Bringing the bargaining down to earth

Date: 04/02/1999

As the deadline for agreement on the Agenda 2000 proposals for reforming EU spending on agricultural and other long-term programmes draws closer, Bonn is forcing the pace of negotiations. Tim Jones reports on the likely shape of the final deal

REAL negotiations on the EU's long-term finances may have only just begun, but an outline of a deal is already taking shape.

Of course, for the sake of politics as usual, the rhetoric from all sides will remain at fever pitch until five minutes before Union leaders' self-imposed deadline expires seven weeks from now, but compromises are already being made and horses traded.

Before the Vienna summit in December, discussions on the European Commission's plans for reforming the EU's spending programmes set out in the Agenda 2000 package were really talks about talks.

During Austria's term at the Union helm, it was agreed that every member state's position, however outlandish, on overhauling the Common Agricultural Policy, reforming regional aid budgets and changing the way the Union is financed, should be officially tabled and reflected in a pre-summit report.

Since the Germans took over the EU's rolling presidency, the pace of the Agenda 2000 talks has been forced.

Bonn has drafted a 'negotiating box' - a shell accord - for the 24-25 March Agenda 2000 summit in Berlin, and is filling in the gaps week by week by identifying areas where deals can be struck.

As a result, nobody is even genuflecting before isolated Spanish positions (described by one diplomat as a "no, no, no, no, no approach" ) on regional aid, raising the overall spending ceiling or protecting the EU-15's budget from new members in central and eastern Europe.

Instead, discussion papers prepared by the presidency for member states' ambassadors to the Union before weekly negotiating sessions have focused on finding accommodations between the differing shades of opinion held by the majority of governments.

Most want to see 'stabilisation' of Union spending between 2000 and 2006, a real-terms erosion of CAP subsidies combined with reform, some means of compensating the Germans for their excessive €10-billion net contribution to the EU budget and ring-fenced cash to cover the cost of enlarging the Union to the east.

But these are just aims. The presidency is now concentrating on pinning down exactly what the majority of member states mean by stabilisation, CAP reform and dealing with 'budgetary imbalances'.

Few diplomats expect to see the creation of a new 'generalised correction mechanism' to refund member states which pay too much into the EU budget during any given year. Even fewer expect the British government to agree to a reduction in the size of its annual budget rebate to compensate the German and Dutch governments for their heavy net payments.

Instead, negotiations will centre on stabilisation. To its most ardent proponents - the Netherlands, Austria, Sweden and Germany itself - stabilisation can only mean keeping increases in budget payments in line with inflation, ensuring that spending increases from €85 billion in 1999 to only €97 billion in 2006. The Germans have now, however, added some flexibility to this, stressing that the bottom line is that EU spending growth should never outstrip that of national public expenditure.

Philosophically, the budget-freezers have won the argument. Every country, and the Commission, now talks the language of stabilisation, even if they mean different things by it.

At last week's meeting of EU foreign ministers, Commission President Jacques Santer gave a robust defence of the Agenda 2000 plans for CAP spending, arguing that this would be "stabilised" over seven years once the one-off costs of reform were stripped out of the equation.

Scared to death by talk of responsibility for paying one-quarter of all direct income-supporting subsidies to farmers being passed back to member states, France has thrown its weight behind serious CAP cost control. Paris shocked everyone by giving its support to an earlier proposal from the UK to erode direct-aid payments ('degressivity') and publishing a comprehensive reform paper.

Foreign ministers have already agreed that the ceiling on farm subsidy spending, known as the guideline, no longer serves a useful purpose and "should be more in keeping with actual spending". This would effectively reduce the amount available to the farm budget.

The problem with freezing CAP subsidies in line with the rest of the budget is that the costs of the reforms needed to meet the EU's international trade obligations are high in the first years.

For this reason, governments have all but ruled out hardline plans for capping farm spending at h40.5 billion per year throughout the Agenda 2000 budget period.

More likely is one of a cocktail of scenarios suggested by the Germans. Under the first, the Union would aim to keep farm spending below an average of €40.5 billion in 2000-06 but, since more would be spent in the early years, less would be available post-2003. This would cut the farm budget from 46% of the budget today to 41% in 2006.

The second scenario would fix a target level for the ceiling of €40.5 billion in 2006 and allow flexibility in the intervening years, but only so far as overall spending did not exceed €283.5 billion by much over the whole period.

Negotiators are convinced that France can never accept any kind of co-financing of the CAP, since it would be the beginning of the end for the EU's only genuine common policy, but they believe that Paris would be ready to accept cuts in subsidies, especially for cereals.

Applying the stabilisation concept to regional aid spending would, the Commission warns, reduce the amount available to the EU-15 from €239 billion over the coming seven years, as suggested in Agenda 2000, to just €193 billion.

Such a massive cut will never be agreed, given the reluctance of member states to accept that areas which formerly benefited from structural funds and the special cohesion fund should lose their top-priority status.

The Germans are exploring ways of stabilising spending but maintaining the intensity of aid - measured as funding per capita - next year at current levels for those areas which are eligible for aid according to objectives proposed in Agenda 2000.

Governments surprised themselves by quickly reaching agreement over the highly contentious Commission plan to hold back 10% of the €210 billion earmarked for regional aid in 2000-06 and only allot it once projects proved themselves to be well-run. The 'performance reserve' has now been accepted, but only after the 10% target was slashed to 4%.

Member states are also expected to agree soon to a new rule that cash committed to the structural fund budget which remains unspent after two years would be clawed back, so reducing the mountain of unpaid commitments which cause so many problems when budgets are set each year.

Once stabilisation is accepted in the two big budget areas of agriculture and regional aid, getting agreement on the other categories should be relatively easy. Nevertheless, problems have already arisen over the €49-billion budget for research, Trans-European Networks, education and employment policies.

Since the budget-freezers would allot only €43 billion to these areas and the long-term budgets for several of these programmes have already been set, little would be left over for smaller schemes.

The Commission is also arguing fiercely that administrative spending should be exempted from a real-terms spending freeze since some of its policy mandates could not be carried out without extra cash.

Meanwhile, the negotiations are hardly touching on grand schemes for changing the way the budget is resourced.

The proposed reform with the greatest chance of success - swapping the revenue stream linked to national receipts from value added tax for one based on a country's national income - has run into an Italian roadblock.

If an agreement is reached at the end of March, it is likely to look a lot less radical than the rhetoric suggests. However, if it does include staged cuts in direct-farm aids, stabilised CAP spending and a falling regional-aid budget, it will be a huge turn-about from the last two financing packages agreed in 1988 and 1992.

Major feature.