Friday 19 January 2018

EU governments fail to agree on area's long-term budget

Charlie Dunmore and Jan Strupczewski

A compromise proposal on the European Union's long-term budget, cutting more than €50bn from the original blueprint, ran into a crossfire of criticism on Tuesday from governments on both sides of the spending debate.

The plan by the EU's Cypriot presidency, sent to capitals late on Monday, recommended the deepest cuts to infrastructure spending in the poorest member states to reduce the total bill, with a less drastic reduction in farm subsidies.

The document will form the basis of negotiations to reach a deal on the seven-year budget for 2014-2020 in time for a summit of EU leaders on Nov. 22-23.

But it angered both richer Western states keen to minimise their contributions as they struggle to reduce national debt, and Eastern newcomers who rely heavily on EU funds for their future economic development.

"In times of austerity, the EU budget must not grow. We need to cut three or four times as much as in this proposal to stabilise member states' contributions," said Swedish Minister for EU Affairs Birgitta Ohlsson. Stockholm is a net contributor.

"No deal will be possible on the basis of cuts of only €50bn," she added.

Sweden, Germany and Britain have demanded cuts of 100-200 billion euros to the European Commission's proposed 1 trillion euro total, slightly more than 1pc of the 27-nation bloc's gross domestic product. By contrast national government spending accounts for between 40 and 56pc of member states' GDP.

A diplomat from Poland, the biggest net recipient of EU funds, criticised Cyprus for concentrating solely on wielding the axe.

"The presidency proposals seems to be excessively focused on cuts, which creates an impression of a strategy to survive the crisis, rather than to emerge stronger from it," said the diplomat, who declined to be named.

Cyprus, which holds the bloc's rotating six-month presidency, said the cuts outlined so far were just a start and deeper reductions would be needed to reach a final deal.

"Further reductions will require even bigger trade-offs and the need to prioritise between policies and programmes," it said.


The Cypriot compromise cuts the EU's seven-year regional development budget by about €12.5bn compared with the Commission's original plan.

By contrast, spending on agricultural subsidies, of which France, Italy and Germany are the biggest beneficiaries, would only fall by about €5bn under the compromise. Direct payments to EU farmers would total more than 277 billion euros over seven years.

About three-quarters of the current EU budget is spent on farm subsidies (40 percent) and airports, motorways, bridges, rail tracks and other infrastructure projects (35pc).

Sweden, which alongside Britain, Denmark and the Netherlands has long called for a lower share of EU spending for farmers, criticised the balance of cuts proposed by Cyprus.

"It is unacceptable that the common agriculture policy is protected from cuts," said Ohlsson. "Nearly 40pc of the EU budget is still earmarked for the CAP - a sector employing 5 per cent of the labour force and contributing only 1.5pc to EU GDP."

As expected, the Cypriot proposal made no firm recommendation on the fate of Britain's multi-billion euro annual budget rebate, and the related refunds received by Germany, the Netherlands, Sweden and Austria.

But the issue is likely to be one of the major flashpoints when EU diplomats begin talks on the compromise on Wednesday, as they attempt to lay the groundwork for a summit agreement in November.

Complicating matters, Danish Prime Minister Helle Thorning-Schmidt threatened last week to veto the EU budget unless Denmark gets a 1 billion crown ($173m) rebate on its contribution to Brussels.

"Denmark should not pay for rich EU countries' rebates. That is why we must also get a rebate and I think we will get that," she told Denmark's parliament.

British Prime Minister David Cameron has also threatened a veto unless London, which has demanded a freeze in EU spending in real terms, achieves its objective.

Italy and France could also demand rebates if Britain's is maintained.

"Italy and France are the biggest contributors to the British rebate. We cannot rule out asking for our own rebate," said an Italian diplomat who spoke on condition of anonymity.


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