Charlemagne. Isolation fever

How Tony Blair may, yet again, follow in Margaret Thatcher's footsteps

ONE of the more pointless Brussels parlour games is to tot up the achievements of whichever country happens to hold the European Union's six-monthly revolving presidency. The score-sheet for Britain, the current Buggins, looks poor. The British say that the start of accession talks with Turkey on October 3rd was a great achievement, but the original deal was struck last December. Nobody else thinks Britain has done much (this week's Barcelona conference was a notable flop, with eight of the ten Mediterranean leaders invited staying away).

Normally, the game of assessing presidencies is just that: a game. But this time it may reflect something that is happening on the ground: Britain is becoming more isolated in the EU. This could have profound consequences for both Britain and Europe.

The proximate cause of the isolation is the British budget rebate. Some 80% of EU spending goes to farmers or poor regions - and Britain has comparatively few of either. To offset the resulting unfairness, Britain gets a rebate, negotiated acrimoniously (with 11 against one) by Margaret Thatcher in 1984, that refunds some two-thirds of the difference between its contribution and its receipts. Britain argues that the rebate must stay until the common agricultural policy (CAP), the guilty party in the EU budget anomaly, is further reformed and cut.

The rest reply that the CAP was reformed in 2002-03, and that Britain accepted this deal, which was supposed to last until 2013. Another bout of change now would be premature. Instead, Britain should give up most or all of the rebate, so as to ensure that it pays its fair share towards the cost of enlargement. Under the rebate, Britain gets back two-thirds of its contributions to enlargement: indeed, the new EU members, all much poorer than Britain, contribute towards the "British cheque". Britain also suffers less than others from competition for regional subsidies, as it gets so few. Thus Britain does relatively well from enlargement. If nothing is done about the rebate, Britain will go from being one of the largest to one of the smallest of the ten or so net contributors to the budget - an outcome that Britain, but nobody else, looks upon with equanimity.

Britain is in a tiny minority on the financing of the EU. Last June, it was one of five countries that rejected the then Luxembourg presidency's proposed budget for 2007-13. This would have frozen the rebate, with a view to phasing it out. Most countries thought that Britain would eventually come round to accepting some version of that compromise. Instead, Tony Blair seems to have become more hostile to it - either because he is accused in Britain of sacrificing the Thatcher money or, as France's Jacques Chirac suggested this week, because his chancellor, Gordon Brown, has insisted on a tougher line.

Last week, finance ministers broke up with more than the usual bickering. Next week, Britain will present a new budget pitch. It is prepared to trim the rebate a little; but to pay for this by reducing regional subsidies to the new members. On these, the British claim boils down to the argument that "this won't hurt a bit", because the new members are likely to spend little more than half their allocations. Yet first reactions from the new members have been uniformly hostile. Nor is it clear that the older members, notably France, want to avoid a row with Britain. They might prefer to see British energies in the EU during 2006 used up in an enervating budget fight reminiscent of the 1980s.

For most of the 1980s and early 1990s, Britain's splendid isolation was not so much a policy failure as a permanent condition of life in Europe. A handbag-toting Margaret Thatcher revelled in her summit clashes. John Major, under pressure from Eurosceptics, accepted isolation. But for Mr Blair, it would not be splendid: it would be a reversal. In his speech to the European Parliament in June, he declared that "I believe in Europe as a political project" - something his predecessors could not have said. Britain is not alone over economic reform: many new countries, and even some older ones, agree. Britain has joined France in trying to create a European defence policy. It has supported greater EU involvement in justice and home affairs. Even on the CAP, several countries share Britain's desires for more reform.

One gripe might be that none of this has done Britain any good in the EU budget negotiations. A more reasonable conclusion is that British isolation over the rebate no longer expresses a more profound isolation from everything in Brussels. But, paradoxically, this lesser isolation might matter more than the greater one did. When Britain was more completely cut off, it had little influence within the EU. Now, it has more to lose.

The cost of isolation

If the budget wrangle ends up leaving Britain more isolated, its alliance with the new members is sure to suffer (Britain was their best friend before membership and, until the British rebate came up, they have been Britain's). Without a budget deal, Britain might have to forgo some of the things that it wants out of the EU: more spending on European defence and justice, for example, or more deals (like the recent one on sugar) to reform the most absurd and trade-distorting features of the CAP. More subtly, Britain risks missing an opportunity to entrench its general policy influence across the EU. After the rejection of the constitution in France and the Netherlands, Anglo-Saxon liberalism is being taken more seriously throughout the continent, and French dirigisme less.

None of this necessarily implies that Britain will or should cave in over the budget. As the Treasury might say, influence is not worth anything like as much as the billions of pounds that taxpayers get from the rebate. And Britain is surely right to press for more CAP reform in any case. Still, if budget wrangling spills into next year, it will not be only the new members that will suffer. So will some of the causes that Britain has supported for so long - often, it must be said, alone.

Commentary feature says that the United Kingdom is becoming more isolated in the dispute over the future financing of the European Union - and this isolation will have wider repercussions in policy areas in which the UK does support EU co-operation such as security and defence.

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