The negotiations on the Recovery Instrument (RI) and the EU's long-term budget - the MFF - are heating up.

A (long) overview on what's at stake, who has how much leverage, and why the classic Brussels compromise is still the most likely outcome by a wide margin:

1/ Three different types of legal texts are currently being negotiated: (1) The MFF itself; (2) the Own-Resources Decision; (3) a trillion accompanying regulations. All of them have to be in place for both the MFF and the RI to function properly.
Let's take them one by one:

2/ The MFF itself sets expenditure ceilings for the EU for 2021-27 in seven broad categories. It is the basis for the EU spending money in its annual budgets and requires *unanimity* in the Council and a majority in the EP. The MFF does not cover RI spending.

3/ The Own-Resources Decision (ORD) is the instrument that allows the EU to finance its expenditures; it basically works like a direct debit authorisation. Normally, this is a boring document. It is also not strictly necessary as the old ORD has no expiration date unlike the MFF.

4/ But this time is different: The ORD contains the authorization for the EU to borrow in the markets to finance the RI spending. That is why it must be put in place asap. It requires unanimity in the Council and ratification by national parliaments - but no consent from the EP.

5/ Finally, there is a large number of regulations that regulate the details of the spending of both MFF and RI funds. This includes e.g. the regulation on Rule of Law conditionality, the Recovery and Resilience Facility, Horizon Europe, and the structural funds.

6/ These regulations require a qualified majority (QMV) in the Council (at least 15 member states representing 65% of EU population) and a majority in the EP. Without these regulations, with the exception of agriculture direct payments, no new EU money can flow after 1 January.

7/ Theoretically, these three categories could be negotiated and voted on separately. But politically, they are one package that requires unanimity in the Council and the support of the EP.

What does that mean for the negotiation dynamics?

8/ Most importantly, it means everyone has leverage but nobody has a credible option to walk. The EP can threaten to veto the MFF and the spending regulations but ultimately its majority has a strong interest in funds flowing to member states and not being held up in Brussels.

9/ But the same goes for member states. Of course some countries with strong particular interests and little fear of being shamed for a while () can hold out a bit, e.g. by blocking the ORD and thus delaying the RI; maybe even long enough to scare others into compromises.

10/ Yet ultimately, even Orbán does not have a credible threat of blowing everything up; he needs the spending regulations and the MFF in place for funds to flow to . The ones that yield arguably the most power are the ones that need the money the least: our frugal friends.

11/ Also these countries can't just put everything on hold for a long period of time as they did agree to the package in July and can't just go back on that. Yet, their fairly comfortable position will make it hard for the EP to extract meaningful concessions on spending amounts.

12/ One central question here will be whether these countries in the end really care about the rule of law and side with the EP or will ultimately focus on making sure the MFF does not get bigger. I have a hunch based on what happened at the summit, but happy to be proven wrong.

13/ All in all, this means that negotiations falling apart is very unlikely: everyone has enough skin in the game. There may be delays and even accidents, but in the end, I would be very surprised if we don't get a classic EU compromise that everyone hates, but that works.