Monday

29th Aug 2016

EU budget hurdles mount

  • The economic crisis has made the talks tougher than usual (Photo: Images_of_Money)

The EU is hoping for agreement on the next long-term budget by the end of the year but two opposing camps in the money negotiations remain about €100bn apart.

Cyprus - steering the talks - on Wednesday published a new paper designed to push governments to coming to the point. The paper notes that all parts of the proposed budget for 2014-2020 "will need to be subject to reduction." The EU commission last year proposed increasing spending by 5 percent to €971.52 billion over the seven-year period.

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But the Cyprus paper mentions no figures. Concrete cash proposals are only to come towards the beginning of November, ahead of the planned budget summit later that month. A final political agreement, including with the parliament, is to come in December.

In the the meantime, a small mountain of hurdles need to be overcome.

Member states have divided themselves into groups - 'friends of better spending' who believe savings on the budget will not be hurt if the money available is spent more efficiently and 'friends of cohesion' who think two rounds of cuts already made to the regional aid policies is enough. Many of the latter group are also fans of farm aid (CAP), the transfer policy that gobbles the lionshare of the current budget.

Discussions on the EU's cohesion policy are also focussing on how to stop allocations to any one member state "getting out of control." But poorer member states are complaining that GDP-based allocations means that their EU payouts will be reduced even as their economies stall.

To this general problem comes a series of others - including the rebate from the budget, dubbed a "science of its own" by one EU official, for its notorious complexity.

The EU commission has proposed simplifying the procedure by offering a lump sum return payment. But Britain which benefits greatly from the current system wants farm aid abolished first. There are other rebate grumbles: Austria loses out under the proposed new system while Denmark is now looking for a rebate.

On the EU tax side - known more benignly as "own resources" - , things are no less complicated. The commission has proposed a new value added tax which according to one diplomat "for the time being has not received enough support."

Its other proposal to have a financial transaction tax (FTT) did not fly at all. Instead, a small group of member states may get together to have an FTT among themselves. But they have not made a move yet. And it is still not clear if this putative group will agree to put revenue from the tax towards the EU budget.

But here member states are not discussing the issue in isolation. MEPs have indicated that this is a red line for them and that the next budget must have some sort of own resources element.

Another thorny issue is the large difference between promised payments and actual payments under the current budget - the discrepancy comes to around €250bn. This is a "huge problem", said one official and is entangling talks on the 2014-2020 budget.

Meanwhile the broad negotiation choreography has already been mapped out.

EU ministers will have another round of budget discussions on Monday (24 September). The European Parliament is to publish its own position on the budget towards the end of October. Only then will Cyprus produce concrete budget figures. EU council president Herman Van Rompuy will start bilateral meetings with member states in early November before EU leaders gather for a budget summit on 23-24 November.

According to one diplomat there is "strong will" to follow the timetable.

But even though a concerted attempt is being made to keep the budget talks separate from the eurozone crisis talks - there is one key point where this plan could go awry. The latter have resulted in speculation that there may be a separate budget for the eurozone. At the moment, no one has an idea how that should work.

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