while ensuring that investments in cybersecurity are impactful and contribute to the overall protection of the Union’s financial interests;

8. Calls for adequate funding and staffing for all agencies and Union bodies in the policy areas of industry, research, energy, space and cybersecurity, in order to cope with increased workload and new regulatory obligations;

8. Is concerned that total outstanding commitments are reaching record levels for several years now; notes that the Commission projects outstanding commitments to decrease after 2024, when NGEU draws to a close; considers that until the projected decrease of the RAL, the risk of decommitments, and a related reduction of EU added value for the EU Budget, remains high; calls on the Commission to enact a more strategic, transparent, and proactive approach to managing decommitments, also considering the use of decommitments in the cascade mechanism;

ANNEX: ENTITIES OR PERSONS FROM WHOM THE RAPPORTEUR HAS RECEIVED INPUT

9. Is concerned that the Union's debt continues to rise, with a large share of this increase attributed to the temporary recovery instrument NGEU; is concerned that the increased debt and the associated higher interest costs will have long-term consequences on the EU's fiscal stability, potentially leading to greater financial strain and a reduced capacity to respond to future challenges or invest in key strategic areas; encourages the Commission to explore options to reduce the overall debt burden, such as optimising the timing and structure of debt issuance, and consider alternative financing mechanisms that could reduce reliance on high-interest debt; stresses that introducing new own resources is also necessary to prevent future generations from bearing the burden for past debts;

The rapporteur for the opinion declares under his exclusive responsibility that he did not receive input from any entity or person to be mentioned in this Annex pursuant to Article 8 of Annex I to the Rules of Procedure.

10. Expresses regret that the overall error rate estimated by the Court has been increasing since the 2020 financial year, reaching 5,6 % for the 2023 financial year; notes significant variations in error rates across different budget headings, with some areas reporting error rates below the materiality threshold of 2 %, while cohesion policy has an error rate as high as 9,3 %; notes in particular the conclusion that errors found in 100 % EU-funded priorities contributed 5,0 % to the total estimated level of error of 9,3 %; is concerned that increasing flexibilities without at the same time either decreasing requirements or increasing ex ante checks and controls contributed to the high error rate; calls on the Commission to take careful consideration of the lessons learned from the implementation of EU crisis response tools, such as increased flexibility;

11. Notes that the Court issued a qualified opinion on the legality and regularity of the RRF expenditure in 2023; expresses concern that the Court found 7 out of 23 RRF payments made in 2023 were impacted by quantitative issues, with 6 of these payments being affected by material errors; notes in addition that absorption of RRF funds was delayed in 2023, and that Member States may not be able to complete all measures at the end of the RRF’s implementation period; notes further that the second half of the RRF’s implementation period (post 2023) is more challenging with an increase in number of milestones and targets to be implemented, a shift from reforms to investments, and a high proportion of measures to be completed in the last year; calls on the Commission to support the Member States’ authorities in the implementation of funds, in particular where additional administrative capacity is needed, to stimulate absorption and reduce the occurrence of errors; calls on the Commission to transparently inform the Parliament about the progress of implementation and absorption of funds and to timely propose solutions where bottlenecks in the implementation are observed;

12. Recalls the importance of protecting the Union's own resources from any fraudulent irregularity and, to that end, stimulate the cooperation between anti-fraud services and customs agencies to detect, prevent and correct fraud affecting Union revenue; recalls its position on the amended Commission proposals endorsing the introduction of new own resources.

ANNEX: ENTITIES OR PERSONS FROM WHOM THE RAPPORTEUR FOR OPINION HAS RECEIVED INPUT

The Chair in his capacity as rapporteur for opinion declares under his exclusive responsibility that he did not receive input from any entity or person to be mentioned in this Annex pursuant to Article 8 of Annex I to the Rules of Procedure.