Wanted: a starting point for financial perspectives

By Dana Spinant

Date: 03/03/05

Agreement on the EU's budget for 2007-13 is linked to two other major debates taking place in parallel: the review of the Lisbon Agenda for growth and jobs and the reform of the rules underpinning the single currency, the Stability and Growth Pact.

The president in office of the European Council, Jean-Claude Juncker, has said recently that the three are part of the same large picture and that a solution would have to be found encompassing them all.

"The Lisbon Strategy, the reform of the Stability Pact and of the financial perspectives are part of the same triptych. But I don't know with which one we should start when seeking a solution," he said.

"Competitiveness, growth, employment and social cohesion go together, none of these elements has any sense unless the other elements are part of the same ambition," he said.

Agreement on a reform of the Stability and Growth Pact, which will come to a head later this month, is likely to hold the key to de-blocking negotiations on the financial perspectives. France and Germany, the eurozone's largest economies, have a strong interest in both dossiers. They seek a relaxation of the rules underpinning the single currency and they support at the same time a controversial cap on the Union's budget in 2007-13 to 1% of the Union's gross national income.

Berlin has now unofficially acknowledged that if it gets its way on reforms of the pact, it will back an EU budget of more than 1% for the next financial period - and it will contribute more to the Union's budget in consequence. According to reports in Germany, Gerd Ehlers, secretary of state for finance, has admitted that Berlin is linking the two issues. Ehlers acknowledged in a discussion at a budget committee that the government in Berlin would be ready to pay more than 1% to the EU coffers if it got what it wanted in a revised version of the Stability Pact, according to Die Welt newspaper.

Germany's main objectives are a loosening of the pact's requirements which currently do not allow countries to run budget deficits in excess of 3% of gross domestic product (GDP).

The same information emerged after a discussion between the German Chancellor Gerhard Schröder and the Commission President José Manuel Barroso in Brussels last month. According to officials, Schröder hinted that he would go beyond 1% if the other issues on the negotiating table took into account Germany's concerns. Such issues include the REACH proposal on chemicals, the services directive, aiming at opening up to competition the services sector, and the financial perspectives.

"For the moment, nothing is really happening on the financial perspectives, since everybody is waiting for an agreement on the final shape of the Stability and Growth Pact," one diplomat close to the negotiations said. "In particular, everybody wants to see if Germany will be more generous with the EU budget if they are pleased with the pact."

Reform of the pact is supposed to be agreed by EU leaders at the 22-23 March summit. Although no official deadline has been set for an accord on the financial perspectives, agreement should be found before the end of the year, in order to make sure that the financing programmes can start on time on 1 January 2007. But since the UK is taking over the EU presidency in July, it is commonly agreed that ideally a deal should be struck before the end of the Luxembourg presidency.

On the other hand, the review of the Union's strategy to become more competitive ought to be backed up by the EU budget.

"The budget must finance the Union's Lisbon Agenda strategy, so it must be subordinate to the Lisbon objectives," one Council of Ministers official said.

"The two debates should be connected, it is absurd to set some ambitious economic objectives and then to draw a budget that does not take them into account."

In a recent interview with European Voice, Budget Commissioner Dalia Grybauskaite said that the new budget must enable the Union to face up to its "new challenges: competitiveness, the necessity to have sustainable growth based on a knowledge-based society".

The commissioner warned that, "if we cut the budget to 1% of GDP", the competitiveness-enhancing objectives would be likely to suffer, as almost 40% of the Union's budget, the agricultural spending, is already allocated under a 2002 agreement of EU leaders. Consequently, any cut would represent a reduction in the money allocated to support the Lisbon objectives, such as research and development or improved training and education.

"There is a clear contradiction" between support for the Lisbon objectives and the call to cut the EU budget, Grybauskaite said. "Who will take political responsibility to say that Europe has ambitions to create growth but does not pay for it, it pays for agriculture instead?"

Article says that according to the Luxembourg Presidency of the Council an agreement on the EU's budget for 2007-13 is linked to two other major debates taking place in parallel: the review of the Lisbon Agenda for growth and jobs and the reform of the rules underpinning the single currency, the Stability and Growth Pact.

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