European Union leaders fought to protect national interests in setting the bloc’s next seven-year budget, dogged by the debt crisis in the euro zone, tensions between rich and poor countries and Britain’s insistence on keeping its money-back guarantee.
Starting with UK Prime Minister David Cameron, the leaders trooped into EU President Herman Van Rompuy’s office for one-on-one consultations before all 27 sit down later on Thursday to weigh a proposed €1.033 trillion spending package for the years 2014-2020.
“I’m not happy at all,” Cameron said after arriving in Brussels. “It is quite wrong for there to be proposals for this increased extra spending in the EU. So we are going to be negotiating very hard for a good deal for Britain’s taxpayers and Europe’s taxpayers and to keep the British rebate.”
The political stakes dwarf the economic significance of spending equal to 1% of European gross domestic product, offering a glimpse of where the power lies in the EU and whether the euro-area crisis is bringing the bloc closer together or driving it apart.
Leaders including German Chancellor Angela Merkel, Dutch Prime Minister Mark Rutte and Swedish Prime Minister Fredrik Reinfeldt already looked past Thursday to predict that it might take a second summit to conclude a deal, an echo of the last EU budget round in 2005.
“If we don’t succeed right away, we can resume in January,” Rutte told reporters.
Budget numbers up for debate have been whittled down since the European Commission made the first proposal in mid-2011. Van Rompuy last week sketched a package of €973 billion, down 6% from the commission proposal and 2% from the €994 billion for the current seven-year period.
Raised through national contributions, around 47% of the money would go for construction projects like rail lines and bridges, important for eastern European countries still struggling with the legacy of communism and for southern countries battered by the debt crisis.
Another 37% would go for agriculture, championed by France since the early days of the EU. French farmers picked up €9.5 billion in European subsidies in 2011, the biggest single share. Spain, Greece, Italy, Ireland and Poland also number among the defenders of farm aid.
Smaller parts of the budget go for programmes on immigration and border control, foreign policy and development aid, and pay for the more 50,000 employees of institutions including the commission, European Parliament and bodies ranging from the European Chemicals Agency in Helsinki to the European Fisheries Control Agency.
Staff costs—about 6% of the total—are a sticking point for Britain. Cameron is looking for further reductions after the Van Rompuy proposal shaved personnel costs by about €500 million-€63.2 billion.
What matters most to Britain, however, is the preservation of the rebate won by Margaret Thatcher in 1984, when the EU budget was more heavily slanted toward farming. Successive UK governments have defended the refund, worth €3.6 billion in 2010, though still leaving Britain as a net payer.
With countries such as Denmark, the Netherlands and Germany defending or seeking money-back plans of their own, the leaders showed little appetite for challenging Britain’s rebate, at least on principle. The aim is to do a 27-nation deal and not isolate the UK, they said.
“We need the UK in,” Finnish Prime Minister Jyrki Katainen said. “We all have some preconditions and we all must be ready for compromises, otherwise we don’t have a compromise.”
EU fiscal math is riddled with ambiguities, including a distinction between commitment and payment appropriations, differing baselines and inflation adjustments, plus funds for disaster assistance and buffers that are categorized as off-budget.
The summit’s goal is to set ceilings that guide negotiations on the annual budget, a document that took up 556 small-print pages for 2012. Officials say the multiple layers of complexity make it easier to do a deal, since each leader can claim victory.
Even before the summit started, one leader was ready to go home. “I’m exhausted,” said Luxembourg Prime Minister Jean-Claude Juncker on his return to EU headquarters after chairing an 11-hour meeting of finance ministers that broke up at 4:30am on Wednesday without a loan package for debt-stricken Greece. BLOOMBERG