Northern Europeans spearheaded by David Cameron and Angela Merkel win the day, but UK contribution still set to rise
The age of austerity caught up with the European Union on Friday when a gruelling nonstop 26-hour negotiation resulted in agreement to slash the new seven-year EU budget by 3.3%, or €32bn, the first reduced budget in the union's history.
The outcome, after a failed earlier summit in November, was seen as a notable victory for David Cameron, who spearheaded a north European campaign for budget cuts, and a defeat for his polar opposite in the bargaining, President François Hollande of France, whose pleas for a relaxation of austerity and for more spending to spur growth were rejected.
"The British public can be proud that we have cut the seven-year credit card limit for the EU for the first time ever," Cameron said. "People do understand that the major problem we have had is the credit card limit for the EU has been too high. It has always been pushed up and at last someone's come along and said this has got to stop."
But Cameron acknowledged that, while the EU budget as a whole would be reduced, Britain's own contributions to the EU would increase. He blamed this on changes to the UK's EU rebate, introduced by Tony Blair in 2005, which ensure that the 12 new member states have a partial exemption from the compensatory payments to Britain.
"Our contributions were always going to be going up but they will be going up by less," he said.
Cameron's satisfaction contrasted with Hollande's downbeat tone: "Europe has not won as much as it could have."
In the short term, Hollande managed to protect his key constituency, French farmers, by securing a €1bn increase in the contested common agricultural policy compared with figures proposed in November. The CAP took up by far the biggest chunk of the new budget, 39%, but overall farm subsidies and spending are being cut by €50bn compared with the seven-year period ending this year as its share of the total comes down progressively.
Following three years of financial crisis that threw the survival of the euro into doubt and triggered swingeing cuts in public spending and services in many EU member states, Cameron argued that the EU budget could not be immune from the austerity. The summit agreed to cut the budget from more than €992bn in the current period to €960bn, or 1% of EU gross domestic product, the figure stipulated by the strongest politician in the EU, Angela Merkel.
This figure refers to spending pledges, while Cameron opted to focus on the lower figure of €908.4bn, agreed as the supposed ceiling on what may be spent. The gap between the two sets of figures is usual.
France sought to get the second figure increased to €913bn, triggering an overnight clash between London and Paris, with Germany cast in the role of mediator and ultimately siding with Cameron, leaving Hollande looking weak, not for the first time, at an EU summit.
After snubbing a bargaining session with Cameron and Merkel as the summit opened on Thursday afternoon, Hollande later conceded. Unusually, senior French officials paid tribute to the PM.
"He's a true negotiator with a lot of tenacity," said a French official of Cameron. "At one point [Hollande] said there needs to be a compromise … Cameron did not need an agreement because the rebate is safe."
The crucial swing factor was Merkel, who broadly sided with Cameron, while Hollande decided against leading a troika of France, Italy, and Spain.
Given Cameron's recent speech on Europe, committing the UK to an in-out referendum by 2017 if he's in office, there was much rancour that his views should prevail when it is not clear if Britain will be in the EU by 2020.
But French officials, seeking to talk up extra funding Paris would gain, also risked shooting themselves in the feet. The summit agreed to establish a new €6bn fund for mitigating the worst EU areas of youth unemployment of over 25%. The French officials said they would also get some of this money, effectively admitting that parts of France were as badly hit as crisis-ridden Greece.
If Cameron won and Hollande lost, there were many who argued that Europe's future prospects also lost out in an intensive bout of horsetrading that prioritised national and vested interests over smart investment geared to improving the EU's flagging competitiveness in the global contest.
National lobbies were bought off essentially by ransacking planned funding for digitalisation, broadband investment, hi-tech, research, transport networks, and infrastructure.
Compared to figures presented in November, when a summit failed to agree a budget, some €50bn was raided from these areas in order to accommodate competing national claims on the two biggest items in the budget – the CAP and the cohesion funds that go mainly to eastern Europe and the less developed parts of the union.
Unlike national budgets, the EU budget cannot be financed by borrowing and deficit spending is outlawed. The €52bn gap between pledged spending and the spending cap insisted on by Britain had critics predicting trouble ahead.
Martin Schulz, the president of the European parliament, said the budget figures would break EU law and warned that the parliament would refuse to endorse them. The budget needs to be passed by an absolute majority. The four biggest parliamentary caucuses promptly denounced the deal. France sounded supportive of a rejection.
Cameron's drive was particularly aimed at eurocrats, with the PM also demanding savings of up to €7bn in the salaries, pensions and administration costs of the EU institutions. The issue is symbolic – the costs are only 4% of the budget. The administrative budget was finally cut by only €1bn.
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