CEE states preparing for trillion euro budget collision

By bne IntelliNews November 15, 2012

bne -

European Council President Herman Van Rompuy tabled a compromise proposal on the EU's 2014-2020 budget on November 14, a week before a special summit which threatens to catapult the new member and southern periphery states into a head-on collision with those further west.

Joining the myriad actors offering proposals in a bid to avoid yet another crisis-driven collision in Brussels, Van Rompuy suggested a long-term budget of €950bn - signaling a €75bn cut from the European Commission's initial recommendation. Given the mood however, the proposal looks likely only to succeed in antagonizing the two sides, as the spat between net beneficiaries - which includes all CEE member states - and net contributors continues to sour.

Under the proposal, severe cuts are foreseen in agriculture, which may anger France, and in cohesion funds, which would antagonize the CEE states, reports EurActiv. The European Commission quickly voiced its objection to the reductions. Meanwhile, Sweden was just as quick in stating it does not offer deep enough savings. The UK has asked for cuts of €200bn, Germany for €130bn.

The battle lines hardened on November 13, when talks on next year's budget collapsed, as the European Parliament refused to sit at the negotiating table with governments that are refusing to pay this year's bills. At the centre of that row was €9bn worth of unpaid 2012 bills covering a range of research, education, development and aid programmes. It's a dispute that bodes ill for next week's talks, where the figures on the table will be closer to €1 trillion.

"If they can't agree to pay the bills, what can they agree to?" asked lawmaker Hannes Swoboda, who heads the parliament's socialist group, reports AFP.

The European Commission will now have to draw up a new 2013 budget proposal and seek an agreement on it by year's end.

"These funds are needed for the European Union to respect its legal obligations, that is to pay for bills incurred for goods, works and services delivered," said parliament President Martin Schulz.

East versus west

The quarrel sets the scene for the summit on November 22-23, making it even more likely to turn into an ugly showdown presenting a bitterly divided Europe, torn between older wealthier states and poorer members on its southern and eastern fringe.

In Brussels, 15 heads of state and government have flown in to set a pre-summit agenda of what is termed the "Friends of Cohesion" group. The EU's Cohesion funds, the second biggest item on the bloc's budget after the Common Agricultural Policy, aim to help Europe's poorer nations catch up with others, economically and socially.

Members of the Friends of Cohesion are net recipients of the EU's near trillion-euro budget. Chaired by Poland and Portugal, the group includes Bulgaria, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Romania, Slovakia, Slovenia - and most recently, Spain.

Their opponents, eight of the eleven net contributors, want a 5% - or €100bn - cut from the European Commission's proposed €1.03-trillion budget for 2014-2020. The group - which includes Austria, the UK, Denmark, France, Finland, Germany, Netherlands and Sweden - argues that when many member states are being forced to make cutbacks, the EU budget should do the same. At worst, they appear ready to settle for a real term freeze in spending.

Poland has been in the vanguard of those opposing cuts in the seven-year EU budget, but Prime Minister Donald Tusk said in a joint press conference with German Chancellor Angela Merkel on November 14 that his country is ready to seek a compromise. "In Poland a black scenario would be the European states not reaching a compromise, and we must make sure this scenario does not materialise," he said, according to Reuters.

However, he admitted even as he sat next to the German leader in apparent harmony, that persistent deep divisions will make agreement difficult. "Today Germany is opting for strong cuts. Poland thinks that the cuts should be balanced and that you need to protect the cohesion policy," he said.

Merkel, whose country is the top net contributor to the EU budget, but which also receives structural funds for states in the former East Germany, said she is determined to find a route. "I know it is very, very difficult but as far as Germany and Poland are concerned, we are committed," the chancellor said. "Some people might think we can live without an agreement, but that is not our goal. We want an agreement and we will speak with all countries about it."

"Some people," presumably includes British PM David Cameron, who is the staunchest advocate of cutting the budget and has threatened a veto. It remains to be seen if the rest of the EU is ready to support his stance in a bid to entice him to relent on his government's increasing self-imposed isolation from the bloc back into the fold, or whether they may be weary of its obstructions. Tusk has pointed out to Britain that if no deal is cut, the current budget will remain in force provisionally, with a 2% hike added each year for inflation.

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