Santer moves to pacify EU’s biggest paymasters

Date: 28/05/1998

By Tim Jones

THE European Commission has promised to consider paying multi-billion-ecu budget refunds to four of the Union's increasingly assertive paymaster governments.

Commission President Jacques Santer's pledge will be welcomed by the German government in the run-up to September's general election. Ingo Friedrich, deputy chairman of Finance Minister Theo Waigel's Christian Social Union (CSU) party, has warned that failure to cut Germany's 11-billion-ecu net budget contribution could lead to an indefinite postponement of EU enlargement.

In a confidential letter to Waigel and his counterparts in Austria, the Netherlands and Sweden, Santer acknowledges "how politically sensitive the issue is", adding: "I have tentatively taken account of your hopes, especially of your wish to get a balanced distribution of the net burden."

Waigel, the Netherlands' Gerrit Zalm, Austria's Rudolf Edlinger and Sweden's Erik Åsbrink had written to Santer asking him to cap the proportion of a country's income which goes to Brussels as part of his Agenda 2000 spending review.

In his reply, Santer tells the ministers that he is looking into the system of 'own resources' used to finance the EU's policies and will report back to them in the autumn. The existing system is based on a combination of revenues from farm levies and import duties, a portion of value added tax contributions collected by member states and a lump sum based on the size of a nation's economy.

Drawing attention to the autumn review, he adds: "This should provide an opportunity to deal with the issue of fair burden-sharing that you raised in your letter with more detailed proposals in the context of the package the Commission has already presented."

But Santer is sceptical about devising a 'general correction mechanism' to compensate overburdened governments along the lines established by the 1984 Fontainebleau summit, which provided the UK with average 3-billion-ecu annual rebates.

It was agreed then that "any member state sustaining a budgetary burden which is excessive in relation to its relative prosperity may benefit from a correction at the appropriate time".

The German and Dutch governments believe that time has come, especially given that since reunification, Germany's wealth per head has fallen while its relative contributions have continued to rise. Germany alone accounts for 58% of net contributions to the EU's 86-billion-ecu annual budget, although new calculations by the European Policy Forum think-tank of the country's national income per head suggest that a 30% share would be fairer.

The EPF will reveal the political cost of capping Germany's net budgetary contribution at just 40% and that of the Netherlands at 5% tomorrow (29 May). It will suggest that to compensate for their refunds, France's net contributions would have to rise from 5% to 11% and Italy's from 3% to 9%.

"To offset this, we argue for savings on spending by repatriating Common Agricultural Policy compensatory payments, reducing structural funds and getting rid of the cohesion fund for everyone except Greece once EMU is established," said EPF economist Rebecca Stokes. "Otherwise, it makes the contribution increase for the others untenable."

Santer's alternative to the politically unsellable option of pushing up other member states' net contributions would be to redirect EU spending programmes so that more cash from Union coffers was returned to the paymaster nations.

But officials acknowledge that this would not come close to the levels of cash sought by the Germans, who are sticking to their demand for an annual cap on net contributions at 0.3% of gross national product.

"Our neighbours should bear in mind that enlargement to the east is not just in Germany's, but in everyone's interest," said Friedrich. "Among our citizens, there is considerable fear about enlargement and their feelings towards it can only worsen if the problem of the net payment by Germany is not solved."