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Explainer: Complex Budget Talks For Inward-Looking EU

Spanish Economy Minister Luis de Guindos (center) jokes with Luxembourg Prime Minister and then-Eurogroup Chairman Jean-Claude Juncker (right) at a meeting in March 2012.
Spanish Economy Minister Luis de Guindos (center) jokes with Luxembourg Prime Minister and then-Eurogroup Chairman Jean-Claude Juncker (right) at a meeting in March 2012.
By Rikard Jozwiak
European Union prime ministers have descended on Brussels primed for yet another bruising fight that could last all weekend. It is the 1 trillion-euro ($1.3 trillion) EU budget for the next seven years that needs to be settled, and sharp contrasts persist among member states -- just like three months ago, when they failed to clinch a deal. The budget will determine the outlook of the EU in coming years, and it is likely that a more inward-looking EU will emerge once the dust has settled.

What's at stake during the summit?

What and how much the EU should spend in 2014-20. The European Commission's budget proposal totals 1.033 billion euros, of which 85 percent will come from EU member states, mainly through fees paid based on their gross national income (GNI). Four-fifths of the budget will go toward the EU's Common Agricultural Policy (CAP) and its Cohesion Policy, which funds projects in poorer parts of the union. But it is the fine details that are causing acrimony, according to Janis Emmanouilidis at the European Policy Center.

"The overall budget is 1 percent of the overall EU economy. So now we are fighting about a small portion of that 1 percent. So in the end we are not talking about a huge amount of money," Emmanouilidis says. "But it is important because it is also political bargaining which is happening. Member states' governments want to go back and tell their home audiences that 'we fought for our interest and in the end we were able to get a compromise which suits our purpose.'"

So who wants what?

Support for the budget is roughly divided among two groups. One, known as "The Friends of Cohesion," brings together countries which tend to receive more from the budget than they pay in. It wants to either keep or, if possible, increase current spending.

The other group, "The Friends of Better Spending," includes many net contributors to the EU budget and favors cuts in spending. But even within the latter group there are varying positions. So-called purist members like the United Kingdom and Sweden want to shave 200 billion euros from the current commission proposal, which Germany feels is too high. France is also for cuts but wants to ring-fence agricultural spending -- a wish shared by members of the "Friends of Cohesion" group, including Poland, but also Greece and Portugal, who naturally want to keep the budget inflated to resuscitate their economies.

Then there are countries from both groups that want the budget to focus more on innovation and science, such as Estonia, Latvia, and Denmark.

As if that wasn't enough, you have the EU institutions which are firmly on the side of "The Friends of Cohesion," as EU Commission President Jose Manuel Barroso has stated.

"The most important instrument we have at [the] European level for investment in growth is the budget," Barroso said. "So let's now see if the governments that are always saying that growth is critically important are ready to come to a compromise on the most important instrument for investment in growth we have at [the] European level."

What's likely to happen?

Unlike the previous budget summit in November, there is every chance of a deal this time, even if it might take all weekend. Not only will many of the EU's long-term projects, especially in Central and Eastern Europe, be disrupted by 2014; the same is true for richer countries' rebates on the EU budget, which they usually get since they don't benefit too much from agricultural subsidies and cohesion policy. These are potential losses big enough to strike a deal.

Another reason is that a consensus has emerged that the budget won't be that ambitious, as the president of the European Council, Herman van Rompuy, pointed out ahead of the summit.

"The budget must be a budget of moderation, reflecting the savings efforts in our member states," Van Rompuy said. "That is why, for the first time ever, there will be a [cut in] real terms compared to the current budget."

Thirty billion euros will most likely be shaved off agricultural spending and cohesion policy, but the real deep cuts are likely to happen in the EU's research budget and administrative costs.

How will the EU's foreign policy be affected?

This is another area in which deeper cuts also are expected. Foreign policy will get a tranche of about 70 billion euros for the next seven years, according to the proposals presented in November. This is about 15 billion euros more than the previous budget but smaller in real terms, (i.e., once inflation is taken into account). This time around this heading can be reduced even further; and for those wanting the EU to play a bigger role in the world, it is a disappointing number.

Bendedicta Marzinotto of Bruegel, a Brussels-based think tank, has said the reason is clear: the eurozone's economic crisis. "I think it is not hard to understand politically why this is happening," Marzinotto says. "It is because the crisis has made Europe much more inward looking than it was before."
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by: Eugenio from: Vienna
February 07, 2013 21:27
You, guys, are still worried about the budget talks in the EU? How about reporting on such an EU-relevant topic as the severe corruption scandal that the Spanish govtl party PP is involved in currently - provoking protests of the population on the streets of the Spanish cities.
Or here is another one: the Greek govt has no idea any more what to do about the ceaseless strikes crippling the country - and is threatening to send the striking workers TO PRISON FOR STRIKING. And here we go: the "European social model" got us back to the late 19th century, just as Émil Zola described it in his "Germinal" some 130 years ago.

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