High stakes

Two days of ‘hellish’ talks lie ahead to agree the EU budget, writes Europe correspondent Ann Cahill

THE sum being discussed is close to €1tn. For weeks now, EU countries have been throwing punches, shadow boxing, threatening to destabilise the union, and generally misbehaving while fighting their corner over the sum.

The final figure they will settle on will be the ceiling beyond which the EU cannot spend over the next seven years. Most of the money — 94% — will be recycled back to the member states, but not in the same amounts as they contributed.

It will fund the policies the EU leaders have agreed from Brussels, and each year they will revisit the issue and do battle over the money to be spent for that year.

But over the course of today and tomorrow, it will be the mother of all bun fights as the big payers try to keep down their commitments, the big beneficiaries try to get as much as possible from it, and each country fights to have its own favourite policy funded.

While €1,000bn sounds like a lot of money, in fact it is less than 1% of the bloc’s gross national income (GNI) and the annual sum adds up to less than the budget for the mayor of Paris. But every cent is being fought over and getting agreement in the words of one insider could see the leaders of the 27 countries stooping to “blackmail, insults, threats, swearing, and shouting” over the next 48 hours or so.

Famously, former British prime minister Tony Blair recorded that doing the deal on the last budget in 2005 was hellish — worse than the Northern Ireland peace negotiations, he said.

Ireland, like every country, has its own interests in the budget. Despite being the second wealthiest country in the EU on paper, it is still a net beneficiary — getting more from the EU than we pay in — and, given the rapidly contracting GNI on which most contributions are based, we could continue so for at least a few more years.

For Ireland, the emphasis is firmly on keeping the proposed 37% of the money the EU sets aside for agriculture and food, as this a major growth area for Ireland in the future. Last year, it accounted for 77% of the €1.63bn payout that Ireland received from the EU. But others, especially Britain and Sweden, have other ideas and want to cut agriculture’s share of the budget. Ireland’s potential payout of €11.9bn for the country’s farmers and food industry over the next seven years could see it cut by €1bn, according to the IFA.

France and Ireland are supporting one another in the battle to retain the CAP, and Germany is certainly not in the opposite camp, as many of its lander benefit from these funds too.

Another battle is to maintain cohesion funds — money to help under-developed regions. This is a big source of funding for Ireland, being worth €155m last year, and the country is joined by Spain in fighting to maintain the level of funds.

A lot of emphasis has been put on spending more money on education and research, with commissioner Máire Geoghegan Quinn hoping for a €80bn budget over the seven years, but this is under severe pressure for a cut. Despite member states saying they want a modern budget to act as a catalyst to growth, they don’t want to have to pay for it. Irish research projects received €163m last year, about 10% of its total funding.

External Action, the EU’s foreign service established by members to increase Europe’s standing in the world, accounts for a significant share of the budget, but is likely to see significant cuts. As one EU diplomat put it: “External relations doesn’t bring in the bacon, so it gets pushed to one side”.

They prefer to fight for money that voters can readily see, such as roads and bridges.

There is a significant change in the politics of this budget too. For the first time, the French are not riding in the same carriage as the Germans. Instead Germany has decided to work with Poland as the biggest “new” member state and Britain — potentially as always the biggest problem in getting a deal.

This is in part a reaction to the new Socialist president of France, François Hollande, siding with Italy and Spain over economic issues, and the German attitude is: “If you want to be the hyphen between north and south, then off you go.”

France is among the unhappiest country going into the summit, as it and Italy are big net contributors and do not benefit from rebates some other countries successfully argued for, including Denmark, Austria, and Sweden, and of course, the permanent and very large rebate that goes back to Britain as a result of Margaret Thatcher’s handbag waving several decades ago.

The overall budget is divided into five big areas, each allocated a ceiling and percentage of the overall. Roughly they are:

* Growth and jobs: 48%

* Sustainable growth, including Common Agricultural Policy: 37%

* Global Europe: 7%;

* Administration: 6%

* Security and citizenship: 2%.

Once the figures and percentages are agreed, the real administrative work begins. It will take about a year to complete, as the European Commission works out the budgets for each large and small programme for each country.

And there will be another round of negotiations each year on that year’s allocation as the EU states try to further trim their contributions or gain more funds. The cutbacks can be as much as 15% and, for the current budget period of 2007 to 2013, the amount spent will be up to €90bn less than at first agreed.

The commission cannot give a final sum for their spending every year because 94% of the money is spent by the member states and in most cases claimed back from the EU once the work is complete. Many countries do not spend all the funds they have been allocated, because projects fall through or don’t adhere to the rules. In some areas Italy and France claim less than 20% of the money they are granted while Ireland has the best spending rate at close to 100%.

Apart from where the money is spent, there is also the issue of where it comes from. In the 1970s and 1980s only between 10% to 20% of the EU’s budget came directly from the member states with most coming from import taxes, but these are drying up as more free trade agreements are made, so that now, 90% of funds comes from the member states.

In 2005, the EU states declared “never again” and promised to change the way they fund the EU. So this time the commission proposed that every country should impose a financial transaction tax and contribute a share of it to the EU budget and cut their contribution by two thirds.

So far there are 11 countries that have said they would like to adopt this tax, but there are very few in favour of putting the money into the EU budget. The enlargement in 2004 also changed the demands on the EU budget for ever, and meant that the “old” member states are eligible for less money than in the past while the funds go to the poorer, newer countries.

The first budget proposal from the commission costed the work they were being asked to do over the next seven years and added 2% a year for inflation. They said it represented a slight increase on the previous one, though depending on how you read the figures the increase was either large or small.

After several meetings, the latest proposal is for a cut of €20bn, bringing the total to around €973bn, and an overall ceiling of 1.01% of EU GNI.

The commission in line with the emphasis on a responsible spending plan to introduce a new element when judging if projects should be funded — has achieved its objective.

“They will need to convince us that the funding project is in line with policy and not just because they want to increase the local budget coming up to an election,” said one expert.

Sweden and Germany are very much in favour of emphasising the quality of spending and having a member state sign a declaration before and after a contract that would then be subject to scrutiny by the Court of Auditors. But in the middle of the night such details are in danger of being lost as every country, with a firm eye on their voters, will move around the sums to make it look like they won something.