Bloomberg News

EU Investment Spending Seen Sacrificed in Budget Clash

February 06, 2013

A promised European Union investment budget to modernize the recession-hit economy is set to be scaled back in a bonfire of competing national demands.

Spending on cross-border transport, energy and research projects was chopped in a first round of talks in November and faces further cuts when leaders meet in Brussels today in what all call the last chance to set the 27-nation bloc’s budget for 2014-2020.

“We like to talk often about more Europe, but when we talk about the budget we seem to be delivering less Europe,” Prime Minister Valdis Dombrovskis of Latvia, which relative to the size of the economy was the second-biggest EU aid recipient in 2011, said in an interview in Riga yesterday.

The euro-area debt crisis leaves less money for the EU-wide budget, in talks haunted by echoes of the financial nationalism of France’s Charles De Gaulle in the 1960s and Britain’s Margaret Thatcher in the 1980s.

A July 2012 European Commission proposal for a seven-year package of 1.047 trillion euros ($1.4 trillion) was shaved to 973 billion euros in November. The wealthier countries that provide the financing want to shear off another 20 billion euros. The seven-year budget expiring this year totaled 994 billion euros.

A deadlock would hobble subsidy programs, force the EU to fall back to annual budget extensions and add to concerns about Europe’s political cohesion that have been inflamed by the financial turmoil.

‘Negative Message’

“Further delays would send out a very negative message at this time of fragile economic recovery,” Jose Barroso, the commission’s president, said yesterday in a European Parliament budget debate in Strasbourg, France.

Whatever the outcome, subsidies from the central budget -- worth barely 1 percent of EU-wide gross domestic product, compared to national spending averaging 50 percent -- will drop in real terms for the first time in EU history.

“If the budget is to help Europe get stronger economically, it’s too small to do it anyway,” said Jorge Nunez, a researcher at the Centre for European Policy Studies in Brussels. “The budget is completely and utterly out of sync with the challenges.”

The leaders’ first stab at a deal, on Nov. 22-23, shuffled money from cross-border infrastructure projects to farming to placate France and to regional development to accommodate poorer economies, especially in eastern Europe.

In the process, only 31 billion euros was left from the commission’s call for spending of 40 billion euros on international transport, energy and digital networks -- promoted as a driver of future growth.

Cuts Planned

Leaders as ideologically opposed as French President Francois Hollande and U.K. Prime Minister David Cameron connived to wield that knife, in a foretaste of the haggling.

Hollande’s insistence on farm subsidies, a mainly French perk dating to the early days of the EU, belied the pro-growth mantra with which he entered the EU arena after his election in May 2012.

The outcome echoed the “weeping and gnashing of teeth” that De Gaulle in 1965 said he encountered after pushing through demands for the then-embryonic union to subsidize French agriculture in addition to opening markets for German industry.

Britain’s Cameron has even less room to maneuver after vowing to let U.K. voters decide whether to stay in the EU, assuming they re-elect him in 2015. His lodestar is Thatcher, who won a permanent annual rebate in 1984 to offset the U.K.’s small share of farm aid.

Rebates Sought

Germany, the Netherlands and Sweden have since been granted temporary rebates, and Denmark wants a money-back guarantee as well, sowing divisions among the net payers. In turn, France wants a cap on its contribution to the U.K.’s refund, and Italy -- the biggest net payer in 2011, relative to economic size -- wants a better deal too.

At the November summit, the political contortions culminated with Cameron bowing to the restoration of some farm aid so he could take aim at another target: the salaries and pensions of the EU bureaucracy’s 55,000 employees, which make up 6.4 percent of the total budget.

“Brussels continues to exist as if it is in a parallel universe,” Cameron said after that summit. “More than 200 commission staff earn more than I do.” The prime minister earns 142,500 pounds ($223,241) a year.

Fighting Unemployment

EU President Herman Van Rompuy, who will shepherd the talks, also called for fresh money to combat youth unemployment, without saying how much or where it would come from. Southern countries battling the debt crisis such as Spain, with a youth jobless rate of 55.6 percent, would be the main beneficiaries.

A Brussels official preparing the summit predicted talks that could stretch into the weekend. Briefing reporters on condition of anonymity, the official called it the last chance for an accord before the mid-2014 elections to the EU parliament.

Leaders would need to sell a deal to the parliament, which gained greater powers over spending in a 2009 overhaul of the EU. Legislators of all political stripes served up threats and curses during this week’s session in Strasbourg.

Guy Verhofstadt of Belgium, the Liberals’ floor leader, denounced a “budgetary swindle.” The parliament’s president, Martin Schulz, a German Social Democrat, said the assembly won’t rubber stamp whatever comes out of the summit. Alain Lamassoure, a French conservative, lamented that “no one is defending Europe. Everyone only speaks of himself.”

To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net

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


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