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EU Leaders’ Budget Clash Seen Delaying Accord Until 2013

November 23, 2012

EU Leaders’ Budget Clash Seen Delaying Accord Until 2013

Divisions between rich and poor countries flared over the European Union’s next seven-year budget, leading German Chancellor Angela Merkel to rule out an accord until the new year. Photographer: Georges Gobet/AFP via Getty Images

Divisions between rich and poor countries flared over the European Union’s next seven-year budget, leading German Chancellor Angela Merkel to rule out an accord until the new year.

France defended farm subsidies, Britain clung to a rebate and Denmark demanded its own refund, while countries in eastern and southern Europe said reduced financing for public-works projects would condemn their economies to lag behind the wealthier north.

“Positions remain too far apart,” Merkel told reporters early today after the first session of a summit in Brussels. “Probably there will be no result at the end of this summit. There may be some progress but it is probable that we will need to meet again at a second stage.”

The political stakes dwarf the economic significance of spending equal to 1 percent of European gross domestic product, offering a glimpse of where the power lies in the 27-nation European Union and whether the euro-area crisis is bringing the bloc closer together or driving it apart. In the absence of a deal by late 2013, the EU would roll over its annual budget.

The stalemate came two days after finance ministers argued in vain for more than 11 hours over how to dig debt-stricken Greece out of its fiscal hole, in another reflection of the rich-poor divide that scars the European economy.

Euro Declines

While the euro fell about half a cent against the dollar after the meeting on Greece, it has climbed 0.5 percent since then, trading at $1.2901 at 9:17 a.m. in Brussels, up 0.1 percent on the day. Greek bonds declined, snapping 10 days of gains, while debt of Italy, Spain and France was little changed. The Euro Stoxx 50 index gained 0.1 percent to 2,538.48.

In the budget debate, the numbers have been whittled down since the first proposal came out in mid-2011. The latest draft foresaw spending of 973 billion euros ($1.3 trillion) for the 2014-2020 period, down 6 percent from the original European Commission proposal and 2 percent from the 994 billion euros for the current seven-year period.

The talks resume at 12 p.m. today, based on a new proposal that Danish Prime Minister Helle Thorning-Schmidt said shifts spending between categories without touching the overall sums in the pre-summit draft.

Connecting Europe

Britain took aim at a 50 billion-euro program for transport, energy and broadband projects known as the “Connecting Europe” facility. France sought to gut the same program, ditching a growth initiative once touted by President Francois Hollande in order to spare the agriculture budget.

Britain’s rebate demands and France’s defense of farming gave the talks the flavor of EU negotiations in the 1970s or 1980s, belying pledges to equip Europe with a budget to make it more competitive in the face of emerging powers like China.

“Too much of the resources are directed toward what Europe was and not what it should become,” Swedish Prime Minister Fredrik Reinfeldt said.

Raised through national contributions, close to half of the budget would go for construction projects like rail lines and bridges, important for eastern European countries still struggling with the legacy of communism and for southern countries battered by the debt crisis.

French Farmers

Over a third would go for agriculture, championed by France since the early days of the EU. French farmers picked up 9.5 billion euros in European subsidies in 2011, the biggest single share. Spain, Greece, Italy, Ireland and Poland also number among the defenders of farm aid.

“The reduction is still too large,” Hollande said of a new proposal that would restore 8 billion euros of a proposed 25 billion-euro farm-aid cut. He countered Britain’s refund claims, saying “they can’t ask for a smaller budget and a larger rebate.”

Smaller parts of the budget go for programs on immigration and border control, foreign policy and development aid, and salaries for the more 50,000 employees of institutions including the commission, European Parliament and bodies ranging from the European Chemicals Agency in Helsinki to the European Fisheries Control Agency in Vigo, Spain.

Staff costs -- about 6 percent of the total -- are a sticking point for Britain. U.K. Prime Minister David Cameron looked for further reductions after the pre-summit proposal shaved personnel costs by about 500 million euros to 63.2 billion euros.

U.K. Rebate

What matters most to Britain, however, is the preservation of the rebate won by Margaret Thatcher in 1984, when the EU budget was more heavily slanted toward farming. Successive U.K. governments have defended the refund, worth 3.6 billion euros in 2010, though still leaving Britain as a net payer.

“We are going to be negotiating very hard for a good deal for Britain’s taxpayers and Europe’s taxpayers and to keep the British rebate,” Cameron said.

With countries such as Denmark and the Netherlands protecting or seeking money-back plans of their own, most leaders showed little appetite for challenging Britain’s rebate, at least on principle.

“We need the U.K. in,” Finnish Prime Minister Jyrki Katainen said. “We all have some preconditions and we all must be ready for compromises, otherwise we don’t have a compromise.”

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Brian Parkin in Brussels at bparkin@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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