War of words over finance: a threat to EU’s credibility

By Dana Spinant and Tim King

Date: 24/03/05

IN THE aftermath of this week's European summit, the Luxembourg deputy foreign minister said the priority for his country's EU presidency was now to find agreement on the Union's spending plans.

Nicolas Schmit said such an agreement was needed for the sake of the EU's "internal peace".

"A dispute on the budget that would last for 12 or 18 months would be badly perceived inside and outside the Union," he said. "We should have an agreement on it in June, for the credibility and coherence of the Union."

But his declaration of peaceful intent came as EU leaders began stepping up the war of words over the EU's finances. One of the biggest obstacles to securing agreement at the next European summit in June is disagreement over the UK's rebate.

The French President Jacques Chirac said a balanced agreement was not possible without calling into question the UK rebate.

The British Foreign Minister Jack Straw said: "The justice of the rebate is still there." He said the UK was ready to use its veto to preserve the rebate.

France and the UK are at least allied in their attempts to limit EU spending. Along with the Netherlands, Austria, Sweden and Germany, they want to cap contributions to the EU budget at 1% of gross national income, whereas the Commission proposed last year that contributions should be capped at 1.24% of GNI, with the level of spending set at an average of 1.14% of GNI over the seven-year cycle.

The Belgian Prime Minister Guy Verhofstadt said the attempt to limit the EU's spending commitments to 1% of GNI was unworkable. He said the spending would be set above 1% "with a certainty bordering on probability".

Several member states are hoping that British intransigence on both the rebate and the 1% ceiling will be softened by the UK's interest in settling the issue during the Luxembourg presidency. While Tony Blair would prefer to avoid a deal before a UK general election, expected in May, he might find it hard to handle such a divisive dossier, in which the UK has such a big stake, once he takes over the EU presidency on 1 July.

Schmit said: "We must distribute sacrifices in a balanced way, as everybody knows that we have to enter into a logic of compromise. We will now work week after week to identify where are the convergence lines to reduce the gaps."

He explained that following the successful reform of the Stability and Growth Pact and the review of the Union's Lisbon Agenda for competitiveness, "for the sake of coherence, it would be good to find an agreement on the financial perspectives. We should now find agreement on the third element of this, which is the financing of community actions that support the Lisbon Strategy."

Jean-Claude Juncker, the Luxembourg prime minister, added to his reputation for deal-making by getting agreement last weekend on reforming the Stability and Growth Pact.

Schmit said that a deal on the financial perspectives was not Juncker's "personal ambition", because "he does not need to prove anything anymore".

But he said an agreement in June was "an ambition for Europe". "Finding an agreement in June is the best way of serving Europe," he said.

Anticipation of the debates on the EU's next multiannual budgeting period, the Financial Perspectives, 2007-2013, which were to culminate at the European Council in June 2005.