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EU: Storm Clouds Gather Over Plans For First Post-Enlargement Budget

The European Union is preparing the groundwork for its first full budget following next year's enlargement. The massive budget -- running from the years 2007 to 2013 -- will have to cement the newcomers into the fabric of the union. But political storm clouds are already gathering -- namely, the threat by big EU members to reduce financing for states that seek too many changes in the bloc's new constitution.

Prague, 10 October 2003 (RFE/RL) -- The European Union is deeply preoccupied at the moment with finalizing its first constitution, a controversial document that will be hammered out by member states and accession countries with difficulty.

Amid the din of that battle, however, the opening notes of another melody can just be heard, one that will grow in volume over the next two years -- how to divide the EU's budget of some 120 billion euros annually across at least 25 and possibly 27 member states for the next budget period from 2007 to 2013.

The budget must be agreed on unanimously and is therefore potentially as difficult an issue as the current negotiations on the new EU constitution.

As an opening move in the long process, the European Commission has begun preparing a report for next month that will set out its thinking on the broad policy lines for spending the money. As Elizabeth Werner, a spokeswoman for Budget Commissioner Michaele Schreyer, puts it: "Then we will be waiting for reaction from the other EU institutions and the member states, and sometime next year we will be making legislative proposals, with figures and details and so on. And we hope there will be a decision taken [on the whole budget] some time in 2005."

It's clear that the biggest item in the budget will remain the Common Agricultural Policy (CAP), which is expected to consume more than 40 percent of the total budget, or some 53 billion euros per year. Much of the budget mechanism is, of course, based on fixed criteria, and these cannot be changed by negotiation. For instance, direct payments and other financial support to Eastern farmers will be paid out according to a predetermined formula.

Analyst Andreas Schneider of the Brussels-based Centre for European Policy Studies explains: "The direct payments and all the support money which goes to the accession countries is only gradually phased in, so it is not a thing which takes place tomorrow." In 2007, he says, they will receive "some 20 percent [of the total], and then they get another 10 percent [the following year], and then by 2013, it is anticipated that they will be at the same level."

Schneider says the accession countries are now busy preparing lists that contain the sizes of farms in their countries and the number of animals per farm. The size of the direct EU payments are determined by those figures.

"The accession countries, they have to register all their land and all their cattle from last year onwards, which is the reference year," Schneider says. "They will get their direct payments. You cannot fiddle around with those figures. If you have 100 cows, you get the money for 100 cows."

The next biggest item in the coming budget -- and the most contentious -- will be regional and structural funding, which is expected to swallow more than one-third of the remaining cash.

The question of regional funding is hugely divisive. At present, three-quarters of that funding goes to regions of member states where the gross domestic product (GDP) is less than 75 percent of the all-union average. The biggest recipients are Spain, Portugal, and Greece and, in the past, Ireland.

Under the new budget, present recipients will lose practically all that money to the Eastern newcomers who, because of their comparative poverty will statistically lower the payout threshold. That will be a hard pill for present members to swallow.

Spokeswoman Werner explains the controversy by saying, "It is clear that this issue of solidarity and who will benefit from regional funding is on the table, because clearly the way we measure it right now -- depending on socioeconomic criteria and on average wealth or GDP per capita compared to the average -- means there would be a shift towards the East. And thus we have to discuss how best to spend the money in the enlarged union."

In compensation, an idea reportedly under discussion is that present aid devoted to middle-income regions -- consisting of funds for social purposes, research, transport, education, and energy development -- will disappear and be replaced by a huge, so-called "fund for the support of competitiveness." Such funds would be available across the EU and could be expected to go particularly to the more disadvantaged regions of the "old" union, to help them develop expertise in the new technologies.

The road ahead will not be easy, as Werner points out.

"We expect difficult and lengthy negotiations. And one lesson we have learned from the previous period -- the previous period started in 2000 -- is that it is better to have disagreements earlier because what happened last time is that with all the programming deadlines and the time it takes especially to settle the structural funds program, we need a long time to prepare ahead."

She notes that the last budget process was finished only months before the budget was due to come into effect. And this time, there is an extra complicating factor.

A major row is brewing over the EU's new constitution, which is now being negotiated in Rome. In what is widely seen as a veiled threat to Spain and Poland, both French President Jacques Chirac and German Chancellor Gerhard Schroeder have suggested a link between future financing and what they see as a suitable deal on the constitution.

Spain and Poland, which have been or will become big regional aid beneficiaries, want major changes to the constitution -- something Germany and France oppose. Germany is the major paymaster of the union and, as Foreign Minister Joschka Fischer put it, things will be "very, very difficult" unless talks on the constitution are finished before the financial negotiations begin in earnest.

European Commission President Romano Prodi has rejected any linkage between cooperation on the constitution and the amount of money new members might receive.

Of course, the new budget comes into force only in 2007, whereas 10 accession countries are due in the EU by mid-2004. Their allocation of funds from 2004 to 2006 has been already arranged as part of their accession negotiations.