Bloomberg News

Europe Leaders Bow to Cameron Push, Deepen Spending Cuts

February 08, 2013

Europe Leaders Bow to Cameron Demand to Deepen Spending Cuts

British Prime Minister David Cameron during a European Council meeting in Brussels, on Feb. 7, 2013. Photographer: Dan Kitwood/Getty Images

European Union leaders agreed to a seven-year budget that cuts spending for the first time, bowing to U.K. Prime Minister David Cameron’s insistence on thrift.

The deal, struck after 25 1/2 hours of talks in Brussels that ended yesterday, set the budget for 2014-2020 at 960 billion euros ($1.3 trillion), down from an original proposal of 1.047 trillion euros and less than the 994 billion euros spent in the current budget cycle.

“We simply could not ignore the extremely difficult economic realities across Europe,” EU PresidentHerman Van Rompuy told reporters. “It’s perhaps nobody’s perfect budget, but there’s a lot of it for everybody. This budget is future- oriented, it is realistic and it is driven by pressing concerns.”

At the center of the controversy was Cameron, making his first EU summit appearance since announcing plans for a referendum that could result in Britain leaving the 27-nation bloc as early as 2017. While he ran into opposition from France, Italy and eastern and southern European, all sides said they were satisfied. Every EU leader had a veto..

Cameron’s demand for the first-ever real-terms cut in overall EU spending was virtually non-negotiable as he faced anti-EU voices in his Conservative Party. German Chancellor Angela Merkel said the most important thing was to leave Brussels with a deal.

French Target

“We came here knowing that certain countries wouldn’t accept an accord that didn’t include further cuts,” French President Francois Hollande said. “Given the conditions, France’s target was 960 billion euros.”

The spending blueprint requires approval of the European Parliament, a body that indicated it doesn’t intend to be a rubber stamp. “The real negotiations” on the budget “will start now,” according to a statement by the groups representing the majority of lawmakers in the 27-nation legislature.

Van Rompuy’s final proposal sliced spending on transport and energy projects and research to 126 billion euros from the original proposal of 156 billion euros. Part of the savings was steered to regional development, in a concession to eastern Europe, and to agriculture, in a concession to France.

Spending on farming and rural development dropped to 373.2 billion euros from 420.7 billion euros in the previous seven- year period.

Youth Unemployment

Saying the unprecedented threat to quit the EU didn’t leave Britain isolated, Cameron forged an alliance of convenience with Germany, the biggest contributor, along with the Netherlands and Nordic countries to press for cuts.

Van Rompuy rededicated 6 billion euros of regional aid for projects to fight youth unemployment, a nod to Spain, where 55.6 percent of young people are out of work. On the fund-raising side, he satisfied Denmark’s plea for an annual rebate, worth 130 million euros.

Britain, which reclaimed 3.6 billion euros in 2011, will continue as the biggest refund beneficiary, while the Netherlands and Sweden maintained their money-back guarantees.

“It was attacked from every side, but I fought off these attempts,” Cameron said about the refund that dates to his Tory predecessor Margaret Thatcher’s demand. “The British rebate is safe.”

‘Parallel Universe’

He also won a symbolic 1 billion-euro reduction in salaries, pensions and administrative costs for the EU’s 55,000 employees to 62 billion euros. At the first budget summit in November, he said “Brussels continues to exist as if it’s in a parallel universe” when it comes to compensating civil servants.

Britain demanded a seven-year agreement on actual spending, which is normally set year-by-year. That number was 908.4 billion euros, below the 913 billion euros that had been the bottom line. The sum is dwarfed by public spending at the national level, which averages 50 percent of each country’s gross domestic product.

“It’s ridiculous sometimes when you look at the kinds of differences we’re negotiating: a few billion over seven years,” Luxembourg Prime Minister Jean-Claude Juncker said as the talks got under way.

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Rebecca Christie in Brussels at rchristie4@bloomberg.net

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


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