British veto threat on the EU budget ‘very dangerous’

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A looming British veto on the EU budget for 2014-2020 could heavily undermine the Union’s efforts to emerge from the eurozone sovereign debt crisis, Brussels analysts warned yesterday (22 October).

“We are potentially in a very dangerous impasse,” said Fabian Zuleeg, chief economist at the European Policy Centre (EPC), speaking at a briefing on last week's EU summit (see background).

“The question is what happens in November and what happens in December,” Zuleeg said, referring to the 22-23 November extraordinary summit dedicated to the 2014-2020 EU budget, and the 13-14 December summit, when a final report and roadmap for further economic and monetary union is expected to be adopted by EU leaders.

But an agreement on the EU budget is “very unlikely” at the November summit as British Prime Minister David Cameron will have a “big temptation” to make use of the veto, Zuleeg said.

Zuleeg argued that there was “very little left to cut” from the EU budget, as requested by the UK. On the other hand, leaders were “unwilling” to make any more concessions to Cameron, he said.

“Cameron wants to use the debate around eurozone integration to also renegotiate the relationship between the UK and the rest of Europe, and the budget is one of the areas on which he is focusing now. So if he doesn’t get the level of cuts, if he doesn’t get the protection on own resources, on the rebate, on all the other issues which they put on the table, what would be the UK response? I think that the most likely response at the moment is actually a veto,” Zuleeg said.

But if the November summit fails to reach an agreement, it doesn't mean EU leaders will get luckier in December, Zuleeg warned, saying that the EU might end up without an agreement on the 2014-2020 budget by the end of the year.

This, in turn, could well have implications for the debate on the governance of the eurozone, which is the defining issue of the moment in Europe.

“We are in a very dangerous impasse and in my view it is highly unlikely that we get a resolution by the end of the year,” Zuleeg repeated.

Cancelling the November summit?

Janis A. Emmanouilidis, senior policy analysts at the EPC, went further, saying that German Chancellor Angela Merkel could decide to cancel the November summit if Cameron insists that he will veto any deal other than a total freeze on spending, as reported by the Financial Times yesterday.

If the November summit is canceled, the December summit would “not be ambitious enough,” restarting the eurozone crisis, Emmanouilidis said.

This looming crisis comes as the EU’s common currency is starting to emerge from the three-year sovereign debt crisis, Emmanouilidis said. The three reasons, he said, were that the European Central Bank had made use of the “big bazooka”, by buying sovereign bonds on the secondary market, that the EU appeared now ready to think long-term, and that there was a substantially reduced risk that any country will exit from the eurozone.

But he said that the dangers were still around and confidence could be easily undermined.

He pointed out at the “very fragile situation in the European banking sector” and lack of answers to the Spanish question as well as the ongoing Greek crisis. In addition, he said Cyprus and Slovenia had “to become programme countries” by negotiating bailouts similar to those of Greece, Ireland or Portugal.

Emmanouilidis pointed out at the social and economic situation is worsening in many member states, and “the collateral damage of the crisis” is that nationalism, populism, political extremism and separatism are on the rise.

Emmanouilidis insisted that the 18-19 October summit, by “muddling through”, would not give the solution to Europe’s problems. He pointed out a various “worrying signs” from the summit: the “loss of determination to create the banking union,” the “inclination to backtrack from decisions taken earlier”, and to a “wait-and-see attitude” which was becoming dominant.

To this, a risk element he mentioned the “growing polarisation” between France and Germany.

In the meantime, the European Parliament invited Merkel to discuss pending issues related to banking union and the 2014-2020 EU budget. She is expected to address the mini plenary session on 7 November in the afternoon. 

At their 18-19 October summit, EU leaders have agreed plans to complete the European banking union by January 2014, after the general elections in Germany. The concession was made to Angela Merkel who argued for "quality" over "speed" in putting in place the new supervisory system.

But the summit was seen both as a step forward, and as an illustration of tensions in the Franco-German couple.

Merkel arrived in Brussels with a broader agenda, including controversial proposals to introduce a new super-commissioner with powers to oversee the national budgets of eurozone countries.

In a widely noticed interview before the summit, French President François Hollande rejected the idea, saying that if necessary, EU leaders could hold monthly summits instead.

  • 7 Nov.: Angela Merkel will speak in the European Parliament on issues related to banking union and the 2014-2020 budget 
  • 22-23 Nov.: Extraordinary summit to discuss long term budget for 2014-2020
  • 13-14 Dec. 2012: Final report and roadmap for further economic and monetary union to be adopted by EU leaders at Brussels summit
  • 13-14 Dec. 2012: German Chancellor Angela Merkel hopes the summit can agree a concrete date for the start of a convention on a new EU treaty to complete the EMU.

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