Spain softens stance on budget reform

Date: 18/02/1999

As the pace of negotiations intensifies in the run up to next month's summit on the Agenda 2000 reforms, Spain is fighting a determined battle to keep a sizeable chunk of the EU's handouts. But as Amadeu Altafaj reports, there are signs that Madrid is beginning to take a more pragmatic approach

THE Spanish government began negotiations over the EU's long-term budget like Little Red Riding Hood crossing a cold dark forest, sensing the covetous stares of hungry wolves behind every tree.

Ever since the European Commission unveiled its Agenda 2000 package of proposed reforms to the Union's spending programmes last March, the Spanish authorities have distinguished themselves by their defensive stance towards virtually every proposal raised by their European partners.

The country's prosperity has not helped the government argue for a continuation of EU regional aid at current levels. Indeed, the annual economic report published by the Commission last month confirmed that "economic activity in Spain strengthened markedly in 1997 and 1998", with gross domestic product surging to 3.5% and 3.8% in those two years.

Since Christmas, Madrid has subtly shifted its position. The threat of a Spanish veto to Agenda 2000 has subsided, even though Madrid remains in a minority of one over many issues.

As economist John Kenneth Galbraith once said, dismissing Otto von Bismark's famous aphorism: "Politics is not the art of the possible; it consists in choosing between the disastrous and the unpalatable."

It is the fear of becoming marginalised which has forced the Spanish government to soften its stance since mid-January. "There was a time to stand for the rights conquered in the past and recognised by the treaty, and now it is time to start real negotiations, " said one Spanish diplomat.

It is still open to debate whether Madrid has a clear and predetermined strategy other than "no steps back". Political analysts believe that Spain's manoeuvrings on the Agenda 2000 issue result from a mixture of the hesitant European policies of José Maria Aznar's centre-right administration and a hostile external environment.

Nevertheless, the Spanish turtle seems to have come out of its shell after months in hiding.

Over the past six weeks, talks between the Spanish authorities and the hardline German and Dutch Finance Ministers Oskar Lafontaine and Gerrit Zalm, Finnish President Martti Ahtisaari and French Prime Minister Lionel Jospin, have helped to clarify Madrid's views and persuade it to adopt a more flexible approach.

Spanish politicians have moved very softly in their statements towards an ambiguous recognition of the "problems that some member states face concerning their burden of net contributions", as Foreign Minister Abel Matutes declared after a recent meeting with his German counterpart Joschka Fischer.

Following his meeting with Jospin two weeks ago, Aznar indicated that he was ready to 'play the game' to reach an agreement at the showdown Agenda 2000 summit in Berlin on 24-25 March. He said he was ready to discuss 'control of agricultural expenditure', although he added he would only accept a deal which respected the treaty and the principle of 'non-discrimination'.

Aznar is particularly concerned about what he claims is an excessive identification of Germany's presidency of the EU with its national interests, breaking the tradition that the country chairing Union meetings plays the role of 'honest broker' in negotiations.

"I am worried about how things are going; about their pace and their orientation," he said. "It is important that the German presidency submits initiatives which it considers are opportune, but always in the framework of the duties of an EU presidency."

Other considerations related to internal politics are also heavily influencing the Aznar government's manoeuvres and statements.

The Socialist Party likes to remember that seven years ago Aznar, then a tough opposition leader, branded Felipe González a "beggar" when the former prime minister campaigned for and won agreement on setting up the cohesion fund to help the EU's four poorest countries at the Edinburgh summit in December 1992.

The backdrop to those negotiations was diametrically opposite to that for Agenda 2000, but there is no doubt that the Socialists and the rest of the opposition are ready to exploit any false move or concession just one year before a general election in Spain.

Aznar continues to insist that his country is fully entitled to receive cash from the cohesion fund since its income per head is still well below the threshold of 90% of the EU average enshrined in Union legislation.

This was recognised at a meeting of EU finance ministers earlier this month by France's Dominique Strauss-Kahn and three days later by Jospin in Madrid.

Strauss-Kahn suggested a compromise which could form the basis for the final agreement on this controversial subject. While conceding to the Spanish argument that nominal convergence does not mean real convergence and that beneficiaries should continue to receive subsidies as long as the criteria for funding are met, he asked for discussions to begin on a "staggered reduction" in cash allocations which could be activated before the 90% level is reached.

France appears to be taking a more relaxed line on the future of the cohesion fund than Germany, but this is seen in Madrid as essentially a matter of presentation.

Former German Finance Minister Theo Waigel preferred a straight punch, asking simply for the subsidies to countries which qualified for entry into the single currency zone to be abolished.

Lafontaine, his successor, is suggesting a gradual reduction until 2006, when it would be phased out altogether. Strauss-Kahn has picked up on this concept, while leaving the door open to an agreement on the amounts involved and phasing-out periods.

The opposition to these ideas expressed by Spanish Finance Minister Rodrigo Rato has been counterbalanced by a calculated ambiguity. "We are now discussing amounts, not the existence of the cohesion fund," he said recently.

Rato continues to warn fellow EU ministers that plans to cut Germany's net payment to the EU through a spending freeze and a co-financing system for agricultural subsidies could have "an impact on the possibility of enlarging the EU".

In other words, despite showing a more pro-active approach in the last few weeks, the turtle is ready to go back into its shell if it is pushed too hard - even if this means a possible delay to the final agreement and EU enlargement.

Before even discussing how to cut the cost of the Common Agricultural Policy, Spain wants to highlight what it claims is flagrant discrimination against Mediterranean products in favour of 'northern' products such as cereals, dairy produce or beef.

The concept of stabilisation will certainly be retained, because a majority of member states agree on freezing CAP spending at around €40.5 billion per year, but Spain still objects both to the concept and the amount, reminding its EU partners that the Commission itself considers this figure insufficient to implement the necessary reforms.

However, the most recent French proposal for a progressive reduction in direct subsidies to producers to compensate for price cuts, is not viewed with total hostility by Madrid, as long as an exemption for small farmers who receive less than €5,000 per year (between 65 and 70% of Spanish producers) is retained.

On structural funds, Spanish ministers are already engaged in negotiations with other EU capitals on amounts ranging from the €240 billion in the Commission's proposals for the 2000-2006 period to the €193 billion demanded by the budget freezers.

Madrid would only consider 'stabilising' spending at the levels reached in 1999 - the highest level of the 1993-99 budget period - and not on the lower average.

This means a lot to Spain. In 1997 alone, the country received €6.4 billion in EU's structural funding - just under a quarter of the total cash available.

However, Spanish diplomats believe that they have been forced to do others' dirty work and that, as the negotiations draw to a close, either Lisbon or Dublin may show their true colours by blocking a final deal.

Madrid believes it is defending the principle that 'cohesion politics' should not have to pay for the consequences of enlarging the Union to central and eastern Europe, where it has only a 2% market share.

The Spanish authorities face a double challenge: to preserve the country's political weight and role in a EU whose centre of gravity is moving inevitably to the east, and to defend the rights and aid which have helped the country to get closer to the average prosperity levels in the EU.

Major feature. See also Sections 2.1.c and 4.1.a for overall references on Agenda 2000 and the question of the future financing of the EU.