Santer’s balancing act fails to stop funding fight

Date: 17/12/1998

By Tim Jones

WHEN he proudly unveiled his Agenda 2000 reform package in March, European Commission President Jacques Santer knew it spelt trouble - but not as much as he got.

Using the political skill of not offending anyone too much which landed him the job in the first place, Santer put together a package designed to just about satisfy both the EU's increasingly truculent paymasters and the uppity Spanish.

Presenting the package, he warned against intransigence from both sides. "There will be a tendency to say 'yes' in principle and 'no' to practical application," he said. "That, of course, won't wash."

Santer proposed setting aside 45 billion ecu in regional aid and 500 million ecu per year in farming subsidies for the EU's front-running applicants - Poland, Hungary, Slovenia, the Czech Republic, Cyprus and Estonia. The cost of accession would be met by scaling back the generosity of the Union's aid regimes for rundown regions and farmers although, in the early years of agricultural reform, spending would rise.

Since then, qualified progress has been made in areas such as how to fund enlargement of the Union between 2000 and 2006, but the negotiations have generally proceeded at a glacial pace.

Leaving aside the Spanish reserve on everything, most member states have agreed that the ceiling on transfers to the EU budget should be maintained at 1.27% of gross domestic product between 2000-06 and that cash for applicants and new members should be ring-fenced for the whole period. They have been unable to agree on virtually anything else.

Santer might have seen the clouds on the horizon as he unveiled Agenda 2000. The ink was barely dry when the then German Finance Minister Theo Waigel accused him of having his "head in the sand".

As national elections approached, Waigel and Chancellor Helmut Kohl were not going to give an inch over their demands for a cut in Bonn's net contribution to the budget.

At the Cardiff summit in June, the Chancellor cut an unlikely Thatcherite figure as he warned of a contribution strike unless he got his way. In fact, he was so embarrassed by his performance on German television that he tried to deny afterwards that he had ever said any such thing.

His officials managed to put down a marker in the Cardiff conclusions, reminding the European Commission of its promise to prepare a report on the EU's fixed income streams, known as 'own resources'.

Not to be outdone, Spanish Finance Minister Rodrigo Rato and Foreign Minister Abel Matutes came forward with an alternative plan to increase German and Dutch contributions by linking payments to GDP per capita. This had no chance of acceptance, but represented a statement of future intent.

When the Commission finally produced its report into own resources, it was measured and careful but contained one gem which was quickly seized upon by the new German Chancellor Gerhard Schröder: the 'co-financing' of Common Agricultural Policy direct subsidies.

Within days of taking office, Schröder had been briefed well enough by his EU advisers to know that his chance of winning a budget rebate along British lines was as good as a cat's in hell. Co-financing CAP subsidies, however, only needed qualified majority support.

That meant winning over the French and isolating Spain. Seeing Schröder coming, French President Jacques Chirac and Prime Minister Lionel Jospin tried to buy him off by accepting a German-Dutch proposal to tie budget growth to inflation until the end of 2006. The Commission was apoplectic, claiming that a real-terms budget freeze would slash regional spending, destroy CAP reform, lead to redundancies at the EU institutions and effectively tear up Agenda 2000.

By the time EU leaders met at the Vienna summit last week, eight member states had lined up behind the budget freeze proposal, but CAP co-financing was still short of a qualified majority.

Feature forms part of the European Voice 'Review of the Year'.