Santer ducks looming battle over EU budget

Date: 03/09/1998

By Tim Jones

EUROPEAN Commission President Jacques Santer has decided to let governments feud over the way the EU's 85-billion-ecu annual budget is funded rather than embroil his institution in the acrimonious debate.

His long-awaited report into the feasibility of reforming the Union's budget revenue system, which is due out early next month, will confine itself to analysing the problem rather than proscribing change, say officials.

They fear that campaigning for the system to be tinkered with rather than revolutionised would simply alienate governments at a time when the Commission is trying to win support for the Agenda 2000 package of spending reforms.

In anticipation of the report, member states are lining up behind wildly differing proposals for overhauling the budget.

Germany, the Netherlands, Austria and Sweden are demanding the creation of a 'generalised correction mechanism' to refund contributions to governments which have paid more than 0.3% of their country's national income in one year.

They want the deal given to the UK in the mid-Eighties, whereby London claws back an average 3 billion ecu every year in 'overpayments' to the budget, to be extended to them. Germany, which pays more than 10 billion ecu in net contributions to the budget, is pushing particularly hard for a new deal.

On the other side is a southern faction led by Spain, which wants payments to be based on countries' per capita income rather than their gross domestic product, so reducing the money paid by Spain itself, as well as Greece, Ireland, Portugal and the UK.

Madrid is also pressing for the creation of a new revenue stream to fund EU policies, which would take account of relative wealth.

Officials say the Commission's report will address each of these proposals.

"It will go through all the different ideas, make calculations and say clearly what the cost implications of every one of these ideas would be," said one.

For example, figures leaked to the Spanish press suggested that the German government alone would have to increase its contribution by more than 3 billion ecu under the Spanish plan, which is the amount Bonn has said it wants to win back.

Similarly, officials will cite research carried out by the EU's Court of Auditors into the costs of extending the British rebate formula to Germany, the Netherlands, Austria, Sweden, France and Italy. It would, claimed the Union's financial watchdog, raise the cost to the EU's poorer states of funding the annual rebate from 2.9 billion ecu to 12.4 billion ecu.

On the issue of a new resource, the Commission will revisit suggestions floated five years ago about the possibility of using the proceeds of an energy tax, tax withheld from savings income or other duties, although the drawbacks of each will be clearly stated.

The Commission report will also run through the arguments for focusing on a reallocation of existing spending programmes rather than redirecting contributions to save money for the paymaster states.

Officials will argue that focusing on Union spending is misleading since many programmes can have a knock-on effect across borders, including in northern member states, worth between 48% and 111% of the original outlay.

Preview of the Commission's study on reforming the EU's budget revenue system.