Changing axis in EU budget negotiations

With years passing the EU budget negotiations do not change much. The rhetoric remains more or less the same, focused on EU expenditure around one per cent of EU GDP and fueled by position splits between net payers, net receivers and special claims, with the latest being made by the United Kingdom on its fair budget share (the UK rebate).

It happened so again that last Friday afternoon the agreement on the EU financial perspective for 2014-2020 was postponed until the beginning of the next year. This was stipulated by negotiation dynamics around EU net-contributing states with the UK being among the frontrunners.

There were basically two arguments in the basket of not happy ones – the one with a weaker and the other with a stronger link. A stronger link argument is the level of overall EU expenditure being too high and by its structure not reflecting global economic realities. A weaker link argument is the UK rebate itself being directly linked to the structure of EU expenditure.

Let’s start with a weaker link. To remind others, the UK rebate is a kind of compensation to the United Kingdom, granted in 1984 Fontainebleau summit where Margaret Thatcher pronounced her famous phrase and managed to prove that the EU expenditure is an excessive budget burden measured at her country’s relative prosperity.

Nearly thirty years have passed, however the hands of United Kingdom remained bind regardless all changing circumstances. Since 1984, the EU has expanded and a number of its members nearly tripled, the Cold War has ended and the Iron Wall has fallen, several waves of economic bubbles passed, whereas today we are entering a fifth year of a protracted financial crisis.

With years the structure of EU budget has changed as well. According to the numbers presented by the European Commission, today we are spending on the Common Agriculture Policy (CAP) 25 per cent less than we did in 1984 (69 per cent). The structure of contributions to the EU budget has changed as well, as has changed a relative prosperity of the United Kingdom (111 per cent of EU GNI per capita in 2011 in contrast to only 93 per cent in 1984).

It is understood, that this weaker side of argument was not very much escalated in the European Summit last Thursday to Friday. Instead, a whole negotiation rhetoric was linked to a stronger link argument by saying that if EU wants to be globally competitive, it has to have a modern budget. Arguably, a budget with its half in CAP expenditure is not the way out of the financial crisis, especially when it was claimed that EU’s administration costs were left untouched and remained excessive in austere Europe.

This link has a potential of getting even stronger as the axis in Europe does change as well. The last EU summit did not have a joint proposal from France and Germany, nor did the EU summit before this one. And this is not the best strategy if France wants to keep CAP budget away from further cuts. In exchange to this we saw a rapprochement between Angela Merkel and David Cameron.

For David this was an opportunity summit to bring a vision from the United Kingdom on functioning of the EU. This was also an opportunity for the United Kingdom of returning to a core debate on Europe after recent drift in offensively defending the interests of the City. However, it seems that this opportunity was not jet used to its full potiantial.

For Angela it was an opportunity summit to earn a backing of the UK in the discussion on the economic governance by defending fiscally disciplined Europe, stronger EMU institutions and deeper economic integration with national governments. In fact, it was her strategy to avoid the isolation of Britain and to stop its further drift. And for the time being it seems this strategy is successful.

With this outline and with the rest of EU member states reaching out for national gifts under the EU budget Christmas tree, the agreement on the next EU financial framework seems probable sooner that later.

If the EU President together with the EU Irish Presidency will find an appropriate shape of the EU expenditure, especially in budgetary headings of EU administration and CAP, then the agreement on the correction mechanism seems reachable as well. The not distant future will show us how far the alliance of Angela and David could go.


photo: © Miguel Villagran/Getty Images

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