Butting Heads on the EU Budget Merkel and Cameron Deadlocked ahead of Summit

Will British Prime Minister David Cameron veto the EU budget plan? Chancellor Angela Merkel flew to London on Wednesday night in an effort to convince him not to. It appears unlikely that she succeeded, though, setting the stage for a showdown at the EU summit later this month.
David Cameron and Angela Merkel speak to the press ahead of their bilateral meeting.

David Cameron and Angela Merkel speak to the press ahead of their bilateral meeting.

Foto: Dan Kitwood/ AFP

The front lines in the battle over the European Union budget remain unchanged. A dinner on Wednesday evening in London between German Chancellor Angela Merkel and British Prime Minister David Cameron brought no breakthroughs. Cameron reaffirmed that he would call for a decrease in the budget proposed to fund the EU from 2014 to 2020 at the bloc's summit on Nov. 22.

The atmosphere between the two during the dinner at Number 10 Downing Street was good, according to German government officials. But in terms of substance, as expected, neither side budged. The morning before the meeting even took place, the Financial Times said sardonically that the pair of conservatives "enjoy one of the warmest but least productive relationships in European politics."

Merkel came to London in the hopes of pressuring Cameron into a joint position on the budget dispute. "Great Britain and Germany are both net contributors, meaning we have a good deal of common interests," she said. At the same time, she wanted to make it clear to Cameron that the patience of his EU partners should not be tested. In principle, she agrees with the UK that in light of austerity programs on the national level, the EU budget should not be increased. But with the euro crisis still taking up much of her attention, she is willing to allow a modest spending increase in the interest of reaching a swift decision and avoiding a drawn-out battle among EU member states.

The 17 "net recipients" -- those that receive more money from the budget than they pay in -- in addition to the European Commission and the European Parliament all support a budget increase. The Commission's draft budget foresees spending of around €1 trillion ($1.28 trillion) from 2014 to 2020. The government of Cyprus, which holds the rotating EU presidency, suggested a compromise cut of €50 billion less. That doesn't go far enough for the net contributor nations, which are pressing for at least another €50 billion to be dropped.

Cameron Calls Budget Increase "Completely Ludicrous"

Whatever potential budget compromises Cameron may have relayed to the chancellor behind closed doors were not made known. Publicly he said increasing the seven-year budget would be "completely ludicrous," and that he would go to the EU summit with a robust position and readiness to use his veto power if need be.

Cameron's stubbornness is not surprising. Before the budget showdown in Brussels two weeks from now, the prime minister has to prove to his Tories that he's a tough negotiator. Should he give any ground at all, it would likely only be late in the night after hours of negotiations. But even that appears unlikely, after the British parliament's recent vote calling on Cameron to demand large cuts to the EU budget.

The proposal was non-binding, but it raises the question of whether Cameron is prepared to act against the will of the very parliament that elected him to his post. When in doubt, he has typically deferred to the interests of his national electorate when making decisions in Brussels. If he indeed employs his veto, he would likely be celebrated in Britain's euro-skeptic press as a hero.

Merkel to Greece : "It's Not Okay"

London was not the only place where Merkel on Wednesday had to convince skeptics of her position. Before her trip across the channel, she was a guest of the European Parliament in Brussels, where she gave a speech laying out her vision for the currency union. Here, in the heart of federalist Europe, Merkel is seen as a representative of national interests and a relentless proponent of austerity.

She found the right words. The euro zone has to correct the failures of its foundation in the next two to three years, she told lawmakers, and an "ambitious" roadmap should be approved by the EU summit in December.

Merkel warned against focusing only on short-term efforts to fight the euro crisis. Rather, the economic and currency union must be rebuilt from the ground up, she said. She repeated her call to give the European Commission more power over national budgets. The German proposal for a "savings commissioner" is controversial in Brussels.

Several parliamentarians accused the chancellor of worsening the economic crisis across Europe with her "blind austerity policy." But she was unrelenting, saying that other countries must push through the same reforms that Germany already has behind it.

Economic policy in the euro zone has to be better coordinated and harmonized, Merkel said, including the labor market and tax policy. However, she added that this must be done "cautiously." She called for the euro zone to have its own budget, with which countries could be rewarded for their willingness to reform.

The chancellor had harsh words for Greece. "You have to say to them: It's not okay to go on strike every time a privatization takes place," she said. "It's not okay when you have a tax system, but no one pays taxes."

Merkel Wants to Avoid EU Schism

Immediately prior to her visit to London, Merkel sent clear signals of peace to the island. She couldn't imagine an EU without the United Kingdom, she said, and she doesn't want a split into a two-track Europe. That's why she rejects the idea of a separate euro-zone parliament, she said. However, she said she could imagine European parliamentarians from the euro zone voting on matters that exclusively affect the currency union.

Merkel's vision has a big caveat: It's dependent on the support of the 26 other member states. The British government, however, has been steering in the opposite direction. At the dinner on Downing Street, two widely differing world views collided. Merkel is fighting with all her might for a closer union. Cameron, in contrast, would like to see the process of European unification turned back a few decades.

In the coming months, the British prime minister faces two key tests. The first is at the special EU summit on Nov. 22, where the EU budget will be addressed. Then, at the next regularly scheduled summit on Dec. 15, a banking union for the euro zone will top the agenda. In both instances, he could use his veto power -- like he did one year ago, when he prevented Merkel from writing the fiscal pact into the EU treaty.

Cameron will carefully consider whether he wants to ignite the resentment of his partners for a second or even third time within 12 months. He himself will soon be dependent upon their support. His declared goal is to withdraw from certain individual areas of EU cooperation and to establish a looser relationship between the UK and the Continent. But that requires the approval of all 26 other member states. And with each "no," London is sinking its chances of convincing the other capitals to grant the Britons any of their wishes.

"One can be very happy on an island," Merkel warned. "But in this world, being alone doesn't bring you happiness anymore."