Monday, June 13, 2005

EU Budget, the British Rebate, and the Hope Budget Talks Will Collapse "Ignominiously"

The EU Budget for 2007-2013 is on the agenda this week as the European Council (the representatives of the national governments) meet in Brussels on June 16-17. It is a moment of rare and high drama in EU history, as politicians are confronted with the failure not only of their constitutional plans (last week's referenda in Holland and France), but with the even more pressing matter of their faltering finances.

President Jacques Chirac of France has decided to attack the British rebate, secured by Margaret Thatcher in 1984, as a way of taking attention away from the overarching weaknesses of the EU budget, by focussing instead on one "guilty" country, the punishment of which will atone for all of the EU's failures.

The UK rebate - which can be defended or attacked to taste, it all depends on what justifications one chooses for what countries "ought to" pay - is an easy target because Britain is the only country which gets a rebate, even though it is neither the largest net contributor nor the largest per capita contributor.

Other countries have their own reasons to complain about the British rebate, but in reality, it is the failure of the system as a whole which they resent, not one particular aspect of it.

The Dutch, for example, are the highest per capita contributors to the EU. The Dutch have also learned that, when they gave up the guilder for the euro, some 10% of their savings were wiped out due to undervaluation of the guilder.

So the Dutch government, fortified by last week's strong "Nee" to the draft EU constitutional document, is less likely than usual to accommodate the bigger countries which normally bulldozer it into compliance. The British rebate may be an issue, but the larger question is the necessary overhaul of the overall system.

The Italians are facing economic meltdown thanks to the strong euro and low interest rates - both of which are hurting the Italian economy and neither of which the Italian government has any power to affect. There has been much wishful thinking from Italy, yearning for a return to the lira.

The lame-duck German government also has millions of dissatisfied voters (who will most likely kick them out in the national elections this September), mired in unemployment and concerned about their contributions to the EU. The government will be tempted to offer concessions, as they won't be around to pay the bills, but doing so too blatantly will make Chancellor Schroeder and his unpleasant Green sidekick Fischer look bad back home and in the history books - their primary consideration at this point.

The French, in the shape of their farmers, are big winners in the current budgetary system, the farmers receive some 10% of the entire budget in subsidies! Spain benefits even more, as by far the biggest net receivers. Both countries can be expected to argue for "no change".

Given this clash of interests, put into unwonted context by the referenda in Holland and France (which have dampened enthusiasm for the EU's wide-scale spending plans), this week's budget discussions will not produce agreement, unless the usual face-saving compromise is found.

But as a face-saving compromise only postpones the moment of reckoning for the current opaque, corrupt and unwieldy EU budget arrangements, it would be far better for all of us taxpayers if the discussions were to collapse in ignominious failure. The politicians could then go home to figure out how to start pruning the system down to a more manageable shape.

BBC NEWS Politics Straw goes on EU budget offensive

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