EU finance is potential headache

By Anna McLauchlin

Date: 16/12/04

THE Luxembourg presidency has set itself two hefty targets for the next six months.

Not only must it unite hostile budget ministers over national contributions to the EU coffers, it also wants to produce a consensus on changes to the Stability and Growth Pact.

The first is an ambitious target as it concerns the thorny issue of money. Battle-lines have already been drawn over the EU's spending limits for the period 2007-13, known as 'the financial perspectives'.

Those countries that are net contributors to the budget - those who put in more than they take out - are sticking to their demand for the EU's spending to be limited to 1% of gross national income, compared to the Commission's proposed maximum for commitments of 1.26%. The Commission estimates that actual payments will average out at 1.14%.

The UK, France, Germany, Netherlands, Austria and Sweden are threatening to wield their national veto if they do not get their way. Those set to benefit from the funds are siding with the Commission, with Spain, Portugal and Greece particularly nervous about losing regional funds as aid shifts to the new member states.

Even if a compromise is eventually reached on this score, there is still the row over the UK's annual rebate, worth _5 billion in 2003.

UK officials say that Gordon Brown, Britain's finance minister, will not accept anything less than the status quo, arguing that the 'Generalized Corrective Mechanism' in the Commission's proposal, under which all net contributors would get something back, would still see the UK paying relatively more than other rich states, such as France or Italy.

According to the timetable laid out in a programme agreed by the six presidencies between 2004-06, member states' ministers are supposed to reach political agreement by the end of June 2005. But sources say that those pushing their own agenda are not likely to feel pressured by time.

The review of the EU's single currency rules is likely to be equally sensitive. Ministers broadly agree that the rules should reflect the different characteristics of the eurozone members but several players, including European Central Bank President Jean-Claude Trichet, have expressed concern that Europe's financial stability would be shaken by a weaker pact leading to higher interest rates in the longer term.

Different countries have different cards to play. German Finance Minister Hans Eichel, whose country is one of the EU's net budget contributors, has recently called for EU spending to be excluded from national deficit calculations.

Italian premier Silvio Berlusconi, whose government is currently struggling to prove the accuracy of its deficit calculations, is said to be pressing for a discussion of the pact at government-leader level in March.

There are other challenges ahead for Luxembourg. The Grand Duchy has promised to continue talks on the Community Patent, reduced rates of VAT, consumer credit and common rules on sales promotions, all of which have stymied Union presidencies.

The shake-up of auditing under the 8th company directive is also likely to be subject to lengthy discussions. But some may be simpler. Outstanding proposals from the Financial Services Action Plan including solvency rules for banks - the Capital Requirements Directive - and rules on money-laundering and cross-border mergers could be wrapped up in the next six months.

Article reports that the Luxembourg Presidency of the EU Council is planning to tackle two main issues during its term in the first half of 2005: the EU's financial perspectives and the revision of the Stability and Growth pact.