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The recent turbulence among EU members on the latest round of budget talks has highlighted some inconsistencies. I think the best remark is that of Professor Arnold Cassola who said it was very hypocritical of the British, Swedish and Dutch governments to have fully backed and pushed for enlargement in 2002-2003 and now refuse to put in the funds that would allow for an enlarged EU to function decently. EU budget talks ran aground during the Luxembourg presidency amid pressure from contributors such as Germany, to reduce the overall spending level as well as their own contributions. The drop in revenues runs contrary to increasing demands from ex-communist countries and Malta who were promised higher cohesion funds during the pre-accession phase.
For the sake of solidarity one still prays for a historical compromise to be reached so as not to reach a stalemate. European Commission president Jose Manuel Barroso criticised the new proposals as 'unacceptable,' and 'not realistic' for the enlarged bloc. In his opinion, the British proposal amounts to a budget for 'mini Europe', not the strong Europe that we all need. He warned Britain not to reverse the legend of Robin Hood by robbing poor new east European members to pay the rich in the European Union's budget.
Likewise, the Prime Minister of Luxembourg Jean-Claude Juncker, said the proposal would only stand a chance of succeeding if Blair bows to further cuts in Britain's rebate from the EU. The German Chancellor Angela Merkel told parliament that Berlin was prepared to contribute to a reasonable and durable compromise that served all of Europe. On the other hand, Polish Prime Minister Kazimierz Marcinkiewicz, whose country stands to lose about 6 billion euros under the British proposals, said Poland was prepared to block the budget at the next EU summit.
The cohesion aid to the 10 new member states would fall by almost 10 per cent compared to the failed Luxembourg scheme. The proposal reduces the budget to EUR847 billion for 2007-13, down from a EUR870 billion package that EU leaders failed to approve under the Luxembourg presidency. There will be a €7 billion cut in rural development payments and a proposed cut on funds for EU bureaucracy. The UK government has further proposed another reduction in structural development funds destined for EU newcomers to achieve a cap on spending at 1.03 pct of GDP instead of 1.06 pct. This translates in a revised total of 150 billion in funds to be shared among the new members or a drop of 14 billion in development aid over the seven years. Poland, the largest eastern country, would get 56 billion euros, followed by the Czech Republic with 23 billion euros and Hungary with 22 billion euros. French officials said the offer is an attempt by Britain to "win both ways" with a big increase in the rebate paid for by new member states and an attack on farm aid to French farmers. Most fear that consensus is set to fall through when Britain refuses to give up the rebate it won in 1984 blaming the low level of farm aid it receives. The British offer hopes to boost the UK rebate and reforming the common agricultural policy (CAP) before 2013.
Some countries such as the Netherlands would see a €700 million reduction to its net contribution. Tony Blair the British prime minister holding the EU presidency proposed that the UK increased rebate must be cushioned mainly by deduction from aid to the Eastern block given that the French have not budged to accept losses on the agricultural subsidies.
There will be minor increases on the English rebate from €5 billion a year to €7 billion a year. But this does not make economic sense. Just consider that when the rebate was won by the British their country was one of the weakest members. Now it is the sixth richest country in the EU, and agriculture subsidies have dropped from 66 per cent to 40 per cent of the annual budget. Naturally strong opposition against the continuation of the British rebate will exacerbate the tough resistance to the new proposals. It comes as no surprise that the UK Foreign Secretary Jack Straw, who was piloting the proposal insisted that the rebate is contingent until there is fundamental change in the common agricultural policy. Reliable sources say Prime Minister Tony Blair sought to persuade his counterparts from Poland, the Czech Republic, Hungary and Slovakia to accept a cut in EU aid in return for better access to EU funds. Tony Blair also proposes a review of all EU spending, including farm aid, in 2009, in a move that is certain to meet with strong opposition from France.
He is running a tight rope. He originally rejected any cuts on the massive rebate enjoyed by Britain unless the French scale down agricultural subsidies. Conservative members of parliament in UK are sceptical of the British proposal which in their view is weak in its demands against the farming subsidies. In fact it contains only a minor two billion euro adjustment in direct payments to farmers. On the contrary, the French led by President Jacques Chirac has successfully clung to a 2002 deal pegging farm spending at its current level until 2013.
Because Tony Blair only partially conceded on the rebate without a corresponding cut on GAP many of his party are crying out calling this as a great betrayal . Originally the deep cut in the budget contribution was won by Margaret Thatcher in 1984. Pundits are of the opinion that failure to agree on a long-term budget at the next summit would deepen a crisis of confidence. Such a lack of confidence will rekindle the sense of glumness triggered by French and Dutch voters' rejection of the EU Constitution.
But how will the British proposal affect us ? Luckily Malta is one of three new EU member states along with Cyprus and Slovenia whose budget allocation would remain unchanged from the one originally proposed by the Luxembourg presidency. It so happens that we had agreed to the financial perspectives put forward by Luxembourg scheme. Malta's major concern with regard to the proposal was not that it would have obtained less money for environment projects but because a precedent would have been set which could also be adopted in future allocations of other EU funds and programmes. Realistically speaking we can hope that the new budget can reach agreement in the coming weeks of the British presidency. For us the important factor is that we can be given faster access to funding schemes as otherwise we rarely qualify for all the funds on offer. The EU dream will shortly come to fruition and we can continue to enjoy better allocations given that we still qualify under objective one status.
Apparently, the new rules may allow us to use some of the funds for housing projects. Another positive news for cash flows given that over the next five years Malta needs to reduce expenditure is that the rate of co-financing is to go down from 20 per cent to 15 per cent . Naturally it stands to local politicians to prepare the country well in time to meet the application criteria for funds. In this way it appears that the additional funding that may come our way will change the cautious view currently taken of the EU membership among the electorate.
gmm@pkfmalta.com
The author is a partner in PKFMALTA
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