EU pulls itself back from the abyss

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A hard fought late night budget deal has put the EU back on track. Blair has rescued the remains of his European credentials while Germany’s Chancellor Merkel showed herself to be a new force to be reckoned with.

The breakthrough came early Saturday morning 17 December after more than 30 hours of tough negotiations when the UK agreed to a German compromise proposal to cut the UK rebate by 10.5 billion euros. 

This raised the 2007-2013 budget to 862.3 billion euros, or 1.045 percent of EU Gross National Income. Compared to the 1.03 percent in the latest UK proposal it adds 13 billion euro. 

The new EU budget will be spread out over the following main headings: 

  • Growth and Employment initiatives including regional policy: €308 billion 
  • CAP, Farm aid and Rural Development: €292 billion 
  • Justice and Interior Affairs, incl. immigration, terrorism: €10.2 billion  
  • Foreign and Humanitarian aid, aid to candidates: €50 billion 
  • Administration costs: €50.3 billion 

When the budget talks broke down in June 2005, the UK had demanded a review of CAP spending in exchange for any concession on the UK budget rebate. 

In the end what the UK got was a commitment from its EU partners to carry out a thorough review of all EU spending in 2008-09. But this holds no real promise as to the outcome of such review, which in any case would only take effect after the end of the EU budget package 2007- 2013. EU governments will then decide by unanimity on changes to the priorities, which would affect the next long-term budget for 2014-2021. 

The UK will make an additional net contribution to the EU of 10.5 billion euro over the period 2007-13. Earlier this week the UK had offered to reduce the rebate by 8 billion euros over the seven-year period. 

The summit deal restored 5.3 billion euros in regional funds for some EU’s new members states, which looked set to lose 12.3 billion euros in Britain’s proposal of 14 December. Poland received some 2.3 billion in extra funds.

The summit deal offered reductions in the net contributions of the Netherlands by 1 billion euros a year, Austria by 600 million euros and Germany by 300 million euros. 

The EU summit also decided to give FYROM (Macedonia) status as candidate to EU membership, but with no promise of when such negotiations could start. France had made a budget deal a condition for granting Macedonia the status. 

At the late night press conference on 17 December, UK PM Tony Blair  offered his apologies for keeping everybody waiting for more than 30 hours: “This was an amazingly complicated negotiation," he said. 

Blair stressed that the new budget deal is “an investment in those central and eastern European economies, to help them grow, to help them develop. It will also yield enormous returns. My case is that you have to ensure that the enlargement can go ahead - and that's the reason for Britain paying its fair share for the cost of economic development. If we believe in enlargement, we had to do this deal now." 

Blair also told the BBC that the UK "would have wrecked" London's relations with the new EU members and the new German government if it had walked away from the compromise deal. 

Commission President José Barroso, who had argued for a bigger EU budget, said: "This is a very important political signal for Europe. Europe has avoided paralysis. Europe is on the move again. The cost of not having an agreement would have been enormous. This agreement is not everything that the Commission wanted.” 

“I fear there is still an imbalance between the tasks given to the EU, and the funds provided to deliver them. We will have to tell citizens openly that the savings agreed by the Member States have consequences. With this budget, there are a number of things that cannot be done.” 

France’s President Jacques Chirac  hailed the compromise as "a good deal for Europe" and said to reporters that ”Everyone realised it took a lot of courage from Mr Blair [...] in a political situation that was not easy. I wanted to pay homage to him.” 

Polish Prime Minister Kazimierz Marcinkiewicz said it was a "budget of solidarity, good for the sake of Poland and for the sake of the development of Europe. When everybody gains something, the taste of victory is like the taste of good French champagne,” he said. 

Germany’s newly elected Chancellor Angela Merkel made a strong debut on the European scene. After the agreement, Merkel said: “A big obstacle has been removed. Now the EU can now concentrate on other questions such as the role of EU in the world and the challenges of globalisation.” 

Merkel also commented on Germany's role in the talks: "I think that we clearly played an important role but that is always the case as we are a big country. We had very good agreement with France, we prepared the groundwork, and then were able to reach a good consensus with the British.” 

According to summit insiders Merkel's mastery of the details in the budget puzzle was “jaw-dropping”. With low-key resolve Merkel pushed fellow leaders towards a budget deal, and established herself overnight as a new force on the European stage. Contrary to her predecessor Gerhard Schröder, Merkel played no favorites, and arrived at the summit with her allegiances finely balanced, observed EU diplomats. One adds: "Merkel has played a very constructive role. The absence of Schröder and his unquestioning support for Chirac has meant the French President had to be much more careful." 

Germany’s Foreign minister Frank-Walter Steinmeyer, said: "It was a double test: For the EU and for the new German ‘Grand coalition’ government."

Austrian Chancellor Wolfgang Schüssel, said: "Merkel played an extraordinarily important role behind the scenes. She has acted calm, sober and very professional." 

Luxembourg Prime Minister Jean-Claude Juncker, added: "For her first meeting, she certainly made her mark." 

Romanian President Traian Basescu went even further in his praise: "She brokered the deal from start to finish. She was the first to break the deadlock with a proposal." 

Belgian PM Guy Verhofstadt was not overly happy with the summit deal, but said it was “nonetheless acceptable”.

On the UK home front, Tony Blair was unsurprisingly attacked for letting go of a part of the totemic budget rebate, which Margaret Thatcher won in 1984: "Seldom in the course of European negotiations has so much been surrendered for so little. It is amazing how the Government have moved miles while the French have barely yielded a centimetre," said opposition Conservative foreign affairs spokesman William Hague.

The two-day EU summit 15–16 December 2005 had before it the difficult task of agreeing on a new long-term EU budget covering the period 2007-2013. At the June 2005 summit under the Luxembourg Presidency EU leaders failed to reach agreement. 

The compromise draft put on the table by the UK Presidency on 14 December offered 849 billion euros. This was 2.5 billion euros more than the most recent UK proposal of 5 December. But it still failed to impress the UK’s EU partners, who called for a bigger cut in the UK budget rebate. 

Compared to the Luxembourg June 2005 compromise it still was a decrease of 22 billion euros, and compared to the original 2004 proposal from the Commission it was a decrease of 273 billion euros. 

At stake at the summit was not just UK PM Tony Blair’s European reputation, which will be seen in the light of his proclaimed ambition to ‘put Britain at the heart of Europe’. More importantly, the EU desperately needed to move on from the political impasse created by the failure to adopt the Constitutional treaty after negative referenda result in France and Netherlands in May and June, and the subsequent breakdown of budget talks at the June 2005 summit. 

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