EU budget talks hit snag after first day

Cameron wants curbs, Hollande doesn’t

French President Francois Hollande greets German Chancellor Angela Merkel during a European Union summit session Thursday in Brussels.
French President Francois Hollande greets German Chancellor Angela Merkel during a European Union summit session Thursday in Brussels.

— The leaders of Britain and France staked out starkly different visions of the European Union’s future Thursday, leaving a summit on the EU budget teetering on the brink of failure after the first day.

“I have my doubts that we will come to an agreement,” said German Chancellor Angela Merkel after a chaotic day of bilateral negotiations and a belated, short joint session of the 27 leaders.

While British Prime Minister David Cameron is seeking to keep payments into EU coffers as low as possible, French President Francois Hollande called for sustained subsidies for farming and development programs for poorer nations.

With each of the 27 nations having the power of veto over the 2014-20 budget, the summit negotiations could stretch over the weekend, perhaps without result, observers said.

“Positions remain too far apart,” Merkel told reporters early today. “Probably there will be no result at the end of this summit. There may be some progress, but it is probable that we will need to meet again at a second stage.”

Cameron voiced the concerns of several countries that do not want to see an increase in the bloc’s spending plan at a time when many member states are cutting budgets at home.

“No, I’m not happy at all,”Cameron said about EU President Herman Van Rompuy’s offer to cap spending for 2014-2020 at about $1.25 trillion in commitments.

“Clearly, at a time when we’re making difficult decisions at home over public spending, it would be quite wrong - it is quite wrong - for there to be proposals for this increased extra spending in the EU,” Cameron said.

Van Rompuy’s revised proposal late Thursday did not yield further to Cameron’s demands for cuts, keeping to the same total.

The EU budget primarily funds programs to help farming and spur growth in the bloc’s less developed areas, and it amounts to about 1 percent of the EU’s gross domestic product.

Hollande and Merkel said another summit meeting might be necessary.

“We should not consider that if we don’t get there tomorrow or the day after, all would be lost,” Hollande said.

The stalemate came two days after finance ministers argued in vain for more than 11 hours over how to dig debt-stricken Greece out of its fiscal hole, in another reflection of the rich-poor divide that scars the European economy.

The European Commission, the EU’s executive arm, supports more spending, arguing that cross-border initiatives will help create the economic growth and jobs that the bloc of a half-billion people needs, particularly during a financial crisis that has pushed some countries into recession.

The amount of work Van Rompuy has to do to bring the conflicting views closer together was highlighted earlier Thursday as the bilateral meetings preceding the summit overran, forcing the opening discussions to be delayed by 2 1/2 hours.

Calling on all for a compromise, Van Rompuy said “it is necessary, and, I am convinced, it is within our reach. So, dear colleagues, let’s get down to business.”

Bilateral talks will resume early today, with a first joint session set for noon to see if a compromise is within reach.

Facing an ever more vocal euro-skeptic electorate at home in the U.K., Cameron is under huge pressure to veto any seven-year deal that would make the budget bigger. The U.K. and other countries that contribute more then they receive from the budget - such as the Netherlands, Sweden and, to a certain extent, Germany - claim an austerity budget is the only justifiable outcome at a time when almost every member state has to cut its budget to lower debt.

Britain took aim at a $64 billion program for transport, energy and broadband projects known as the “Connecting Europe” facility. France sought to gut the same program, ditching a growth initiative once touted by Hollande in order to spare the agriculture budget.

“Too much of the resources are directed toward what Europe was and not what it should become,” Swedish Prime Minister Fredrik Reinfeldt said.

Meanwhile, 15 of the EU’s most financially and economically vulnerable countries have joined forces to oppose any cuts to funds earmarked for economic growth and development. These countries include not only traditionally poorer member states, many in Eastern Europe, but also those hit hardest by the financial crisis, such as Greece,Portugal and Spain.

They argue that they need sustained, even increased, help to close the wealth gap on the continent and that EU institutions need the means to implement their jobs and growth policies.

“Certain countries want to make drastic reductions in the budget. That’s a big mistake,” said Elio Di Rupo, Belgium’s prime minister.

Going into the open ended summit, Van Rompuy made a first compromise proposal that leaned toward Cameron’s demands. It proposes a cut of between about $4 billion and $31 billion, depending on the accounting criteria, from the $1.25 trillion proposal.

“With less money, we cannot do the same as before,”Van Rompuy wrote in the invitation letter he sent to the 27 leaders.

Smaller parts of the budget go for programs on immigration and border control; foreign policy and development aid; and salaries for the more 50,000 employees of institutions including the commission, the European Parliament and bodies ranging from the European Chemicals Agency in Helsinki to the European Fisheries Control Agency in Vigo, Spain.

Staff costs - about 6 percent of the total - are a sticking point for Britain. Cameron is looking for further reductions.

What matters most to Britain, however, is the preservation of the rebate won by Margaret Thatcher in 1984, when the EU budget was more heavily slanted toward farming. Successive U.K. governments have defended the refund, worth 3.6 billion euros in 2010 - about $4.6 billion at current rates - though still leaving Britain as a net payer.

With countries such as Denmark, the Netherlands and Germany protecting or seeking money-back plans of their own, the leaders showed little appetite for challenging Britain’s rebate, at least on principle. The aim is to strike a 27-nation accord and not isolate the U.K., they said.

“We need the U.K. in,” Finnish Prime Minister Jyrki Katainen said. “We all have some preconditions and we all must be ready for compromises, otherwise we don’t have a compromise.”

There is no set deadline for a deal but the closer it gets to 2014, the tougher it will be for a smooth introduction of new programs.

“In talks with colleagues, I had one message. If this doesn’t work out at once, let’s be sure that the mood is not that dark that we have to spend months on patching up personal relationships,” Dutch Prime Minister Mark Rutte said.

If there is no deal up to 2014, there would be a rollover of the 2013 budget plus a 2 percent increase accounting for inflation.

Information for this article was contributed by Raf Casert, Don Melvin, Carlo Piovano and Juergen Baetz of The Associated Press and by James G. Neuger, Svenja O’Donnell, Corina Ruhe, Jonathan Stearns, Angeline Benoit, Gregory Viscusi, Peter Levring, Andrew Frye, Brian Parkin and Stephanie Bodoni of Bloomberg News.

Front Section, Pages 1 on 11/23/2012

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