New EU budget blueprint unveiled

New compromise European budget proposals have been unveiled by the EU presidency as Europe’s leaders gather in Brussels for a critical summit.

The Luxembourg EU presidency’s latest “negotiating box” aims to balance demands from countries that benefit from spending with national capitals that bankroll Brussels.

Key to a deal during tense negotiations to seal EU expenditure for 2007 to 2013 will be tight caps on spending and arrangements to ensure member states such as Italy or Spain do not lose regional funds to Poland or Hungary.

But perhaps most important to an agreement are moves to ease the burden on Europe’s net contributors – those countries that pay more in than they get back.

EU dues cut

Germany, the Netherlands and Sweden – high net contributors and relatively low beneficiaries – do not receive UK-style rebates.

Instead, under the new proposals, the EU’s share of VAT collected nationally by Berlin, The Hague and Stockholm will be halved – from 0.30 per cent to 0.15 per cent.

Extra VAT breaks are also offered to ease the pain for Sweden and the Netherlands – the Dutch are the highest per capita contributors, a factor in the country’s June 1 referendum rejection.

The EU presidency has asked the European Commission to table proposals in 2011 that will rethink how Brussels is funded – including the possibility of a European tax.

After seeking to buy off Europe’s paymasters, Luxembourg has tried a delicate balancing act to assure old EU countries with poor regions that last May’s entry of ten, mainly poorer members, will not see cash flow East.

'Phasing out' - 'phasing in'

Regional funding targeted at the EU’s poorest - areas below 75 per cent or 90 per cent of Europe’s GDP – will be covered by “transitional arrangements”.

Countries such as Spain, Italy, Portugal and Greece will be “phased out” of structural funds – poverty targeted – and “phased in” to new growth targeted cash.

Complicated tables setting average GDP ceilings for new and old EU will govern caps on how much poor regions can expect in each member state.

Rebate debate

The UK’s controversial rebate – subject to a high-profile row between London and Paris – is frozen to around €4.6 billion, the average figure for the period 1997–2003.

London has already publicly rejected this formula but has tabled proposals – linked to caps on expenditure – forgoing rebate contributions from new EU countries.

Britain will argue that London does not expect countries such as Poland or Latvia to fund a rebate, shaving around €500 million from the UK’s annual cheque.

But even given this UK compromise, Britain’s cash back would still rise to around €7bn by 2013.

Despite a high-profile for the rebate issue, and bitter exchanges between London and Paris, the true test of the Luxembourg compromise will be balancing the need to give cuts to the Netherlands and preserve benefits for countries such as Spain.

'One per cent'

The EU presidency has tabled cuts of €150bn on original European Commission proposals proposed in early 2004.

“The maximum total figure for expenditure for EU 27 for the period 2007-2013 is X in appropriations for commitments, representing 1,06 per cent of EU GNI, and Y in appropriations for payments, representing one per cent of EU GNI,” states the text.

Europe’s six net contributors – Austria, Britain, France, Germany Sweden and the Netherlands - are seeking to peg expenditure at one per cent of Europe’s Gross National Income (GNI).

Based on the “commitments” heading the commission proposed 1.24 per cent or just over €1 trillion for the seven year period.

Luxembourg’s one per cent figure – even though for the lower “payments” heading – may allow the six governments to return home having won demands.

 

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