“We are running towards a deadlock,” said MEP Daniel Cohn-Bendit, co-chairman of the Greens, speaking at the assembly's plenary session in Strasbourg.
Eighteen months after the European Commission first proposed a blueprint for the EU's multi-annual financial framework (MFF) for 2014-2020, the European Parliament has come up with its own proposal, upon which to build a possible compromise with member states.
But with UK Prime Minister David Cameron pledging to veto any deal that does not impose a total freeze on spending – and German Chancellor Angela Merkel warning to postpone the budget summit if Britain maintains its position – MEPs are determined to play hardball.
“The European Parliament will not agree on new spending unless there is agreement on revenues,” said French MEP Alain Lamassoure, who chairs the assembly’s budget committee for the centre-right European People's Party.
Since 1988, national budgets have grown on average more rapidly than the EU budget, which stands at roughly €130 billion a year, or around 1% of EU GDP. Currently, the EU budget represents only some 2% of total government expenditure in the Union, more than 45 times smaller than the sum of national spending.
The Parliament's resolution says total government expenditure in EU countries have risen at an annual nominal rate of 2% and although tightening belts is crucial in times of crisis, it is important to put numbers into perspective.
“The shrinkage of the EU budget with respect to the national budgets is in flagrant contradiction with the extension of competencies and tasks conferred on the Union by the Treaty and with major political decisions taken by the European Council itself, notably the development of strengthened European economic governance,” MEPs say in the resolution.
Divided countries, united Parliament
In the context of the eurozone crisis, conservative governments, led by the United Kingdom, have pushed for the EU budget to be slimmed down, while some have taken the opposite view that money spent at EU level has an added value and contributes towards lifting Europe out of the crisis.
The divide amongst member states will play to the advantage of the European Parliament, which at a minimum wants to retain the current budgetary levels. The resolution was adopted by a vote of 517-105 with 63 abstentions.
“The status quo cannot be defended, as obscure calculations are carried out behind closed doors giving some countries a number of privileges,” said Lamassoure, pushing for a reform of the EU budget and lamenting the rebates negotiated by the UK, the Netherlands and Sweden.
Lamassoure also questioned the fiscal capacity, proposed by European Council President Herman Van Rompuy and backed by EU leaders last week.
The fund aims to help countries like Spain, which has unemployment of 25% and is struggling to reinvigorate growth. In exchange for austerity, the pan-eurozone fund wants to provide targeted assistance.
“We are not hostile to such a specific budgetary capacity for the eurozone, but it is strange that such a proposal comes in the midst of negotiations for a new EU budget," said Lamassoure, who sees the proposal as another move by EU governments to elude parliamentary scrutiny over budgetary matters.
MEPs are convinced that the Commission proposals (see background) to cap the EU budget at the 2013 annual level will not be sufficient to finance existing policy priorities linked to the Europe 2020 strategy for sustainable growth.
If national leaders insist on the 1% GDP ceiling, MEPs might compromise only if unspent funds are rolled over from one year to the next and not transferred back to member states, as is currently the case, explained a Parliament spokesperson.
Challenging times, flexible options and own resources
Another possible ground for compromise would be giving the EU budget more flexibility.
MEPs are convinced “as a matter of principle” that the constant changing political and economic circumstances as well as unforeseen events will require adjustments of the MFF.
“We need more flexibility, both within and across the headings,” said Ivailo Kalfin (Bulgaria, Socialists & Democrats), the vice chair of the Budget Committee, suggesting that money should spent to promote growth and employment.
Lamassoure underlined that the current divide on the Union’s budget highlights the lack of genuine "own resources" to fund the European Union's policies and objectives.
“It is not to reduce the budget, but to replace national contributions,” said Lamassoure, explaining that the introduction of a new system would not increase the overall tax burden for European citizens, but would instead reduce the burden on national treasuries.
If the two ideas favoured by the European Commission, such as the financial transaction tax or a European tax, does not find a consensual ground, then the EU executive can return to the drawing board and come up with new solutions.
“What we need by December is a political agreement,” said Lamassoure, perfectly aware that technical details will probably need to be sorted out next year.
Real or ‘phony’ fight?
MEPs intend to maintain the pressure until a satisfying consensus, including an agreement on own resources.
“If no consensus is found, simple: We will stick to preceding budget,” said Cohn-Bendit, adding the 2013 budget is higher than the one proposed by the European Commission for the 2014-2020 period.
But British sources say even Cameron has no interest in keeping the status quo as that would mean that the “farmers will continue to get that money until the cows come home.”
Cameron knows perfectly well that the growth-friendly research budget will not have a legal base until a new budget is agreed. “You can’t say I am going to block, you can say let’s have a talk,” said the source, adding that the strife over budget could turn into a ‘phony’ fight.
“Mr Cameron has to understand that you can’t act like a part-time member and want to be a full-time decision maker,” added Austrian MEP Hannes Swoboda, chair of the S&D group in the European Parliament.