EU summit: Budget battles and constitution crisis

The Luxembourg EU presidency is putting the finishing touches to a compromise package on Europe’s ‘financial perspectives’ for 2007 to 2013.

Luxembourg’s Prime Minister Jean-Claude Juncker’s negotiating bid must balance conflicting demands and bitter divisions when discussed by EU leaders on Friday.

An EU presidency package combining sweeping cuts on original European Commission proposals and tinkering at the margins of agriculture spending will, Juncker hopes, unlock agreement.

The commission is braced for its projections to be slashed by between €125 to €150 billion, figures that depend on whether cuts are calculated by the ‘payments’ or ‘commitments’ headings.

The EU executive will debate the situation and possible political responses at its weekly meeting today.

A global budget ceiling of around 1.06 per cent of Europe’s Gross National Income - €870bn – is expected to satisfy most, or all, of Europe’s ‘gang of six’ pushing for a one per cent cap.

Vienna, The Hague, London, Paris, Stockholm and Berlin, capitals that give more to the EU than they get back, have been pushing hard to cut contributions.

Germany and France have already given the green light to the Luxembourg ceiling.

The Netherlands and Sweden may be offered a formula to cut high per capita contributions.

Reopening locked agriculture budgets – 40 per cent of the total – is politically impossible, though, the British claim, legally allowable.

Instead Luxembourg is set to rule out new agriculture spending on Bulgaria and Romania on EU entry in 2007 – taking the cash, around €6bn annually, from funding already allocated for a Europe of 25 members.

Further cuts to relatively small rural developments budgets may satisfy both the UK and France.

Paris will have maintained security on the lion’s share of farming budgets that benefit France and London can see movement on agriculture that may unlock movement on the UK rebate.

According to press reports, Britain is still open to talks on the annual €4.7bn cash back the UK secured 21 years ago.

Luxembourg claims there is “room to manoeuvre” on some kind of rebate freeze over 2007 to 2013.

And, officials have noted, UK leader Tony Blair has been supportive of calls for new, poorer EU countries to be factored out of contributions to any Brussels rebates to London.

Regional spending is another tricky and sensitive area for Luxembourg negotiators, Rome has threatened to torpedo the EU budget unless European subsidies to Italy’s poor south are maintained.

But before tackling Europe’s deep divisions over budgets Juncker must first resolve the EU constitution crisis.

French and Dutch rejection of the EU constitution in May 29 and June 1 referendums mean Europe’s leaders must decide where next.

The constitution must be ratified in all EU members states – nine have already said yes – and the summit will decide whether to continue with national votes, risking more rejections, or to put the whole process on hold.

There is thought to be little appetite in EU capitals for new constitution negotiations and most are said to back delay to the constitution’s November 2006 ratification deadline.

In an interview with French newspaper Le Figaro today, Tony Blair signals London's willingness to pause - the UK faces almost certain referendum rejection in a vote set for next year.

"I think that it would be judicious to observe a pause of reflection now. My personal opinion, it is that it would not be judicious to continue for the moment with the referendums," he said.

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