London and Berlin Demand Cuts: Sparring Expected over Next EU Budget

Only weeks ahead of the next major European Union summit, negotiators in the member states are seeking to draw lines in the sand over the club's next budget. Both London and Berlin are demanding significant cuts, placing them on a collision course with the European Commission and many Eastern European countries.

The European Parliament during a session in Strasbourg, France: A heated debate is taking shape over the EU's next seven-year budget. Zoom
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The European Parliament during a session in Strasbourg, France: A heated debate is taking shape over the EU's next seven-year budget.

The European Union has barely put its last difficult summit behind it, and yet a fresh dispute is already brewing that threatens to divide leaders in capitals across the Continent. It's a conflict that comes every seven years -- the next EU budget, which is currently proposed to exceed €1 trillion.

Member states of the European Union are currently arguing over the draft of the upcoming budget for Brussels, and a compromise appears increasingly unlikely. Germany, in particular, is unhappy with the latest proposal by Cyprus, which holds the EU's current rotating presidency, to reduce the budget presented in June by the European Commission, the EU's executive. Cyprus is calling for at least €50 billion to be cut from the €1.033 trillion budget.

"The suggestions made by the (EU) presidency to limit the EU budget fall markedly short of those that are necessary," said Michael Link, a minister of state within the German Foreign Ministry.

The official said the figures named in the budget proposal for the period from 2014 to 2020 are "still very far" from the targets being sought by Germany and other so-called net payers in the EU -- net contributors being the countries that pay more into the EU's coffers than they get in return.

Germany and other net contributors want to limit the EU's budget to 1 percent of the member states' total gross domestic product (GDP). To achieve that, the Commission's proposed budget would have to be slashed by as much as €130 billion.

London Demands Radical Cuts

The demands being made by Britain in the run-up to the EU budget summit on Nov. 22 and 23 in Brussels are even more radical. London wants the proposed budget cut by €200 billion. British Prime Minister David Cameron has threatened to veto any budget increase that exceeds inflation, and many have compared his stance this time around to that of Margaret Thatcher in 1984, when she negotiated an annual rebate for Britain in the EU budget in the double-digit billions, ensuring that the country gets a large chunk of the money that it pays in back.

Cameron's position is also far off from that of the European Parliament, the elected body of the people, which has criticized the European Commission's budget proposal as being too meager. On Nov. 7, German Chancellor Angela Merkel is expected to travel to London to meet with Cameron and discuss how to proceed.

The European Commission first presented the new budget in June, and the draft also has widespread support in the European Parliament.

The Commission's proposed budget is also backed by the so-called net receivers, the countries that get back more than they pay in. They are primarily Eastern European countries, led by Poland, where Prime Minister Donald Tusk has warned Britain that the current EU budget will remain in force, with a 2 percent increase each year for inflation, if a compromise is not reached.

"We will try to persuade the British that a compromise would be cheaper for the UK," Tusk told reporters this week, according to Reuters. "We will be looking for smart compromises."

Difficult Negotiations Ahead

Nearly three-quarters of the EU's annual budget is spent on farming and infrastructure, with some 40 percent of that going to agricultural subsidies. Airports, highways, bridges, railway tracks and other infrastructure projects account for about 35 percent, according to Reuters.

Eastern European net receivers, often structurally weak, have benefited from the flow of money from Brussels and do not want to accept cuts to funding that has helped them gradually bring public infrastructure up to a Western European standard in many areas since accession in 2004 and 2008.

If European leaders are unable to reach a compromise by the end of November, then a special budget would have to be approved each month until the full budget is agreed upon. Given the recent difficult austerity measures undertaken in many member states because of the debt and euro crisis, a fierce battle over the budget may ensue in Brussels later this month, with some EU officials predicting that the two days scheduled to negotiate the budget may stretch into three. It's not uncommon for member states to spar over the budget, but given growing debt crisis tensions, this year may be different.

dsl -- with wires

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