Cameron rallies troops for budget battle

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UK Prime Minister David Cameron used a two-day EU summit which concluded today (17 December) to build an alliance in favour of capping the European Union's multi-annual budget for the post-2014 period. EURACTIV's network reports.

Cameron insisted that the long-term EU budget must be frozen at 2013 levels and only increased according to the rate of inflation.

The UK prime minister secured the support of French President Nicolas Sarkozy and German Chancellor Angela Merkel for his plan. But in an attempt not to deliver contradictory messages during the summit, the three countries agreed not make their position public until tomorrow.

"We will publish proposals on the EU's long-term perspectives until the end of the decade tomorrow," said Cameron at the summit's close, outlining calls for "budgetary restraint and a real-term freeze in the budget" for the period 2014-2020.

Cameron hopes other nations will join the three EU heavyweights. "Other leaders will also sign the statement, but the UK, France and Germany calling for a real-term budget freeze is incredibly significant," he said.

"European leaders will speak for themselves on whether they'll sign the letter. What's important is that the three biggest EU countries have come together at Britain's initiative, and others will want to join us," the prime minister added.

"A new British government has taken the initiative on spending and it's galvanising other leaders. They agree that it's unreasonable to spend more on the EU budget while making cuts at home. This is a change: for the first time, countries are saying 'no' to the EU budget going up and up and up," Cameron said. 

French President Nicolas Sarkozy said the letter would convey the message that "the EU budget must not increase by more than inflation". Most countries had either frozen or reduced their budgets, so the EU must do the same, he said. 

Poland had previously warned that cuts to the European Union's budget should not be discussed at the summit. Council President Herman Van Rompuy also advised EU leaders to stick to the agenda.

Discussions on the long term-budget will officially begin only after the Commission has tabled its own proposals in June 2011. Otherwise, the assumption that the Commission takes orders from member states will gain ground. It is still unclear whether the next long-term budget will cover the period 2014-2020 or 2014-2024.

But consultations on the long-term budget, or multi-annual financial framework (MFF), are clearly already taking place on the sidelines of the summit.

German concerns

In the UK, Cameron is pushing to cap the EU budget mainly to match cuts made to the national budget. For its part, Germany is increasingly worried about its soaring contribution to EU funding. As the biggest net contributor, Germany funds about 20% of the EU budget at the moment.

However, Berlin has so far only put forward basic positions for the budget period after 2014, EURACTIV Germany reports.

"Berlin should expect significantly higher burdens in financing the EU budget from 2014. The Federal Government fears that the German net contribution to the EU budget is going to rise in the next financial period by up to 50% to 12 billion euro a year. Without an active intervention, Germany's position as net contributor is going to deteriorate significantly in 2014," an internal document says.

Over the next period, Germany expects to receive less money from the cohesion funds and less direct payments from the Common Agricultural Policy (CAP). This is because due to their economic growth, East German regions require less support than before. There should be a redistribution of agricultural payments in favour of the ten East European countries (EU 10) which joined the Union in 2004 and 2007.

Germany's Conservative-Liberal government is strictly against any form of EU taxes ('own resources') and the opposition Social Democrats (SPD) are very sceptical about such plans. Traditionally, all German parties also want to lower the UK rebate, negotiated by Margaret Thatcher in 1984.

No unity

The EU 10 are generally seen as advocates of keeping the EU budget at its present level to safeguard regional, structural and cohesion policies.

The EU's most costly scheme, the Common Agriculture Policy (CAP), could be a contentious issue in the debate. However Paris, which is CAP's most prominent defender, has reportedly secured a deal with London to keep its farm spending at current levels: consequently, cuts would mainly hit Central and Eastern Europe.

Asked whether he had turned his back on new alliances forged with Central and Eastern European member states in favour of securing a deal with France and Germany on the EU budget, Cameron replied: "I spend a lot of time being criticised for spending too much time with Central and East European leaders, so I don't accept that at all."

But countries in that region lack unity. Lithuanian Foreign Affairs Minister Audronius Ažubalis recently told EURACTIV that some cuts to the EU's long-term budget "may be necessary given current financial realities". Slovenia, the country with the highest living standards in the EU 10, is reportedly siding with the UK, and even Bulgaria, the EU's poorest country, has reportedly told London that it would support a cap on the EU's long-term budget.

Poland stands at the heart of a group of countries defending the EU's budget from attempts to cut it.

"What is most important is for the budget not to be reduced significantly, because we believe the funds flowing to Poland and other countries help us fight the crisis," Polish Prime Minister Donald Tusk stated just before the summit.

"In Poland's perspective, the best use of EU money is under the structural funds. It will be difficult to explain to the Polish people that giving China money to tackle climate change is a better way to use EU money," a Polish official recently told EURACTIV.

He hinted that in case of disagreement, Poland would decide not to ratify the EU treaty change, needed to put in place a permanent stability mechanism to deal with crisis situations such as those in Greece and Ireland.

In the Czech Republic, for the first time in the last six years, the lower chamber of parliament has discussed EU policies, focusing on the long-term budget.

Martin Kocourek, minister for trade and industry, called to maintain spending on EU cohesion policy, which he said must remain focused on less-developed regions.

On the CAP, Kocourek welcomed Commission proposals to distribute more fairly payments to farmers from new and old member states (at present under a complicated phase-in system, East European farmers get much less than their colleagues from older member countries).

He also said the Czech Republic wanted EU money to contribute to the competitiveness of the sector and expected a gradual decline in total CAP outlay.

For its part, Slovakia wants to keep the EU budget at least at its current level, preserving present spending on the cohesion policy or even increasing it. Bratislava wants the CAP to focus more heavily on rural development, increasing the competitiveness of European agriculture and providing a level-playing field for all farmers. Slovakia is also against the British rebate, negotiated by Margaret Thatcher in 1984.

Asked by EURACTIV Slovakia whether Bratislava would support a lower EU long-term budget compared to the current one, Rado Ba?o, spokesperson for Slovak Prime Minister Iveta Radi?ová, stressed that the country would only start discussing figures if an agreement on political goals were achieved.

"Then we can open the discussion about key policies and exchange our views what should be changed and what should be kept. After that Commission will come up with the proposal on the concrete size of the financial perspectives. We do not want to start discussions from the wrong end," Ba?o said.

A similar position was expressed by Hungary, where the Ministry of Foreign Affairs insisted that "meaningful negotiations" on the next budget perspectives would only start during the second half of 2011.

The Hungarian EU Presidency, which starts on 1 January, will help prepare discussions but will not take the lead, Budapest insisted.

Although Hungary accepts the priorities set out in the EU's 'Europe 2020' strategy, it rejects the idea that the next financial framework should be based solely on Europe 2020's strategic priorities.

The Hungarian position is that the CAP and the Cohesion Fund must be carefully connected to the Europe 2020 strategic priorities, but must not be fully subordinate to the strategy. Hungary believes that due to differences in the development of EU member states and regions, the next budget must contain measures that are not directly connected to the goals enshrined in Europe 2020.

Hungary is not opposed in principle to the issue of 'own resources', or innovative ways of financing the EU budget, but it will refrain from drawing up a formal position on this issue until the Commission has revealed more, the Foreign Ministry sid.

Hungary also said it would accept a 5+5 year budgeting framework, and even if current seven-year practice were upheld, Budapest would insist on a budget review after five years.

Trade-offs?

Any future budget discussions are also likely to touch upon economic governance issues, diplomats said. As an example, East European countries that have low corporate tax to attract foreign investment could be asked to take steps towards greater tax harmonisation.

France has a corporate tax of 33.33%, Germany has an aggregated corporate tax of 15.855% (federal) plus 14.35 to 17.5% (local), while Poland and Slovakia have taxes at 19%, Romania and Hungary 16% and Bulgaria 10%.

The size, structure and priorities of the EU's annual spending, which amounted to roughly €130 billion in 2010, are governed by the 'Financial Perspectives', which cover the period 2007-2013 (see EURACTIV LinksDossier).

Negotiations on the next multi-annual budget planning are due to start in earnest in 2011, and will cover the period 2014-2020.

The most controversial issue of the review is the current 44% (€55 billion) share of the budget that is set aside for agricultural subsidies.

On 19 October, the European Commission listed a number of options to fuel the EU's future budget, proposing that Europe decreases the share of spending coming directly from the member states.

To compensate for the shortfall, it proposed introducing an EU tax which could take several forms: a tax on air transport or a share of new financial, corporate or energy taxes, as well as an EU VAT.

More recently, European Commission President José Manuel Barroso offered to put on the table in June 2011 concrete proposals for "own resources" in the long-term EU budget.

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