Thursday

28th Mar 2024

the EU budget explained

The European summit on 15-16 December will focus discussions on the "financial perspectives", the EU budget for 2007-2013.

What spending areas does it cover, how do the positions and proposals differ and why is it such a contentious issue?

What is the \"financial perspective\"?

Read and decide

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  • The EU budget has proved a highly contentious issue (Photo: European Commission)

This is the seven-year framework which provides a legal basis for the annual EU budgets.

It sets out the limits for the block's expenditure.

The plan spells out five main spending categories:

- Sustainable growth, covering both the "cohesion funds" for infrastructure and envronmental investment and the "competitiveness package", including research spending

- Natural resources (agriculture and rural development)

- Citizenship / Security and justice

- EU foreign policy

- Administration

Agriculture subsidies (40%) and various cohesion funds (40%) take up the biggest part of the budget, according to the latest UK proposals.

Why did the June summit on the EU budget fail?

The final compromise proposal by the Luxembourg presidency in June was rejected by the UK, the Netherlands, Sweden, Finland and Spain.

Prior to the summit, the main dividing line among member states had emerged between the biggest net payers to the EU coffers (Germany, France, the UK, the Netherlands, Sweden and Austria) and, on the other hand, the "new" member states, as well as net receivers Spain, Portugal and Greece.

Net payers wanted a significant cut in their contributions, while net receivers were unhappy as such cuts would lead to losses in their EU structural fund incomes (such as for infrastructure projects), with Madrid willing to block the deal at the final hour.

However, several commentators argued that the UK was the main obstacle to the deal as it disapproved of new proposals in measuring its so-called rebate (see below), which effectively suggested a freeze of the rebate at the 2004 level of €4.6 billion.

What has the UK presidency proposed?

The UK has set a cap on EU spending at €849.3 billion, which represents 1.03 percent of the block's combined gross national income (GNI).

The sum is €2.5 billion higher compared to London's previous proposal (1.026% of GNI), with diplomats expecting the final deal to reach 1.04 percent.

However, it is still lower than the previous suggestion by the Luxembourg presidency in June (1.06 percent), and moves even further from the European Commission's idea (1.24 percent) and the proposal adopted by the European Parliament (1.18 percent).

Less money to spend has mainly affected the regional funds assigned to "new" member states, which are to be cut by 10 percent compared to the Luxembourg presidency's package.

However, the latest UK proposal, unveiled on Wednesday (14 December), has improved the offer slightly for most new countries.

London also proposed an overall review of the budget in 2009, including the figures on farm spending, an idea staunchly opposed by France as it insists the package on agriculture should not be touched untill 2013.

The UK presidency also put forward a cut worth €8 billion from its annual rebate from the EU budget for the seven-year period, while Paris argues it should be cut by €14 billion.

Why is the agriculture package not to be touched?

A limit on agricultural spending cuts was secured by a Franco-German deal in 2002 which had preceeded talks on the financial provisions of the 2004 EU enlargement - which consisted of ten new countries, mostly from Central and Eastern Europe.

Under the deal, direct farming subsidies should continue to be provided, unchanged until 2013.

What is the British rebate?

The British rebate is an annual refund of around 5.3 billion euro to the UK from the common EU budget.

Under the current provisions, London gets 66 cents back for every euro of its negative net balance.

The rebate increases along with any boost to the common EU expenditures - it has risen from €4.6 billion in 2004 to €5.3 billion in 2005.

If unchanged in the 2007-2013 budget, it could shoot up to €7 billion per year.

The rebate was adopted by the European Council in Fontainebleau in 1984, due to pressure from the then British Prime Minister Margaret Thatcher, who famously argued "I want my money back!".

Originally, it was introduced as a correction mechanism available for any member state, "sustaining a budgetary burden which is excessive in relation to its prosperity".

But only Britain actually used it because of its large contribution to the EU budget and the small amount it received in farming subsidies. At the time it was also the fourth poorest member state.

Now, however, farm subsidies account for around 40 percent of the budget compared to 70 percent at the time, and Britian is one of the richest member states in the EU.

Luxembourg has suggested other net contributors should also be reimbursed, while the British rebate should be frozen at the current level in 2007.

What happens if there is no agreement on the budget?

The EU will continue to operate under the current budgetary provisions, based on the 2006 annual budget.

Many of the long term structural projects would not be carried out as they would not be backed up by the overall framework of EU funds.

Most of these long-term projects would benefit the "new" member states, as they are designed to boost their economies and even the economic disparities across the EU.

So, if the budget is delayed further, they will lose out most significantly - according to some estimates, about 33 percent of what they are entitled if the budgetary talks fail again in December.

When and how was the last budget agreed?

The last budget, the so called "Agenda 2000" for the period of 2000-2006 was agreed by the European Council in Berlin in March 1999. It was agreed at the last minute and after bitter fighting between the then 15 member states.

Its main objective was to prepare the ground for the projected EU enlargement.

It set the commitment ceiling at 1.24 percent of GNI.

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