EUROPE A budget for reform S T R A S B O U R G
	FINANCE is always the toughest part of any EU negotiation, and the next wave of enlargement will be no exception. The commission’s Agenda 2000 package includes proposals for a new seven-year financial framework, running up to 2006. It wisely proposes to keep spending within the present ceiling of 1.27% of the Union’s GDP—even if, as it hopes, six new members arrive in 2002. But such relative frugality will not be feasible without some radical reforms to the way the EU works. Franz Fischler, the agriculture commissioner, wants to extend the reform begun in 1992 which shifted subsidies from price support to direct payments to farmers. Otherwise, he says, the EU will not be able to meet world-trade obligations, avoid a return of its notorious food mountains, or cope with enlargement. He wants to cut EU support prices by 30% for beef, 20% for cereals and 10% for dairy produce. But the EU’s powerful farm lobbies will hate these changes, especially since farmers would be only partly compensated for lower prices by increased cash payments. So farm ministers may not pass all these reforms. The commission may not find it much easier to sell its proposed reforms of the “structural” funds for regional aid. Monika Wulf-Mathies, the regional-policy commissioner, sensibly wants to limit the number of areas which can apply to the main regional fund. She would like 35% of the EU population, rather than today’s absurd figure of 51%, to be covered. She also wants to simplify the over-complex collection of programmes and objectives that govern regional aid.

	The commission would keep the “cohesion fund” that benefits only Greece, Ireland, Spain and Portugal, though Ireland is growing so rich that it may soon cease to be eligible. But it would peg the combined structural funds at 0.46% of the Union’s GDP, and promise roughly 30% of them to new entrants (though transfers to any new member would be capped at 4% of its GDP). So some existing members would be bound to lose from the reforms. The danger in all this is that disgruntled governments (to say nothing of their farming and regional lobbies) may well start to blame enlargement for reforms that are in any case necessary. That could turn public opinion, at best lukewarm on the question of admitting new members, sharply hostile. And then ministers would hardly be generous or speedy in the enlargement negotiations. Governments will in any case be scrapping over the vexed issue of their payments to the EU budget. Major net contributors such as Germany and the Netherlands do not see why they should also bear the bulk of the costs of enlargement. They are eyeing ever more enviously the special budget rebate that trims Britain’s contribution. The commission says this rebate should be re-examined and perhaps reduced when new members join, not least because enlargement will place Britain high in the EU’s prosperity league. Yet it knows that Britain has the right to veto any change to its rebate. So Erkki Liikanen, the budget commissioner, has aired another possibility: a “generalised system of corrections” for budget imbalances. When the British proposed this during the 1980s, the very idea of calculating each country’s profit and loss was rejected out of hand as un-communautaire. How times change.  © Copyright 1997 The Economist Newspaper Limited. All Rights Reserved