The European Union. Brussels fudge

Why the EU budget compromise is worse than no deal at all

LAST weekend's summit agreement on the European Union budget was in line with the best Brussels traditions. It was done long after midnight, at the end of a bruising day of negotiations. Almost nobody was satisfied. The British press said that Tony Blair had given away Margaret Thatcher's sacred budget rebate and got nothing in return. The share of EU spending that goes on its ludicrous common agricultural policy (CAP) stayed at a whopping 40%. And, rather than holding a proper debate now over what the EU should be doing and how it ought to spend its money, the exhausted leaders promised a feeble-sounding review in three years' time--when most of them will, with luck, no longer be in office.

There was certainly a case for getting the budget for 2007-13 out of the way, to avoid spending next year squabbling over money. Never mind what the British newspapers said--Mr Blair had to offer back some of the rebate, and not only because, as holder of the rotating EU presidency, he was under pressure to compromise. Had the rebate remained unchanged, Britain would have paid next to nothing towards the cost of expanding the club to take in ten mostly poor countries from central and eastern Europe; indeed, it would have become the second-smallest net contributor after Cyprus. And France's Jacques Chirac had long made clear that he was not prepared to reopen the October 2002 deal to preserve CAP spending in real terms until 2013--a deal that Mr Blair and all other EU leaders accepted at the time.

This budget agreement might thus have been the best that could be done. Even then it took hard pounding. That the deal was secured at all owed something to Mr Blair's anxiety for the British presidency to end on a good note; rather more to the good offices of Angela Merkel, the new German chancellor, who cajoled her fellow leaders and offered helpful concessions at crucial moments; and nothing at all to Mr Chirac, who remained obdurate over the CAP ()see page 43. Yet even if the budget agreement was the best available, that is not enough reason to prefer it to the alternative of no deal at all.

Where Blair went wrong

The biggest failing remains the CAP. Mr Chirac's reluctance to cut a policy that benefits France to the tune of euro3 billion ($3.6 billion) net, per year (only a bit less than Britain's notorious rebate) is understandable. And the CAP is in the midst of a big switch from production-linked (and trade-distorting) subsidies to direct income payments to farmers. Yet Mr Blair was right to declare in June that a modern EU budget would not be one that spent 40% on agriculture. Worse, the lack of progress in last week's Hong Kong ministerial meeting to discuss the Doha round of world trade talks can be linked directly to the EU's intransigent refusal to open its market wider to farm products ()see page 101.

Until the weekend, Mr Blair was refusing to give up any of the British rebate without the promise of more CAP reform. Yet the only promise he got was of a review in 2008, when France can still veto any change. The French government is already treating this, contemptuously, as an agreement to keep the CAP unaltered until 2013. There is worse: by then, the new countries from central Europe, which have lots of farmers, will be receiving their full whack of CAP subsidies. France, previously backed only by Ireland, may suddenly find lots of new allies eager to resist farm reform.

Mr Blair's biggest mistake was to accept the October 2002 deal, at a weak moment in the run-up to the Iraq war. But the British position has also been undermined by a failure to propose any detailed CAP reforms of its own. Indeed, Britain, which has many large farms, is in the forefront of those blocking one obviously desirable change: a ceiling on subsidies for any single recipient. It has not suggested bigger cuts in direct income payments, or in EU tariffs on farm imports. And, partly because Britain gets a budget rebate, no British government has ever backed the sensible idea put forward by Italy and others that a chunk of CAP support should be switched from Brussels to national governments. If France likes wasting taxpayers' money on big, rich farmers, which is what the CAP does, it should surely pay for most of this folly itself.

If Mr Blair were ever serious about reforming the CAP, he should have put ideas such as these on the table long ago. He could also have pressed, long before last weekend, for a budget deal to run only until 2010, not 2013. After the rejection of the EU constitution by French and Dutch voters last summer, everybody accepted that there should be a big debate about the future shape and direction of the club. That surely makes it odd to fix its budget now for so many years ahead. An end-point of 2010 would have put more beef into the review planned for 2008, as well as holding out greater hope of farm-subsidy reforms in the Doha round. By failing either to propose serious CAP changes, or to limit this budget deal to a shorter period, Mr Blair has ended up sacrificing one-fifth of Britain's precious rebate for far too little in return.

Editorial says that the agreement on the details of the Financial Perspective for the years 2007-2013 made by EU governments at the EU summit in Brussels, December 2005, is worse than 'no deal at all'.