European policy consultants
Rural development and renewable energy

Agreement reached at European Council meeting 8th February '13

Mr Cameron said "I think the British public can be proud that we have cut the seven-year credit card limit for the EU for the first time ever," he said.

The deal would see a fall in the share of money given to agriculture, while protecting areas such as research and development. Mr Cameron said "working with allies it is possible to take real steps towards reform in the European Union".; he had "fought off" attempts from all sides to protect the UK's rebate on its contributions, declaring it "safe".

He pointed out that every previous agreement on an Eu budget has resulted in tit going up, this is the first time it has actually been reduced in real terms.

Although UK net contributions will be slightly higher, that is because, following the deal done by Tony Blair in 2005, UK gets no rebate on spending in the new member states.

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Prime Minister David Cameron may have succeeded in enlisting the support of Germany and other North European countries in his fight to freeze EU spending as budget talks progress to a conclusion on 8th February. He was reported to be prepared to block a deal unless more savings were found, but now that a real terms cut appears to be on the table, it would be extraordinary if he were to block it.

This is David Cameron's first European summit since he set out his plan last month to secure changes to the UK membership terms, and to put the new terms to voters in an "in or out" referendum on Britain's EU membership. His speech fuelled resentment in some EU capitals and the prime minister held talks with German Chancellor Angela Merkel on 3rd February to try to avoid isolation in Europe.

Mr Cameron wants a real-terms freeze in EU spending to reflect the harsh economic climate across Europe, which would involve more cuts from the latest EU budget proposal. He will also seek to defend Britain's rebate, a refund currently worth about £3 billion per year.

"Spending needs to be reduced further," Cameron's spokesman told reporters (5th February). He said Britain is working "very closely with like-minded allies", such as Sweden, the Netherlands, Denmark and Germany, who "all agree that spending needs to be reduced further".

EurActiv: www.euractiv.com

During the European Council meeting, leaders will make a second attempt to reach agreement on a Multi-annual Financing Framework (MFF) for the 2014-2020 period. Chancellor Merkel and President Hollande meeting in Paris on the day before the summit begins.

Herman van Rompuy is playing his cards close to his chest, and no third draft of the Council conclusions (HvR-III) will be formally circulated before the meeting.

The talks at the European Council of 22-23 November were suspended and will now pick up from that point. This means that the compromise proposal from 22 November (HvR-II) forms the starting point for the discussions.

Time for discussion at the meeting itself will be very compressed, with only the Thursday due to be devoted to the MFF (budget) issue - starting at 3pm. The Council is due to move on to discuss opening trade talks with the US, the Arab uprisings and Mali on the Friday. Leaders will have only about two hours before their ‘working dinner’, though talks will continue well into the night.

As Alan Matthews points out in his analysis, "with 27 member states around the table, it is clear that what takes place at the meeting in this time frame cannot be a negotiation. The only possible way that an agreement could be reached is that HvR presents a new take-it-or-leave it proposal representing his best estimate of the deal which tries to meet as many member state concerns as possible. He can rightly point out that no country can get everything it is looking for, that the sums of money in contention are tiny in relation both to the overall budget and to the much bigger problems that Europe is facing, and that there are huge political and economic costs to a further failure to agree."

This will put enormous pressure on individual countries to sign up to van Rompuy’s proposal lest it be branded as the country that throws the spanner in the works. But if it appears in the tour de table that will follow van Rompuy’s presentation of the proposal that perhaps three or four countries find that the deal does not meet their bottom lines, there could be safety in numbers and support for a deal could quickly disintegrate.

David Cameron may well be concerned to give a unifying message to his fractured party (following the split over gay marriage). That is one of the reasons we surmised that, if there is no prospect of a deal which he can present to the House of Commons on his return, "he may well prefer to use his veto".

If the reduction to €960 bn is now on the table as reported, it is highly unlikely Mr Cameron would veto it - he would deny himself the chance to return to the House of Commons claiming the first ever real-terms reduction in the budget. Furthermore, although such a deal will not actually lead to a reduction in UK's contribution, it seems the rebate may have been secured. A veto would result in the previous period's budget being rolled over year by year, leading to a higher budget that the deal now on the table.

It remains a remote possibility that France or one of its allies in Eastern Europe may block the new deal, and of course quite possible that the European Parliament (see below) will subsequently reject it.

EU leaders appeared to be heading for a compromise on a headline figure of around €960 billion, compared with €990 bn being discussed when talks broke down last November.

But David Cameron may yet veto the deal as rebates to other member states (Denmark, in particular) mean UK would actually pay more,

With the budget proposal at the start of this summit at €972bn (compared with £994 bn for the previoius period 2007 - 13), MEPs were making it clear they wanted an additional €60 bn added back if they are to be presented with a budget they would approve.

So how will they react to a further cut to €60 bn, likely to emerge from the leader?

Video setting out views of key MEPs: europarltv.europa.eu

"The European Council will begin its final negotiations on our Union’s budget for the next seven years. In fact ... for the rest of this decade. Member States will need to agree (it) with the European Parliament.

Budget talks are always difficult, lengthy and can look messy from the outside – and sometimes even from the inside... We should not forget the bigger picture –

First, that the budget must be help us tackle the most urgent problems. Youth unemployment is the biggest challenge in Europe right now. I will propose a new youth employment initiative with a substantial amount of money, targeted to the most afflicted regions, to get young people back into jobs.

Second, the budget must be an engine for growth and jobs in the future. That is why it is so
important that we increase real terms spending on research, innovation and education. We must maximise the growth and employment potential of all our policies, from cohesion to agriculture. We need more value for our money.

Third, the budget must a budget of moderation – reflecting the savings efforts in our
Member States. That is why – for the first time ever – there will be a real terms cut,
compared to the current budget.

To achieve a deal in the European Council this week, all leaders will need to be ready to
compromise and and to make choices."

www.consilium.europa.eu

There are four key parameters under discussion:

- The overall size of the budget
- The composition of spending, and especially the shares going to cohesion and CAP spending versus other headings in the budget
- Changes to the financing instruments
- The issue of budget rebates

In Alan's view, if the Council fails to agree on an MFF, it will be because of the rebate issue.

Although the HvR-II draft proposed to leave the UK rebate alone, new rebate claimants include the Danes, and even the Italians

Alan examines these four issues further on his CAP reform website.