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FACTDROP: EU budget: the trillion-euro split


EU budget: the trillion-euro split

Πηγή: FT
By Joshua Chaffin
Nov 20 2012

Negotiations over the bloc’s budget are never easy but the current round has exposed deep ideological fissures.

The bargaining over the EU’s next long-term budget began nearly two years ago when David Cameron, the freshly minted British prime minister, stormed a summit meeting in Brussels with a surprise request.

Angela Merkel, the German chancellor, Nicolas Sarkozy, then the French president, and others were consumed with creating a rescue fund to stem the eurozone crisis. As the price of British acquiescence, Mr Cameron persuaded them to sign a letter pledging to rein in EU spending for the rest of the decade.

In the best of times, agreeing the long-term budget is a brutal and complex negotiation. Even diplomats practised in the arts of arm-twisting, conniving and “constructive ambiguity” say it is excruciating.

Each of the bloc’s 27 member states has its own urgent priority, each wields a veto and each must be able to go home and declare victory. The joke is that the EU only undertakes the exercise every seven years because it is so painful.

But as heads of government converge on Brussels on Thursday for a special budget summit, the process is looking more fraught than ever. The hope is to strike a deal on roughly €1,000bn in spending from 2014 to 2020 for agricultural subsidies, roads and infrastructure projects, research and development and other items – a 5 per cent increase from the current budget.

Yet the worst economic crisis since the second world war – and the resulting bailouts and austerity – have opened a faultline between the bloc’s richer and poorer countries, while hardening public opinion in many corners about the merits of EU spending.

Advocates of a bigger EU budget have adapted their arguments to the circumstances. José Manuel Barroso, European Commission president, claims the budget is no longer a butter mountain of farm subsidies but a “catalyst for growth”.

To which one sceptical diplomat replies: “Only if you’re a cow.”

After more than a year of negotiations, even optimists are bracing for the worst. “It’s do-able,” one senior diplomat says, “but the chances of failure are still 50-50.”

Such an outcome would cast legal uncertainty over public investment projects worth hundreds of billions of euros, dealing a further blow to the bloc’s already fragile economy.

It would also poison efforts to co-operate on the more pressing business of the crisis. Ms Merkel has been desperate to get a budget deal – if only so leaders can resume work on a far-reaching overhaul of economic and budget policies that she believes are crucial to safeguard the euro.

Perhaps most worrying, a budget breakdown might open deeper cracks in the overall European project.

“Let’s be honest. It’s not the money behind this, it’s ideology,” says Martin Schulz, president of the European parliament. “It’s representative of the EU today: a deep split about which direction the EU should go.”

Separating the extremes is a financial gap that once stood as wide as €200bn that Herman Van Rompuy, the European Council president, has been working frantically to narrow.

On one side, the wealthy countries, including the UK, Sweden, the Netherlands and Germany – who contribute the majority of the EU budget – have been fighting to tighten Brussels’ purse strings. Seven of them have formed a coalition known as the Friends of Better Spending.

Pitched against them are the Friends of Cohesion, 15 countries mostly from central and eastern Europe who are determined to keep the EU’s development funds flowing. They have enlisted the parliament, which must sign off on any deal.

On closer inspection, both camps are rife with contradictions. Finland, for example, wants to cut spending – but not for a special fund that supports “sparsely populated regions”. France, a Friend of Better Spending, is also a friend of the biggest part of the budget – agriculture spending – and fond of cohesion, too.

Yet on Thursday, all eyes will be focused on Mr Cameron, who has threatened to veto anything beyond a spending freeze. With EU popularity plunging at home, and the UK enduring its own budget cuts, Mr Cameron may have much to gain politically from making good on that threat.

On Thursday morning the prime minister is set for a private, 10-minute “confessional” meeting with Mr Van Rompuy before the negotiations begin. No doubt the rest of Europe will be straining to listen at the door.

The biggest subject of debate – and the most sensitive issue for most parties – is the budget’s size. The arguments have been complicated by rubbery figures and confusing accounting that may ultimately allow staunch opponents to hold up the same document and declare victory.

The commission has proposed €1,033bn for 2014 to 2020. But its offer included numerous off-budget items that member states would still have to fund. All in, its proposal is more like €1,091bn.

The UK – with support from the Netherlands and Sweden – has called for a real-terms freeze on payments, based on 2011 levels. That would come to as little as €886bn, but the UK has never specified a precise figure, creating an ambiguity that may allow Mr Cameron more room for manoeuvre.

The UK’s accounting has also been subject to question. Critics say 2011 was selected as the base – not 2013, the final year of the current cycle – to skew the figures downward. The UK has also chosen to focus on budget “payments”, while most other parties are negotiating on the higher ceiling of budget “commitments”. This makes a comparison difficult.

A German compromise would cap the budget at 1 per cent of the bloc’s collective gross national income, which amounts to €960bn. A proposal published last week by Mr Van Rompuy came to €1,011bn.

Mr Van Rompuy is hoping his offer will prove acceptable to budget hawks because it is about €20bn less than the current long-term budget, thus allowing them to claim victory. Others believe he will need at least another €20bn in cuts to win a deal.

If the talks fail, diplomats say there is no obvious time to reconvene, and they worry that the process may become even more difficult as political events, such as German elections, intrude.

Time is already short. Although the new budget does not begin until 2014, it takes as long as a year to draw up the related legislation that underpins EU development programmes. Without it, hundreds of billions of euros in payments will simply grind to a halt when the current budget expires in December 2013 – a disaster for governments in central and eastern Europe. “It would be a mess,” a diplomat says.

Wealthy countries, such as Germany, the Netherlands and Sweden, would also suffer because their budget rebates would expire. The UK is the exception since its cherished rebate, sealed by Prime Minister Margaret Thatcher in 1984, is guaranteed in perpetuity.

But, in a perverse feature of EU law, Mr Cameron may be the biggest loser. If there is no agreement, the 2013 budget ceiling would be repeated – plus inflation – for each successive year. The result would far exceed the UK’s freeze.

That realisation might explain why Mr Cameron has made more encouraging noises this week. Still, some EU officials have begun exploring the feasibility of something once unthinkable: creating a long-term budget without the UK.

“There are some very frustrated people,” says one diplomat.

“Most people want to work with [the UK], but they say, ‘there’s a limit’.”

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