Deep cracks emerge as EU states begin budget talks

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By Emmanuel Jarry and Jan Strupczewski | February 8, 2013 8:28 AM EST

A high-profile summit to negotiate the EU's next long-term budget was delayed by more than five hours and then got off to a shaky start on Thursday after stark differences emerged between Britain, France and other countries over the headline figures.

European Council President Herman Van Rompuy, the chair and chief negotiator of the talks, had intended to put a budget plan to EU leaders on Thursday evening, but postponed the move after it became clear there was insufficient grounds to strike a deal.

It was not clear whether he would put a proposal on the table later on Thursday or delay it until Friday, as one diplomat indicated was possible. When the summit began at around 2100, the leaders had no proposal in front of them.

The budget, which covers the years 2014-2020, deals with nearly 1 trillion euros of spending on everything from agricultural subsidies to scientific research, roads and infrastructure, foreign aid and development assistance.

While vast as a headline figure, it is relatively small in terms of annual GDP, amounting to around 1 percent of the EU's total output, or around 150 billion euros a year.

However, that does not prevent negotiations over the package becoming deeply divided along national and regional lines, particularly between northern European countries that want to keep spending tight, and southern and eastern European states that want to maintain funding for infrastructure and farming.

Those differences came to the fore on Thursday, with EU officials saying France and Britain were at sharp odds, not just over the numbers but about whether their leaders should meet.

British officials said French President Francois Hollande was invited to attend a meeting with German Chancellor Angela Merkel, Prime Minister David Cameron and Van Rompuy ahead of the talks, but French officials said that wasn't the case.

But the bigger disagreement is over the numbers. Cameron has said he wants to see "tens of billions" of euros cut from the 972 billion euro plan Van Rompuy put before the leaders at a summit in November, when it was not possible to reach a deal.

But in order to get the figures down to where Cameron would like to see them, it would more than likely mean cutting into programs such as farming subsidies that France, Italy, Spain, Poland and other countries staunchly defend.

The budget must be agreed unanimously, which means every country, from tiny Malta to Germany, carries a veto.

British officials indicated they had "like-minded" countries such as Sweden, Denmark and the Netherlands on their side, while France's position has widespread backing from countries in the south and east of Europe. Germany stands in the middle and is likely to be the lynchpin of any deal.

"We are still not moving beyond the British problem," said one diplomat.

Arriving for the talks, Hollande said there was a limit to how far he was prepared to go in the negotiations.

"If there are some who are not reasonable, then I will try to reason with them, but (only) up to a certain point," he said.

The summit, scheduled to last two days, could now run into Saturday, some officials said. If it is not possible to reach an agreement, the concern is that it may not be possible to return to negotiations until late 2014 or early 2015.

Even if a deal can be struck on the seven-year framework, around 40 percent of the spending is still going to be dedicated to farming and regional development, something that frustrates many northern European states, which want a more dynamic budget.

STATUS QUO

In recent weeks, Van Rompuy has been in touch with every EU leader to assess where the contours of an agreement may lie. He had said that he would only call a summit if he saw sufficient "convergence" among the countries to make a deal possible.

In November, he began the talks by reducing the European Commission's original budget proposal by 80 billion euros, bringing the headline figure down to 972 billion.

Thursday's talks were supposed to resume from that figure, although it was never going to be a simple question of just cutting the total, since the budget also involves delicate negotiations over rebates - amounts countries get reimbursed after they have made contributions.

There is also a difference in how countries interpret the budget figures, with some focusing on commitments - the maximum amount that could be spent on projects or programs - and others concentrating on payments - the sums actually spent.

Payments are always less than commitments, and any deal may ultimately rest in the gap between the two.

If there is to be a deal, the expectation among diplomats is that it will require a reduction in commitments in the region of 15-20 billion euros, pulling Van Rompuy's headline figure down to around 950 billion.

But in terms of payments, the figure could end up closer to 900 billion, an amount that negotiators hope will satisfy Cameron and others adamant about belt-tightening.

(Addtional reporting by Justyna Pawlak, John O'Donnell and Teddy Nykiel; writing by Charlie Dunmore and Luke Baker; editing by Luke Baker)

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