EUROPE
The EU budget
Just small change?
L U X E M B O U R G
On course for the euro
Money has been at the root of the EU’s worst rows, most memorably Margaret Thatcher’s stubborn insistence on a refund for Britain in the 1980s. Mindful of this, the commission proposed in Agenda 2000 to stick to the current budget ceiling of 1.27% of the EU’s GDP, even after the first batch of applicants joins. Budgetary austerity, CAP reform and changes in regional policy should create enough room for transfers to the relatively poor new members. And keeping the ceiling would avoid reopening old quarrels about who pays and who benefits. As an inducement, the commission said it might re-examine the budget before 2006.
Yet the biggest net contributors say they cannot wait that long. On October 13th, Theo Waigel, the German finance minister, flatly said that Germany would not go on paying 60% of net contributions to the budget. Germany’s recent economic performance, he added, might have been as good as Britain’s had it benefited from a similar refund. His Dutch colleague, Gerrit Zalm, also insisted that the system must be changed. The Swedes and Austrians, both net contributors, agreed.
Net recipients are not taking this quietly. Spain, Greece, Ireland and Portugal—the four “cohesion” countries that were offered extra cash after the Maastricht treaty—fiercely reject Mr Waigel’s view that any country strong enough to join the single currency no longer needs cohesion money. They also say it will be impossible, after enlargement, to keep the 1.27% ceiling. France and Britain, by contrast, insist on it. The British have no desire to reopen the budget, lest it reopen the matter of their refund.
The argument is bedevilled by factual disputes and hypocrisy. A commission paper circulated at the October 13th meeting offered no figures for net transfers. The Germans and Dutch passed round their own calculations (see chart). Privately, even commission officials concede that Germany, in particular, is close to the “unacceptable situation” that justified the British refund in the 1980s—though they note that Germany agreed to the last budget deal, in Edinburgh in 1992, fully aware of its likely contributions.
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The commission paper also notes that gross contributions to the budget have become fairer thanks to more payments being based on GNP shares, as opposed to value-added tax and customs duties. EU spending has also been held down, reducing net contributions. The distribution of CAP and regional spending reflects political decisions—making any unfairness partly self-inflicted. Germany, for instance, pays around 28% of the costs of the CAP, and draws out only 15% of the benefits; yet it fiercely opposes cuts in CAP spending that would save it money. Germany should also benefit from reform of the regional funds since its eastern Länder (states) will stay eligible while richer EU regions will not. Erkki Liikanen, the budget commissioner, reckons that after enlargement the German share of net contributions could fall to 40%.
As for the Dutch, Mr Liikanen thinks their contributions are exaggerated. Titivating regional-fund rules might, he thinks, help the Dutch north-east—and perhaps Sweden’s Arctic and Austria’s mountains too. Adjustments like these, he says, would be preferable to “opening the Pandora’s box” of budget contributions. New rebates or a higher budget ceiling need not just unanimous approval from governments but also ratification by parliaments.
The big question is how hard Germany will fight. Neither Mr Waigel nor his boss, Helmut Kohl, is a handbagging type. Asked if the Germans are really serious, a Spanish negotiator muttered simply that “they have elections”. Yet the old assumption in the EU—that the Germans will always foot the bills—may not hold for ever. And if they stop, there could be a huge explosion.
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