Auditors challenge budget rebate call

Date: 11/06/1998

By Tim Jones

POORER European countries face a 12-billion-ecu annual bill if northern governments win their battle to slash net payments to the EU budget, warns the Union's financial watchdog.

An internal report by the EU's Court of Auditors undermines the German, Dutch, Austrian and Swedish governments' claim that their 'overpayments' to the 86-billion-ecu budget should be refunded.

It is bound to be seized on by Spanish Premier José María Aznar and heads of other southern member states when EU leaders hold their first round of top-level negotiations on the European Commission's Agenda 2000 programme at next week's Cardiff summit.

The demand for Germany's contributions to be capped at 0.3% of the country's national income has become a hot domestic issue in the run-up to its autumn elections, and Chancellor Helmut Kohl is certain to restate his claim at the 15-16 June summit.

The Court of Auditors' 40-page report argues that the paymaster countries are wrong to pay so much attention to their net contributions to the budget.

It maintains that subtracting the amount coming back to a member state from the total it pays to Brussels is "a poor interpretation or an inexact evaluation of the advantages obtained from the spending policies" of the EU.

"Because of the integration of economies inside the single market, establishing a strict relationship between the destination of Community payments and the benefits which accrue to member states is becoming increasingly questionable," says the report.

During 1996 - the last full year for which figures are available - Germany made a net contribution to the EU budget of 10.8 billion ecu, followed by the Netherlands with 2.4 billion ecu, Sweden 750 million ecu and Austria 270 million ecu.

All four governments want to extend the rebate formula agreed at the 1984 Fontainebleau summit for the UK to every member state with a budgetary burden deemed "excessive in relation to its relative prosperity".

Six countries, in all, would qualify as potential beneficiaries if the system for calculating the British rebate were extended, with Italy and France coming into the frame alongside the 'gang of four'. But the Court argues that applying the formula to all six would cost an annual 12.4 billion ecu.

"Assuming that the bene-ficiary member states will not take part in their own funding, this correction would in fact be largely financed by the member states whose gross national product per capita is below the Community average," it warns.

Instead, the Court advocates an alternative way of securing compensation for the EU's net contributors. According to officials, this approach is likely to be supported by the Commission in its autumn analysis of the EU's resources.

The Court studied the impact of Union spending on agriculture, infrastructure and services in particular countries, and found that the "knock-on" effects could vary "considerably" between member states.

By redirecting spending so that these effects would be felt more fully in Germany and the Netherlands, the Court believes the EU could more effectively meet the concerns of the paymasters in the North.

But diplomats say this will not pacify Kohl or his Austrian, Dutch and Swedish counterparts in Cardiff. They are expected to demand a reference to "the creation of a mechanism for correcting budgetary imbalances" in the summit conclusions.

UK Prime Minister Tony Blair, who will chair the Cardiff meeting, hopes that EU leaders will agree to set a deadline for completing the bulk of the negotiations on the Agenda 2000 programme.

So far, governments have only agreed that they should adhere to budgetary discipline, simplification of procedures and sound financial management.

"There is so little of substance which can be agreed that a timetable will be the crucial thing to get out of it," said a diplomat.

Draft summit conclusions prepared by the presidency call for "the basic elements of the agreement [to] be presented by the end of this year" at the Vienna summit.

Feature on an internal European Court of Auditors report (later published as Special Report No.6, 1998) which rebuts some of the arguments put forward by Germany, the Netherlands, Austria and Sweden for reductions in their net payments to the EU.