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11 February 2013

Doing more with less: EU Leaders agree reduced budget The Budget in summary  The 2014-2020 budget is set at a ceiling of €960 billion, a 3% cut on the last budgetary period. This is €85 billion less than the European Commission’s original proposal and represents roughly 1% of the EU’s GDP.  Areas facing cuts include transport, energy, telecoms, and staff.  Around 40% of budget will still be spent on farming.  UK rebate worth €3.5 billion is untouched, and Denmark won itself a rebate of its own worth €134 million.  European Parliament must agree to this budget, but has already voiced its dissatisfaction. A tense few months await.

After more than 24 hours of frantic negotiations, on 8 February EU leaders finally agreed the terms of a new long-term budget for the European Union, despite what seemed to be irreconcilable differences between the UK and France. Although Council insiders close to the President of the European Council, Herman van Rompuy, talked up the prospects of a deal in the run up to this week’s Summit, it soon became clear that the respective positions of French President François Hollande and British Prime Minister David Cameron had in fact hardened since the last European Council talks collapsed without agreement in November last year. Mr Cameron - in a nod to austerity - strode into the Council’s Justus Lipsius building in Brussels, foregoing the traditional arrival by limousine which marks the start of Council.

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He told assembled reporters: “Frankly, the European Union should not be immune from the sorts of pressure we’ve had to reduce spending. When we were last here in November, the numbers that were put forward were much too high. If they don’t come down there won’t be a deal.” Mr Hollande was equally determined to make his case, telling reporters: “If Europe were to seek a compromise at all costs to abandon its common policies, forget agriculture and ignore growth, I would not agree.” He immediately called for cuts to the UK’s annual €3.5bn rebate on its EU contributions – a complete no-go area for the British.

“Le snub” The formal start of the Summit was delayed by almost six hours as feverish caucuses took place. Mr Van Rompuy and German Chancellor Angela Merkel wanted to get Mr Cameron and Mr Hollande together in the same room. Instead, the French President met with the leaders of Spain, Italy, and Portugal without sending his apologies, giving rise to what the British dubbed “Le Snub”. Later, when the formal summit started, Mr Hollande did not even acknowledge Mr Cameron as he walked past him in the Chamber.

Preparing “le snub” (Source: Wikipedia)

Announcement Given the frosty start to the Summit, it is remarkable that an agreement was reached at all, and initially it seemed that positions had become entrenched since November. The divisions between the austerity-focused northern economies led by the UK and the spend-to-stimulate

mind-set

of

the

southern

economies

led

by

France

seemed

insurmountable. However, Mr van Rompuy focused minds when he said that if no deal was reached this week, then it would not be possible to have an agreement in time for when the 7 year multiannual financial framework started in 2014.

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The announcement of the deal was delayed, not due to anything substantial, but rather over a disagreement over a formula for what happens to unspent money earmarked for European projects.

Cameron the winner? Mr Cameron was quick to claim that the deal represented a victory for him and his negotiating team. The agreed €960bn budget deal was €12bn less than the proposal from November and €85 billion less than was originally proposed by the European Commission. Moreover, the overall budget for 2014 to 2020 represent €33bn less than the previous budgetary period and marks the first ever reduction in EU spending. The €960bn figure represents the ceiling or the maximum amount of the EU budget. Mr Cameron successfully reduced spending commitments which has stood at €942bn to €908bn – a saving of €34bn. Despite the sizeable cuts to the budget, agricultural spending – a key French priority – remained largely intact. Indeed, spending on rural development will increase by €1.5bn over the next seven years. Regional funds for Member States and localities which are lagging behind economically was also ring-fenced, and new money was set aside for skills for young people. The “Nobody’s perfect budget,” according to Mr Van Rompuy (Source: The Council of the European Union)

biggest

savings

came

from

reductions

to

infrastructure projects such as the Connecting Europe Facility and broadband projects. The administration budget has also been cut by €1bn over seven years.

Money had been set aside for growth-stimulating measures, research, and structural funds to go to countries worst hit in the economic crisis, including Greece, Ireland, Portugal, and Spain – including €6bn fund to tackle youth unemployment.

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Rebate In the end, the rebate system was left largely untouched. The UK kept its historic rebate won by Mrs Thatcher despite French and Italian protests, whilst Denmark won a rebate of €134 million a year, although this may be subject to further wrangling given that The Netherlands, Sweden, and Austria are unhappy with their rebate deal.

European Parliament Today’s agreement still needs to get clearance from the European Parliament. The President of the Parliament, the German left-wing MEP Martin Schulz, is sceptical that MEPs will agree to the reduced budget. “We are talking about massive real cuts. I don't know if this can be described as

Schulz: “Controversial” (Source: Wikipedia)

realistic financial planning." The leader of the centre-left S&D Group, the Austrian Hannes Swoboda, said the idea of passing the budget in its current form was "not imaginable”. Joseph Daul, leader of the largest party in the Parliament, the centre-right EPP, was also cautious about the cuts. “Precisely because of the ongoing recession, it is even more crucial to compensate these national cuts – particularly in poorer regions – by defending EU funding.” Mr Schulz sparked controversy when he said that the Parliament would hold a secret ballot on the budget so that MEPs would not be pressured by their governments to rubber-stamp the deal. Martin Callanan, the UK MEP and Leader of the European Conservatives and Reformists, described the idea as the "kind of behaviour that brings the EU and politicians into disrepute."

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End of the old axis? David Cameron can claim to have got what he wanted, namely a real cut to the budget. Many of his Conservative Party MPs demanded he wield the national veto if he could not achieve the cuts they wanted to see, and Mr Cameron can thank Ms Merkel for getting him out of a tight spot with his eurosceptic backbenchers. Mr Hollande will have left the Summit feeling slightly betrayed by his German ally. More than the cutbacks to EU spending, this Council will perhaps most be remembered for the oncepowerful Franco-German political axis coming to an end. The pro-Europeans in Mr Cameron’s party will want their Prime Minister to now seize the opportunity to work more closely with Germany in taking a leadership role in the European Union.

Contact russell.patten@grayling.com

(Source: Council of the European Union)

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BigPictureBrussels 02/13 – EU Budget Summit