UK Blocks EU's 7-Year Budget Deal

by Ulrika Lomas, Tax-News.com, Brussels

20 June 2005

A disastrous week for the European Union ended at midnight on Friday when a group of national leaders headed by Tony Blair refused to accept a compromise budget deal for the next seven years.

The new budget deal would have increased the EU's 'own resources' (a slice of VAT revenue paid to Brussels), partly to pay for aid to the 10 mostly poor new members, and would have resolved the row over the UK's budget rebate by trimming CAP spending which benefits France more than any other country.

Apart from the UK, the dissident group of countries included The Netherlands, Sweden, Finland and Spain, although they would probably all have gone along with the deal in time-honoured fashion if the UK had not made plain its readiness to use its veto.

The seven-year EU financial package would have been worth about €870bn, and would have fixed the annual British budget rebate at its current level of €5.5bn for the 2007-13 period. But the matching CAP proposals were too vague for the British: “What is being proposed would guarantee change in our rebate without any guaranteed change to the EU budget,” said a British spokesman. “We believe we are not isolated and there are other countries with us in the room.”

Predictably, the fur flew after the talks collapsed, with French President Jacques climbing onto a moral pedestal, saying he deplored the British attitude. "It is indispensable that the United Kingdom in future takes its full part in the financing of the enlarged Europe” he moaned.

German Chancellor Gerhard Schroeder said, "We are in one of the worst political crises Europe has ever seen. We could not get an agreement because of the stubbornness of Great Britain and the Netherlands."

Mr Blair was not to be cowed, saying, presumably of Mr Chirac: "I'm not prepared to have someone tell me there is only one view of what Europe is. Europe isn't owned by any of them, Europe is owned by all of us."

After the failure of the new EU constitution and now the lack of a budget deal, the UK will be taking over the presidency of the EU on 1st July with a long agenda of contentious dossiers and very little goodwill to help it through the next six months.

In an attempt to reach a deal, Poland, the Czech Republic and the eight other new EU members offered to reduce their share of the new budget package. "We did this to have the package agreed, but it didn't work," said Czech Prime Minister Jiri Paroubek.

The CAP has been a long-running sore on the side of the EU, harming poor nations by subsidizing European agricultural production at their expense, in the political interests of governing parties in France, Germany and other original members of the EU. For 20 years, under successive governments, the UK has stood out against what it sees as a misuse of funds. But with elections on the horizon in France, and a dissatisfied electorate, Mr Chirac, whatever his private thoughts, was in no position to be able to compromise on the CAP. Perhaps, if German elections return a right-wing government to power later this year, the British may yet succeed in reaching a compromise during their presidency. But don't hold your breath!

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