Is a deal over EU budget possible today?

From left to right: Mr Mario Monti, Italian Prime Minister; Mr Ferdinando Nelli Feroci , Permanent Representative of Italy to the EU; Mr Mariano Rajoy, Spanish Prime Minister; Mr Francois Hollande, President of France. (Council of the European Union photographic library). 7.2.2013

From left to right: Mr Mario Monti, Italian Prime Minister; Mr Ferdinando Nelli Feroci , Permanent Representative of Italy to the EU; Mr Mariano Rajoy, Spanish Prime Minister; Mr Francois Hollande, President of France. (Council of the European Union photographic library). 7.2.2013

The Anglo-German understanding prevailed today in Brussels and the European Union spending will be further cut, below the level proposed by the European Council President, Herman Van Rompuy, in November. Actual payments during the seven year period of 2014-2020 will be restricted to €908 billion, close to what Germany wanted and a bit more than the €850bn David Cameron, the British PM, had in mind.

It was very characteristic that today’s negotiations started at 6.30 am and were interrupted for two hours at 11.00 am. Paris was once more cornered by the austerity lovers of London and Berlin. The strong argument used by Berlin was that their country’s contribution to the EU budget will increase greatly, due to the fact that the German economy keeps growing while almost all the other countries are in recession or stagnation. Contributions to the European Union coffers are connected to the Gross National Product of member states.

In relation to EU funding member states are divided in donors and receivers. It goes without saying that in deciding EU spending, receivers have not much to say. In the donors camp Germany is the biggest, followed by Britain, Holland, Austria and Finland. France and Italy used to be in the receivers camp but over the past couple of years the two countries passed, at the margin, to the contributors’ category, albeit with very restricted net payments.

As for the rest of the small net receivers, seemingly their leaders must have been almost speechless, while the big ones were fighting with each other. The saddest victims of the drastic cuts in EU spending will be agriculture, regional growth and social expenditure. Paris however will try to make it sure that the French farmers will be less hit by the cuts. As for the rest of the European Union agricultural producers they are bound to see their incomes and structural support being severely damaged.

Once the overall spending is decided, breakdown by sector has to follow. Understandably spending in major programmes like Galileo and other technology infrastructure projects will not suffer much. Regional growth, social programmes and farm subsidies will be the unwilling victims.

Brussels sources expect the agreement to be signed today, but it is difficult, mainly for Francois Hollande and Mario Monti to return home with a limping deal. It is even more difficult for Monti to come back to Rome and face the unrestricted criticism of Silvio Berlusconi, only days ahead a difficult electoral confrontation.

In view of that a postponement of the deal may be more likely. Incidentally the French President, while stepping yesterday in the conference room made a statement which indicates towards this direction. He said that he will not accept a sacrifice of European Policies, in order to conclude a deal at any cost. Given that lately Hollande has developed a strong political relation with Mario Monti, the two may press for a postponement.





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