European Union Leaders Agree to Slimmer Budget

The New York Times

By JAMES KANTER and ANDREW HIGGINS

Published: February 8, 2013

BRUSSELS — As European Union leaders began their 14th hour of budget negotiations after a sleepless night, Valdis Dombrovskis, the prime minister of Latvia, took the floor early Friday to address what, for his Baltic nation of around just two million people, is a vital question: Why should a Latvian cow deserve less money than a French, Dutch and even Romanian one?

In a system that requires unanimous approval of budget decisions, what Latvia wants for its dairy farmers — or Estonia for its railways, Hungary for its poorer regions and Spain for its fishermen — is no small matter. It is this cacophony of local concerns that explains why, despite the outsize role in decision-making of Germany, the European Union has such trouble reaching an agreement on something as basic as a budget.

And if simply agreeing to a basic budget — the first decrease in its history — is so daunting to member countries, it also raised serious questions about the limits of political and economic integration that have long been the master plan for champions of European unity.

After a failed attempt to fix spending targets at the summit meeting in November and a 24-hour marathon of talks this week, European leaders finally agreed late Friday to a common budget for the next seven years. Slightly smaller than its predecessor, the new budget plan reflects the climate of austerity across a continent still struggling to emerge from a crippling debt crisis.

The colossal effort that was required to agree to a sum amounting to about €960 billion, or $1.28 trillion, or a mere 1 percent of the bloc’s gross domestic product, again exposed the stubborn attachment to national priorities that have made reaching agreements on how to save the euro so painful in recent years.

“We need to agree and to agree we need to take into account all countries,” said Mr. Domobrovskis in an interview. The Latvian leader, who rushed to his hotel for a shave, shower and change of shirt in the middle of the night, described the ordeal as “not a pleasant experience,” but said “it only happens every seven years so we can tolerate it.”

But toleration is not the same thing as cooperation.

“What we’re seeing is that European integration is very important to European leaders as long as it doesn’t imply that someone has to be paying for someone else,” said Daniel Gros, director for the Center for European Policy Studies, a research organization in Brussels.

“Sharing a European budget is not going to be the essence of the E.U., but crafting the rule books for open borders and stable banking systems will be,” said Mr. Gros.

For other observers, the spectacle of European leaders haggling through the night over amounts of money representing rounding errors in their national accounts once again demonstrated their reluctance to make policies together that erode their nations’ sovereignty.

“The budget negotiations are most visible sign of member states winning and losing from the European Union,” said Hugo Brady, a senior research fellow at the Center for European Reform, a research organization. “The result is a totally parochial budget that is poorly adapted to rapidly changing times,” he said.

The deal faces yet another hurdle before it becomes law at the European Parliament, which has the power to veto the budget.

Some of the most influential figures in Parliament have already signaled that they are prepared to reject a budget that foresees spending less on Europe in the years ahead.

Martin Schulz, the president of the Parliament, said this week he would not approve a budget that ended up widening the overall gap between the cash paid up-front by governments and the somewhat higher amounts, known as commitments, which make up the overall budget.

Britain, Sweden and the Netherlands were among the Northern European nations that fought hard to squeeze agricultural subsidies and increase spending on research and development to boost the bloc’s global competitiveness.

Despite those efforts, farm spending still remained the largest single portion of the budget, accounting for about 38 percent of the overall amount — although a reduction from about 42 percent during the previous seven-year budget period.

Galileo, a grossly overbudget and still unfinished satellite navigation project that aims to free Europe from its dependence on America’s Global Positioning System, escaped the cuts and is due to get a further €6.3 billion between 2014 and 2020.

At a news conference Friday, the French president, François Hollande, who had lobbied hard against cuts and in favor of what Paris promoted as a more “European” approach, lamented the overall shape of the final deal. But cheered the preservation of heavy spending on farm subsidies, of which France is the biggest beneficiary.

“The problem in Europe is that we are not alone, so this is not the agreement I wanted,” Mr. Hollande said. But he described the deal as “the best possible under current constraints and circumstances.”

Some of the deepest cuts from initial proposals by the European Commission were made to a pan-European project called the Connecting Europe Facility to improve transport, energy, and digital services. And about €1 billion in cuts is cut from the part of the budget used to employ 55,000 people, including 6,000 translators, most of them in Brussels, who run the Union’s day-to-day affairs.

Herman Van Rompuy, the president of the European Council, which organizes summit meetings, is already seeking to head off a parliamentary showdown over the budget. At a news conference Friday, Mr. Van Rompuy sought to assure the European Parliament that enough flexibility would be built into the budget to ensure that member states paid all of their bills on time.

But Mr. Van Rompuy warned the Parliament that it should make sure it “reflects carefully” before any “rejection of this European budget because for the population, for businesses, for jobs, jobs for young people, for prosperity, there is a great deal at stake.”

But national interests were on parade. Among the leaders playing most assiduously to a home audience was David Cameron, the British prime minister. He appeared to have delivered on his pledge to reduce overall amount of up-front cash payments by countries like Britain, a net contributor to the European Union budget.

Mr. Cameron declared Friday’s outcome as “a good deal for Britain and a good deal for Europe.” But he devoted much of a post summit news conference to boasting of his steadfast defense of British interests, particularly a multi-billion dollar rebate that Britain receives each year on its payments to the Union. “I battled off every attempt to change it in any way,” said Mr. Cameron.

Mr. Cameron faces a domestic political challenge from a small but noisy and fiercely anti-European Union political party, the U.K. Independence Party. Last month he announced that if he wins the next election he would let Britons vote in a referendum on pulling out of the Union.

Mr. Cameron’s domestic political calculations are replicated across Europe. Leaders in each country face a host of parochial pressures that matter little beyond their own nations’ borders but on which their own political futures hinge.

In the Baltics, for example, farmers are furious that a system of cash payments to support agriculture is skewed in favor of farmers from richer countries like France and the Netherlands.

Latvian farmers say they get less than 40 percent of the European Union’s average payment level per acre of land. Its dairy farmers say they fare even worse, getting just 20 percent of what their Dutch counterparts receive.

“This is a big issue for us,” said Mr. Dombrovskis, the prime minister. “It is a big political issue in Latvia.”

The agreement reached Friday doesn’t alter this discrepancy. But it does enshrine a previous pledge to narrow the gap considerably by 2020, and also opens the way for national governments to provide additional subsidies of their own — something generally not allowed under current Union rules governing agriculture.

“I wouldn’t say I’m happy,” Mr. Dombrovskis said, “but we agreed.”

A version of this article appeared in print on February 9, 2013, in The International Herald Tribune.

http://www.nytimes.com/2013/02/09/business/global/european-union-budget-talks.html?pagewanted=all&_r=0