EU budget delay keeps pressure on UK over banking union


The failure to agree on the next EU budget at today's extraordinary summit leaves Germany with powerful negotiating leverage over the UK for the crucial summit on banking union scheduled in December, EURACTIV has learned.


Leaders seeking compromise on a new version of the EU's long-term budget (2014-2020), formulated by Council President Herman Van Rompuy, will now seek to square the circle over the budget in February 2013.

Diplomatic manoeuvres from Berlin

Several sources told EURACTIV that it suited Germany’s Chancellor Angela Merkel to postpone a budget deal until next year, as she has positioned herself towards UK Prime minister, David Cameron.

The sources explained that offering Cameron her support on further budget cuts after the December summit might help to sweeten the UK’s agreement to banking union.

If Merkel would have helped Cameron achieve an acceptable outcome in advance, there is a danger Germany would receive nothing in return for its assistance.

The idea tallies with the fact that EU leaders were 'very close' to agreement for the budget 2014-2020 on the basis of the latest proposal by Council President Herman Van Rompuy, Cyprus Presidency sources told EURACTIV.

It also explained a series of sophisticated diplomatic manoevres emanating from Berlin during the summit, which left Germany’s partners baffled by Merkel’s positioning.

Merkel has feet in both camps

Germany occupied a pivotal role between two groups of net-contributing countries. On one side, those that favour an increase of the EU budget and more money for the CAP and cohesion funds–France and Italy. And on the other side, the UK –the standard bearer for net-contributors wanting cuts, which also included Sweden and the Netherlands.

During a bilateral meeting with French President François Hollande yesterday evening (22 November), Merkel touted further cuts on the most recent MFF proposal of €30 billion (see previous articles).

Whilst Merkel called for more cuts, appearing to mollify Cameron, Berlin was simultaneously applying pressure on the UK, in case British prime minister attempted to wield a veto.

Merkel remained inscrutable after the summit was brought to an end on Friday afternoon. She told reporters that the spirit had been amicable, that differences remained, but unlike Cameron she mentioned no cuts.

Asked if she sympathised with Cameron’s position of calling for more cuts, she replied: “I sympathised with my position, which is to find agreement among all 27 member states.”

“When I arrived here I thought there were a number of things that were simply unsurmountable, but now after lunch, and considering we had a good rest overnight, people brought a general willingness and effort to the table to really come to an agreement,” she added.

“Merkel is playing a skilful game and has her feet in both camps,” an EU official told EURACTIV.

“She now has the opportunity to use her budget position as leverage for Cameron to accept the banking union,” said the source.

Although member states had widely diverging positions on the MFF, none of the “big countries” made obstacles, but several “small countries” were reportedly troublemakers.

>> Read: The EU's new budget blueprint in figures

None of the large member states, including the David Cameron’s UK, raised issues that threatened to sink the summit. “Everybody was expecting Cameron to break everything. But Cameron came with a different approach. Now nobody can say that the UK is responsible for what happened,” said one diplomat, who heard the debate.

Cameron reportedly adopted a “very diplomatic” tone, telling fellow leaders “I am here to agree”. According to the insider's report, he was ready to accept a cut of the EU budget to the level of €100 billion, despite calling for a €200 billion during the bilateral “confessionals”, held with Van Rompuy.

Newcomer Romania named as 'troublemaker'

Meanwhile sources told EURACTIV that the summit troublemakers were Finland and the Netherlands, unsurprisingly since these net donor countries have been insisting on more cuts and on rebates.

There were also “low voices” from crisis-hit Portugal and EU newcomer Romania, which both pleaded for “more money”.

“That’s why it’s a pity. We didn’t have big member states against,” he lamented.

"Frankly the deal on the table was just not good enough. It wasn't good enough for Britain and neither was it good enough for a number of countries,” said UK Prime Minister David Cameron.

"In the UK we are cutting admin budgets by as much as a third, civil service staff by 10 per cent in two years. None of this has been easy. Meanwhile Brussels continues to exist as if it is in a parallel universe. The EU institutions simply have got to adjust to the real world,” the Prime Minister said. “The commission did not offer a single euro in savings, not one euro – insulting to European taxpayers. I do not think that is good enough,” Cameron added.

“There is a potential for an agreement. We think that it is possible that at the beginning of next year we can come to a solid and sound agreement. The unanimous view of the 27 leaders is that we can reconcile differences and bridge differences of opinions,” said German Chancellor Angela Merkel at the end of the meeting, adding that the debate was held in a constructive and friendly spirit.

“Going back to the negotiation table every year to adopt a new budget would weaken a position, especially in this very difficult time,” Merkel said.

“Both bilateral and common discussions showed us that there is sufficient potential for an agreement. It is a sound basis to follow work,” the German Chancellor concluded.

Speaking after the meeting of the European Council on the 2014-20 budget Johannes Hahn, Commissioner for Regional Policy, said:

"I understand these negotiations have been difficult but  I believe that the Commission proposal remains a realistic and balanced one at a time when Europe needs a major collective effort to support growth-enhancing investments and create new jobs. Indeed, we have tabled a budget which is more than ever focused on few, important priorities. But we have also profoundly reformed the way the EU budget is used.

"In cohesion policy, we are introducing strict conditions, performance incentives, strong monitoring and ways to measure concrete results. We are making cohesion policy more effective than ever before. I want it to be an effective and modern investment policy for growth and jobs. I therefore trust member states will do their best to reach an agreement as soon as possible. We cannot lose more time. Preparation of programmes are on-going and a clear and stable financial framework is needed. Now it is time to deliver fast."

At roughly €130 billion a year, the EU's annual budget is equivalent to around 1% of EU national wealth, or €244 per EU citizen.

The European Commission proposes raising it to an annual €146 billion over the next seven-year period (2014-2020), or €1.025 trillion in total. But austerity-minded national leaders want a much leaner spending plan.

>> Read: EU budget 2014-2020: The €1 trillion deal

  • 13-14 December: EU summit on EMU
  • Feb. 2013: EU summit on budget

EU institutions


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