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EU’s newest battle tests unity

Mired in crisis, Europe's haves and have-nots fight over the union’s next budget.

Merkel cameron 10 26 2012Enlarge
Digging in heels: Merkel has warned Cameron she'll call off talks on the EU budget unless he moderates his veto threat. (Carsten Koall/AFP/Getty Images)

BRUSSELS, Belgium — As if European Union leaders didn't have enough headaches from the perilous state of their national budgets, they are now poised to further strain the EU's fragile unity with a battle over the bloc's own finances.

Britain's prime minister is brandishing a veto, Germany's chancellor is threatening to walk out, and Poland's premier is blasting his partners as "hypocrites."

And that's before the talks have even started.

At stake is the more than $1.3 trillion the EU's executive body wants the 27 EU countries to contribute to its central budget over the seven years leading to 2020.

The European Commission, the EU’s executive body, says the money will be a vital spur to economic recovery by funding cutting-edge research; building new transportation, energy and communications networks; and giving Europe's 25 million unemployed the education and training they need to get back into work.

Opponents — Britain the most vocal among them — warn that billions will be wasted on white-elephant schemes, inflated salaries for fat-cat bureaucrats, or subsidies to unproductive farmers.

"If there isn't a deal that's good for Britain, there won't be a deal," Prime Minister David Cameron warned. "We can't have European spending go up and up and up."

Although the EU's central budget represents only around 2 percent of spending by its member governments, the battle held every seven years to fix the union's "financial framework" is always fierce.

With Europe mired in recession and already divided over bailouts and austerity programs, this year’s debate is particularly acrimonious.

As leaders prepare for a special mid-November summit to resolve the deadlock, the budget bust-up is stretching solidarity between the EU's rich and poor, and could deal another serious blow to Britain's increasingly tenuous relations with its mainland partners.

Cameron has threatened to veto any deal that raises the EU budget — currently running at $168 million-a-year — beyond the rate of inflation. He's virulently opposed to commission proposals that could raise EU spending by up to 6 percent.

With anti-EU feeling running high in Britain and growing clamor from legislators in his Conservative Party for a referendum on pulling out of the bloc, Cameron will find it difficult to back down, even at the risk of increasing Britain's isolation in Europe.

Britain's hard-line position is even alienating other wealthy nations that support a smaller EU budget. German Chancellor Angela Merkel reportedly warned Cameron she would call off the Nov. 22-23 summit unless he moderates his veto threats.

As the EU's richest country, Germany is also the union’s biggest contributor. Merkel is seeking to limit the EU budget to 1 percent of the bloc's total income, which would slice about $130 billion from the commission's proposal.

She's backed by Sweden, Austria, the Netherlands, and other wealthy countries that have formed a loose group in the budget battle called the “friends of better spending."

Ranged against them are poorer EU members that seek to gain most out of investments from the central budget. The "friends of cohesion" include Spain, Greece, Portugal, and most of the former Soviet Bloc nations that joined the EU in the mid-2000s.

Poland has led the campaign against the budget cutters.

"Do you know what hypocrisy is?" Prime Minister Donald Tusk asked a recent meeting of Europe's center-right leaders. "Hypocrisy is when a politician calls for more Europe one day and the next day calls for a smaller EU budget or declares that Europe should be split in two."

The Germans and their backers argue that the austerity being imposed across national budgets must be matched by belt-tightening in Brussels. The EU head office and its supporters counter that an expanded central budget makes sense even in hard times because the cross-border projects it finances have a bigger multiplier effect on the economy.

"The European budget is the instrument for investment in Europe and growth in Europe," European Commission President Jose Manuel Barroso said. "I want to see if the same member states that are all the time talking about investment and growth will now support a budget for growth."

The divisions are running deep as each country digs its heels.

Denmark is seeking a rebate from the budget similar to the one then-Prime Minister Margaret Thatcher wrangled for Britain in the 1980s — and it's using Thatcher-inspired tactics to get it.

"If we don’t get our rebate, we will use our veto,” Danish Prime Minister Helle Thorning-Schmidt warned Thursday. “Very simple.”

France is broadly aligned with Germany — as long as no cuts are made in agricultural spending that might upset its powerful farm lobby.

The Common Agricultural Policy eats up 41 percent of the EU’s budget, even though farming represents only 1.3 percent of the bloc's economic output.

Crisis-stricken southern Europeans will see their unity with growing eastern European economies tested as regional development funds that once flooded into Spain, Portugal and Greece are diverted east to pay for Polish highways, power lines across Slovakia, and training schemes for Hungarians.

More from GlobalPost: France should welcome euro zone subordination

EU leaders are preparing for their marathon talks at the November summit. Merkel is anxious for a speedy agreement to stop the budget talks from becoming a distraction from the bigger task of resolving the euro zone debt crisis.

But even if the leaders find a compromise by the year-end deadline, the budget must still be approved by the European Parliament, which is also demanding significant spending increases.

"If Mr. Cameron threatens to use his veto, he should be aware that we can do it as well,” Hannes Swoboda, the Austrian who heads the Socialist faction in the EU assembly cautioned Tuesday. “The European Parliament is much stronger than Mr. Cameron." 

http://www.globalpost.com/dispatch/news/regions/europe/121026/eu-budget-brussels-merkel-cameron