Tuesday

6th Dec 2016

Germany: more cuts needed for EU budget deal

German Chancellor Angela Merkel likes football.

So much so, that a Paris stadium seemed like a good place to have a "brief, but intense" conversation with French President Francois Hollande on Wednesday (6 February) on the eve of an EU budget summit.

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No common proposal came out of the meeting. But a German official told journalists in Berlin on Wednesday that "the willingness to reach a deal on the EU budget is greater than the differences of opinion between France and Germany."

The two leaders then watched a friendly game between their national teams.

In what could be an omen of who gets their way on the budget, Germany won 2-1. Hollande on Tuesday signalled willingness to compromise on more budget cuts, but warned they should not endanger economic growth.

Germany, meanwhile, is going into the budget talks on Thursday with a demand for more cuts. Without naming a precise figure, the German official in Berlin noted that the previous seven-year budget was around €865 billion at constant prices, while the current proposal would go beyond €1 trillion, if you include a two percent yearly inflation top-up in the calculations.

"One percent of the gross national income [€1 trillion] is our maximum ceiling, given the budget consolidation efforts in member states. In Brussels it has also become clear now that more cuts are needed compared to the last proposal made in November," the official said.

One area with "significant room for cuts," in Germany's view, is the EU's own administrative expenses, which include the salaries of EU officials.

A general strike of EU staff took place in Brussels on Tuesday as a warning for EU leaders not to go down this path.

But the German official noted that EU institutions will have to stomach cuts just like everyone else.

"These will be difficult, but decisive negotiations. We want the talks to succeed, and Germany will contribute to a solution. But this will not be in the form of a German cheque, it will be in the willingness to compromise from all sides," the official said.

If the seven-year budget talks fail, the EU has to use yearly budgets based on 2013 figures.

Any changes or increases to 2013 figures would need to be decided in the EU Council by qualified majority and then get the consent of the European Parliament.

But yearly horse-trading and unclear majorities for one or another budgetary area would make the whole effort much more difficult to manage, the German official warned.

Meanwhile, the idea of excluding Great Britain - the country with the loudest calls for spending cuts - from a deal and seeking a budget agreement among 26 member states only is off the table.

"One of the results of November was that only a solution at 27 will give predictability for the EU budget," the German source said.

A first attempt to reach a deal on the 2014-2020 EU budget failed in November.

But Britain was not the only one to blame, as positions between a larger group of net budget payers advocating reductions and a club of net beneficiaries who want more EU "solidarity" were too far apart.

No euro crisis after Italian vote, says EU

The Italian PM's resignation after a failed constitutional referendum has not changed the situation, the Eurogroup president has said. Financial markets have remained stable.

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