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Tuesday, October 30, 2012

Cameron’s EU budget veto is a powerful tool for change

Over on the Telegraph blog, we argue:
Labour has joined the battle over the EU’s next long-term budget. The budget, to run between 2014 and 2020, will be discussed at an EU summit on 22 and 23 November. David Cameron wants a “real terms freeze” (based on the cash that was paid out from the 2011 EU budget), Labour says he should go for a “real terms cut”, though it is not clear how that is defined. A motion will be debated on Wednesday in Parliament calling for a cut in the EU budget. It’s not binding, but if Labour MPs side with Tory backbenchers it could be embarrassing for the Government. The discussion is generally confused. 
Cameron is running short of allies in Europe for his real terms freeze – the Swedes and the Dutch are still with him. Cameron looks unlikely to back down, however, and it may come to him vetoing it. So what happens if Cameron vetoes the EU budget? The spin from some is that the talks move to QMV, and Cameron is toast anyway.
It’s a bit more complicated than this, however. If there’s no agreement by the end of 2013, there are two, broad possible outcomes:
Carry over the current EU budget:  If EU leaders fail to reach a deal before the end of next year, the 2013 budget structure is carried over, adjusted to inflation (the standard GDP deflator of 2pc). How the cash is allocated is decided by Qualified Majority Vote (QMV) rather than unanimity, circumventing the UK’s veto.
The point is that the UK uses 2011 payments as its baseline figure and this is likely to be considerably lower than the budget allocations or the overall ceiling for subsequent years. The combination of QMV and switching baseline scenario could therefore substantially increase the size of the EU budget, compared to both Cameron’s proposal and the various compromise deals floating around.
Tear up the budget completely and create a new proposal: The European Parliament could go rogue, tearing up the so-called “inter-institutional agreement” between itself and EU ministers, meaning that each year the Commission has to table a completely new proposal for the annual budgets although without any spending ceilings. These, also, will be subject to QMV.
So is Cameron’s veto pointless? Not at all. For a range of reasons, many EU countries would will desperately want to avoid this minefield:
  • Under a “no deal” scenario, EU leaders will need to decide some 55 separate EU spending areas, through individual QMV decisions, all subject to a cobweb of disagreements. This would be hugely time-consuming.
  • The powerful block of new member states would lose out massively from the previous year’s deal being carried over, since under the new budget period they are expected to receive proportionately more money. They will badly want a new deal.
  • In addition, the UK isn’t the only country with a “rebate”. But unlike the UK’s rebate, all other budget corrections – including the Swedish and Dutch rebate on the UK’s rebate (yes, there’s such a thing) – will expire in 2013, while the UK rebate remains constant (courtesy of Margaret Thatcher). Many net contributors are therefore keen on a new deal.
  • For its part, it would take a lot of nerve for the European Parliament – which is already struggling with democratic legitimacy – to tear up the inter-institutional agreement altogether (I dare them).
There’s another twist involving the UK’s rebate which may not make an ad hoc deal appear that bad for the UK either. Even under  Cameron’s “freeze”, the UK’s net contribution could go up by between €1bn (2.2pc) and €2.4bn (5.4pc) over seven years, as more cash would go to new member states not covered by the UK rebate. Under a “no deal” this effect may be mitigated to a significant extent, meaning the UK’s net contribution wouldn’t be greatly affected (for the detail, see here).
Cameron could have done some other things – including repatriating structural funds for richer member states – but at least he’s trying to achieve some change and do the right thing.  Ultimately, this episode shows just how politically and economically unsustainable the EU budget is. It needs to be one of the first items up for re-negotiation as the UK seeks new EU membership terms.


Rik said...

1. Great backup to go into the negotiations.
2. You missed a point. Both your scenarios look simply unconstitutional in Germany (as it allows not only to overrule a veto by Mr Cameron (not mentioned in the German Constitution for some strange reasons) but also to bypass the German Parliament. The latter we know clearly is a problem since the 2 last EZ cases (it is simply unconstitutional).
Which would open a different can of worms. Seen all the fuzz in Germany very likely that the question will be asked as a lot of people have that possibility.
3. Not even mentioning similar style countermeasures simply blocking all legislation that costs in any way money to the UK (like all of the Euro stuff).
4. As you mention the EP simply doesnot have democratic legitimacy in the eye of the average European. Plus they are trying too hard to give themselves a 'face'/profile and a purpose in life which 9 out of 10 times backfires like the ECB appointment recently. Simply a failed institution at this moment. Set up needs a complete overhaul. May be something elect them from real MPs and at the same time as the general election in the respective country.
5. The budget of this year btw is also a complete joke. Roughly 10% missing, what is that Finnish guy doing? Definitely not creating comfort for the market that with the new rules the EZ countries budgets are under control.

Anonymous said...

"It needs to be one of the first items up for re-negotiation as the UK seeks new EU membership terms."

Again, OpenEurope shows its true Eurofascist identity.

The UK does NOT need to seek new EU terms.

It needs to escape the EUSSR.

Any truly EUSSR-sceptic organization would take that for granted.

Bugsy said...

It seems that Mr Milliband has opted for scoring political goals rather than a considered policy on what is best for the country.
Clearly vetoing any rise is Mr Camerons' preferred option.
Perhaps if he insisted that the UK would not under any circumstances contribute to any rise whatsoever and that if the UK were taken to the European Court for its refusal he would call a referendum, he may get his way.

Rollo said...

A pity it is Cameron who holds this powerful weapon. It is the warrior that counts, not the weapon, and he will waste it again.
If he simply vetoes the increase, then the inflation increase will just happen automatically, while we are cutting everything else. And all the other increases and commitments will continue to escalate.
If he demands a 10% cut, and says we will leave the EU unless this is achieved, he would indeed have a powerful weapon. But Cast Iron Pledge Cameron could never commit himself to anything useful.

david wilson said...

Most things that come out of the EU are very complicated, hence the reason that very few of the individual constituents can understand much of the detail. Some would say that is a deliberate tactic of any power that has almost total control. Communism is like that - just tell the people to accept our dictats as it is for their own good. I suggest we make it more simple - leave the EU, reduce the amount of government then life can be much more enjoyable.

christina speight said...

Amidst the discussions about Britain’s contribution to the EU budgets and whether or not the Prime Minister should exercise his veto, one salient point appears to have totally overlooked.

When the long-term budgets were last agreed at a Council Meeting held, I believe, at Hampton Court, the then Prime Minister, Tony Blair, surrendered a large part of the rebate the then Mrs Thatcher had obtained, But he did this in return for a solemn obligation that the Common Agricultural Policy would be reformed . That solemn undertaking has not been honoured in any way. Indeed the chief recipients of that largesse trumpet repeatedly that they have 'seen off’ any attempts to reform it.

The scandal continues and Mr Cameron should insist that our rebate be not only restored in full for the future but also retrospectively to the date that solemn obligation was made.

The other argument that in a time of EU-wide austerity and cuts it is obscene that the EU should be demanding any increase at all , is one that we should all endorse.

However the best course would be to quit the whole crumbling edifice NOW

Jesper said...

From what I can read of the stenographic notes from the Swedish committee dealing with EU matters then it would appear there is complete consensus that an increased EU-budget is out of the question.

I don't remember reading about this story in Swedish newspapers. Wouldn't exactly help in increasing the budget:

But maybe this year the EU accounts will be given a clean audit? What is it now, 18 or 19 times in a row where EU bodies can't account for all the money that they were entrusted with? And yet they believe we're to trust them with more?

This guy joining the EU auditors doesn't quite make it easier to trust them: