British Prime Minister Cameron Faces Tough Talks on EU Budget

When the 27 European Union heads of state and government arrive in Brussels on Thursday evening for the budget summit, all eyes will be on David Cameron. The British prime minister is in a pugnacious mood, and has said he is prepared to veto the European Commission's budgetary proposal for the years 2014 to 2020 if he doesn't get his way.

Cameron is set to arrive ahead of most of his European counterparts for talks with European Union Council President Herman Van Rompuy and Commission President José Manuel Barroso in an attempt to outline a possible compromise. It promises to be a difficult task.

Every seven years, the EU must come together to fashion a spending plan, and each time it becomes a bitter battle over national interests. For the approaching seven-year period, the Commission has proposed raising EU spending to €1.091 trillion. And the EU's executive body has the support of the European Parliament as well as the 17 countries who are net recipients -- a group made up primarily of Southern and Eastern European countries who receive more from the EU budget than they pay in.

Net payers, on the other hand -- a group including Germany, Finland, the Netherlands and Britain, among others -- feel that it is politically intolerable to transfer even more money to Brussels at a time when austerity is the top priority for capitals across the EU. They would like to see the budget limited to 1 percent of the EU's economic output, or €960 billion. Cameron, however, would like to go even further. He has demanded that the budget be frozen at the 2011 level and is willing to allow only a minimal adjustment to account for inflation. It is a demand that would require slashing €200 billion from the Commission proposal.

Resistance from European Parliament

Several compromise proposals have already been made in an attempt to break the deadlock, but all have thus far been rejected. Most recently, Van Rompuy suggested a budget of €1.010 trillion, a proposal that triggered well-practiced reflex responses. Great Britain demanded further cuts to both agricultural subsidies and the EU administration. France and Italy, for their part, insisted that the so-called British rebate -- an agreement stemming from 1984 whereby a portion of the UK's contribution to the EU budget is paid back due to its limited use of agricultural subsidies -- be further reduced.

On Thursday, the Financial Times reported that progress may have been made towards a potential deal with London. Cameron, according to the report, may be prepared to accept a spending cap of €940 billion for the years 2014 to 2020. "Our feeling is that Mr. Cameron got what he wanted," one unnamed EU official told the paper.

But does that really mean that the deadlock has been broken? European Parliament President Martin Schulz, of Germany's center-left Social Democrats, issued a timely warning against lazy compromises. "Not every compromise is a good compromise," he told the Neue Osnabrücker Zeitung. In comments on Thursday morning to German radio station Deutschlandfunk, he sounded even more pessimistic. "I believe that it will be very difficult to find a compromise," he said. The European Parliament must approve the budget proposal agreed to by EU leaders.

A primary reason for the challenges facing the budgetary summit on Thursday is the fact that in recent weeks Cameron has managed to maneuver himself into a corner. By threatening to apply his veto in Brussels, he has raised expectations at home that will be politically difficult to disappoint. Domestic pressure on the prime minister is significant.

Ice Cream for Fat Boys

Indeed, several lawmakers from Cameron's own conservatives recently joined Labour parliamentarians in demanding that the prime minister push through significant cuts to the EU budget. And this week, Cameron's greatest nemesis, London Mayor Boris Johnson, joined the fray. "It is time for David Cameron to put on that pineapple-coulored wig and powder blue suit, whirl his handbag round his head and bring it crashing to the table with the words no, non, nein, neen, nee, ne, ei and ochi, until they get the message," he wrote in his Daily Telegraph column, in reference to former Prime Minister Margaret Thatcher. Raising the EU budget, he wrote, "is like handing an ice cream to the fattest boy in class, while the rest of the kids are on starvation diets."

During question time in the British parliament on Wednesday, Cameron was then forced to pledge that he would defend the British rebate at all costs.

Given such pressures, it is difficult to see how Cameron will be able to make meaningful concessions to his EU counterparts. He is in a lose-lose position: Either he agrees to a compromise in Brussels, which would generate significant problems for him back home. Or he vetoes the budget, which would lead to the summit's failure and result in a further isolation of Great Britain within the EU.

Yet even as many in the UK would no doubt welcome a veto, doing so would also expose Cameron to accusations that he sold British taxpayers short. Should EU leaders be unable to agree on a budget for the seven-year period in question, the EU budget would automatically rise each year in accordance with inflation. In the end, that could be more expensive for Great Britain than joining other net payers in Brussels to force through an acceptable compromise. "If David Cameron blocks a deal, he will look foolish and will stand to gain little," writes Iain Begg of the London School of Economics in a recent post on his blog.

As such, there remains a sliver of hope that Cameron will display some degree of pragmatism in Brussels. Following a Wednesday briefing, British newspapers were reporting that Downing Street was striking a slightly more conciliatory tone. Van Rompuy's proposal, it seems, might just be a solid basis for further talks.

France Refuses to Relent

German Chancellor Angela Merkel would welcome any indications that Britain was willing to budge. Her primary interest is completing the budget negotiations as quickly as possible so she can refocus her attention on the more important task of reforming the euro zone. To make that happen, she is even willing to accommodate requests from recipient countries for a slight budget increase.

But the size of the budget isn't the only sticking point. There is also disagreement over how the money is to be spent. Currently, some 40 percent of the budget is spent on agricultural subsidies, a further third for the Structural Funds and the Cohesion Fund, which focus on helping the EU's poorer regions, and 6 percent for EU administration. The rest is divided among smaller items such as EU foreign policy, security policy and immigration.

Net contributors such and Germany and Britain have demanded a "modern budget," meaning that cuts be primarily made to agricultural subsidies. Indeed, Van Rompuy's compromise proposal calls for slashing such payouts by €25 billion. That, however, has triggered furious protest in France, which is the largest recipient of agricultural support. Eastern European countries, for their part, are radically opposed to any cuts to the Structural Funds.

Despite the headbutting, Van Rompuy still believes that a solution can be found. Should it become necessary, the summit will simply be extended, he said. He has already made preparations for its continuation into the weekend.