EU reopens Brussels budget battles

Europe’s foreign ministers on Monday reopen bitter discussions on the future of EU spending after talks collapsed last June.

Negotiations over an economic ‘shock absorber’ and moves away from direct farm subsidies are key to a British EU presidency strategy for securing a budget deal.

But a British paper has attracted criticism for failing to explicitly mention the UK’s controversial annual rebate and compromise proposals tabled by the former Luxembourg EU presidency in June.

Concrete negotiating figures are not expected to emerge until before late November.

Divisions

Deep splits over the future of Europe’s agriculture spending, the UK’s annual rebate from Brussels coffers and the level of contributions sank previous negotiations.

The British EU presidency is hoping that Europe’s political climate has changed since – especially following a European debate on “the challenges of globalisation”.

A paper circulated by London ahead of the November 7 meeting skirts around two key issues: Britain’s annual €4.5 billion rebate and farm spending.

The document fails to mention either French calls to scrap the UK’s 21-year-old cash-back arrangement or Britain’s demand to unlock direct agriculture ceilings set in 2003.

‘Modernised’ budget

The British EU presidency is looking at proposals that could shift some direct agriculture subsidies to farmers into more general rural development spending.

But France is holding out against change to the structure of agriculture spending as the issue also polarises WTO talks on farm aid and trade.

Also on the table are European Commission proposals for a ‘Globalisation Adjustment Fund’ and plans to target EU regional spending, aimed at Europe’s poorest areas, on boosting economic growth.

Rebate

UK diplomats hope that focusing early discussion on modernising the structure of EU budgets will pay dividends.

“The presidency considers that this is a useful starting-point for a discussion about how proposals relating to the future level and structure of expenditure in the negotiating box might be adjusted with a view to achieving an overall agreement,” states a UK paper.

Discussion of the €5.5 billion UK rebate is subsumed under a more general discussion on national contributions to the EU – with some countries such as the Netherlands, Germany and Sweden feeling they pay too much.

One option for the UK is to preserve or trim its 21-year-old annual ‘abatement’ but increase contributions into EU coffers, with the extra proportion of VAT and customs duties targeted at economic growth-related spending.

Review clause

Britain will also be pressing for a review clause allowing the EU to revisit budget spending within the 2007 to 2013 period.

“An agreement at the December European Council on the timetable for a review of the budget, and on the scope of that review, would help serve an overall agreement on the financial perspective,” said the UK paper.

The European Commission has pushed hard for a review clause to be built into any deal, its proposal discussed by leaders at a failed Brussels summit on June 17 urged “reflection” on budget issues.

The text refers to the sensitive issue of agriculture spending - sealed three years ago ahead of EU enlargement from 15 to 25 members.

The issue was central to a bitter row between France and the UK: London called for agriculture to be reopened in response to a French demand that Britain give up its annual rebate agreed in 1984.

“Such a comprehensive reflection could lead to a reform of all aspects of the budget, taking also into account agreements reached in the context of enlargement in October 2002,” said a commission text.

“[The EU summit] therefore mandates the commission to study the matter and to present a report - accompanied as necessary by proposals - at the latest by end 2008. On this basis, [Europe’s leaders] will take the appropriate decisions, including possible adjustments to the financial perspectives 2007-2013.”

Brussels is calling for two rethinks, one in 2008 and another wide-ranging review in 2013, as part of Europe’s ‘financial perspective’ deal.

UK versus France

The UK has fallen out with France over Britain’s annual rebate from EU coffers and Paris’ insistence on locking farm subsidy spending ceilings set three years ago.

London has linked its ‘cheque’ to farm subsidies as the rebate was originally agreed to compensate the UK for a low CAP take up by British farmers.

Europe’s leaders agreed in 2002 to freeze Europe’s Common Agriculture Policy expenditure ceiling until 2013.

The commission suggests a “certain amount of revision” is possible under the existing ceiling and agreement.

Brussels is set to review CAP spending in 2008 and may shift funding from direct payments for production, benefiting French farmers, to ‘rural development’.

Between five to ten per cent of direct aid could be shifted into budgets directly focused on non-farm subsidies related to competition.

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