Monday, December 26, 2005


In Europe, there was quite some fuss the last two weeks concerning the planning of the EU Budget for the period 2007-2013. Basically, the debate got the UK pitted against, well, virtually against all the other 24 member states. To understand what was going on, understanding two buzzwords might be helpful: "EU Presidency" and "UK rebate".

A.) The EU Presidency.

UK EU Presidency 2005First, the EU Presidency. Currently, Britain holds it. What does that mean? Well, if you think of the EU as one country, does right now the UK, personified by Blair, fulfil the role of EU President then? Somewhat simplified, yes, but not completely. There is also the EU Commission, headed by Barroso. Now hold it, I realize it’s real tough for non-Europeans to grasp Euro leadership, but basically, EU Presidency and EU Commission combined, equal the EU’s "Executive Body". The two are supposed to act as the EU "government" so to say. One could liken the EU Commission to a company’s Board of Directors, responsible for the day-to-day business. And the EU Presidency – to be correct, we speak of a Council of Ministers of which the presidency rotates among the EU member states – would then be the Executive Committee, responsible for the strategic decisions.

Now, while Barroso serves a four-year term, EU Presidencies only last six months. In other words, EU Commission chiefs typically see eight EU Presidencies come and go. Luxembourg had it from January till July, after which Britain took over, and as we are rapidly approaching the end of the year, it soon will hand over the torch to Austria. But I said EU presidencies do the "strategic decisions", and indeed, the UK’s last important task was to establish a sound budget plan for the period spanning 2007 till 2013. To give you an idea of the kind of budget we are talking about, this year it was 106.3 billion EUR, or 1% of the combined gross national income of the 25. In US dollars, that's give and take a 128 billion US$ budget - roughly what the Danish government spends yearly! So for those of you who in the back of their minds nurture an atavistic fear that one day Uncle Sam will be challenged by, uh, Uncle Jean, fear not!!! That day is apparently still far off!

B.) The UK Rebate.

Most of you will recall Margaret Thatcher’s famous 1984 quote "I want my money back". What was that quote about? In the early eighties, 80% of the EU’s budget went to the CAP, or Common Agricultural Policy.

The CAP provided farmers throughout the EU – or EEC, as it was then known – with guaranteed minimum prices for their products. This was by means of subsidies, which were also paid for planting certain crops – or planting no crops at all! All EEC member countries contributed to a common pot, which was then essentially re-distributed with the more agricultural countries receiving the bulk of the subsidies. Now Britain paid disproportionately much, due to its relatively small agricultural sector. At the time, as the EEC was joined by precisely those countries with weak industry but strong agriculture – Portugal, Spain, Greece – the EU budget and thus the CAP subsidies – was set to expand further, thus likely to strain the UK’s precarious financial situation even more. Do not forget that Britain was then the third poorest EEC member, and that in 1982 it had fought an expensive war with Argentina over the Falklands! That is why, in 1984, Mrs. Thatcher negotiated a rebate, or a payback of funds, in order to redress the imbalance between what the UK put into the EEC and what it got back out from it. The method of calculating the rebate is complex, but as a rule of fist one can assume that it amounts to 2/3 of the amount by which the UK contribution exceeds EU expenditure returning to Britain.

UK Rebate financingSo Mrs. Thatcher got part of her money back in 1984 – a unique accomplishment, because the UK is the only EU member that got a discount on its Euro membership fee, so to say. That of course left the proposed EU budget with a gap, which subsequently had to filled up somehow. And here’s the angle: all other EU members are supposed to make good the lost British contribution, and France finances roughly 31 per cent plus of it. You understand why France is so eager to scrap the rebate, and from the French viewpoint a reduction is reasonable: after all, nowadays agricultural subsidies "only" account for some 42 % of the EU budget. Keep in mind that an EU budget consisting of not much more than agricultural subsidies was precisely the reason why Britain got its rebate. Plus, over the past two decades Britain has gotten rich - it can no longer claim it is the sick man of Europe as it was in 1984.

Now, the EU budget 2007-2013. In short, the following were the main bargaining positions at the opening of the budget talks, now some two weeks ago:

* Most if not all EU members with France up front wanted the UK rebate to be reduced, if not scrapped, and changes to the CAP postponed till 2014.

* Britain wanted the CAP – the agricultural subsidies – toned down by 2010 and, you guess it, keep its rebate. In fact Britain, never suspected of Europhilism, also wanted a smaller and poorer EU, and proposed an EU budget of only 1.03% of the combined gross national income of the member states.

This was the UK’s last important task before handing over the torch to Austria come January 1st, and its last occasion to rescue what is generally regarded as a very weak and uninspired EU Presidency. Indeed: putting African debt relief on the G8 agenda, establishing new emission targets for when Kyoto expires, a failed Hampton Court Summit on economic reform, a moderate success in organizing Europes first cohesive antiterror strategy, and starting EU membership talks with Turkey… it reads like a lame list of non-issues, and while Blair and Straw regard the Turkey admission talks as a "success", fewer and fewer across the Channel think in their adjectives. Anyway, reaching a solid budget deal was the only way to "sex up" the UK EU Presidency.

Well, my take is that most Brits are none too fond of Blairs deal, while the rest of Europe is. The deal is:

*During the period 2007-2013, the UK agrees to a cutback of 10.5bn euros (£7bn) of its rebate, some 20%, while the EU budget grows to 862.4bn euros, helping to fund the development of new member states. The budget is scheduled to be 1.045% of the composed gross national income of the member states.

*In return, Britain obtained an agreement that in 2008-2009 there will be a wide-ranging budget review, and not only on the CAP. From the beginning Blair stressed that reviewing European spending was of major concern to him.

*There were a lot of sweeteners for the new member states, paid for with the cutbacks on the rebate - a.o. 100 million EUR for Poland (a Merkel feat, Angela Merkel was also the one who apprently got the budget talks moving again)

These are really the most important headlines. To most observers, it looks like the UK yielded a lot and France very little. Blair took quite some heat at home, The Daily Telegraph even labelling the Brussels Summit a "surrender" and William Hague, foreign affairs spokesman for the Tories (the British Conservatives) smartly paraphrizing Winston Churchill with "Seldom in the course of European negotiations has so much been surrendered for so little". To be honest, France did not get all it wanted either. E.g., it opposed giving Macedonia EU candidate status next year - Macedonia got it. It wanted the EU to impose lower VAT rules for its restaurants - it did not get it. And while the promise to review the CAP in 2008-2009 is a thing that blows in the wind, Romania and Bulgaria, set to join the EU in 2007 and 2008 respectively, were told they can expect no agricultural subsidies. Which means that the same CAP pie by that time will have to be divided over more countries, thus effectively reducing CAP subsidies at least proportionately. But all in all, to me too it looks like the UK indeed yielded the most. Paul Beliën over at The Brussels Journal thinks so too, although he puts it in starker terms:

How the French are gloating, to be able to present themselves as the champions of the "poorer member states" while not contributing a single extra cent, and lecture Britain on its duties to the new member states while France has always opposed enlargement.

Some fleshing out yet tomorrow, God willing. Europe here, over and out.


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