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Friday, November 23, 2012

As much of a 'Nein' as a 'No' - Don’t blame Cameron for the break-down in EU budget talks

On his Telegraph blog Open Europe's Mats Persson analyses the breakdown of EU budget talks, see below for the full piece:
As predicted, the talks over the EU’s long-term budget have broken down. What does this mean? In truth is, not that much. Postponing a decision was always the most likely outcome. A new deal will now have to wait until after the December EU summit when leaders will try to hammer out the details involved in a European banking union. On substance, this is a far bigger issue than the EU budget, as it’s breaking new ground and links to the stability of the euro. The EU budget is a maddening legacy issue.

Had Cameron been forced to pull the veto this time around, it would have been a completely different matter.

There will be those on all sides tempted to blame David Cameron for the breakdown in the talks. This is simplistic. As Angela Merkel pointed out at her press conference just now, there were two main groups who disagree — net contributors and net recipients. Within these groups, as Open Europe has consistently highlighted, there are a series of disagreements. From the Danes who want a rebate to Malta who want to be treated as a ‘special’ case. All positions matter since every country has a veto. In total, eleven countries had explicitly threatened to veto the budget in case they couldn’t secure a favourable deal for themselves. Interestingly, France and Germany struggled to reach a common position, with Berlin leaning towards London on several points, including on cutting the EU’s admin spending. So forget the 26 vs. 1 narrative.

Moving forward, David Cameron remains in a very tricky, but far from impossible, position. His negotiation mandate is exceptionally narrow following the Parliamentary vote in which a majority of MPs backed a cut in the EU budget, rather than the freeze Cameron has called for. He also suffers from a major communication error committed early on in the talks. The British Government decided to use the amount of cash that was actually paid out from the EU budget in 2011, €886bn, as its “baseline”. When this figure is extrapolated to the entire seven-year EU budget period, it creates an artificially low figure – far below the “appropriation ceilings” (the maximum amount of cash that can be paid out rather than the actual cash paid out) — meaning that Cameron has to fight seriously hard to live up to the high threshold for a “freeze” that he had set for himself. But if the Government is using the same measure as everyone else – payments appropriations over the full seven years – it is now on way to actually achieve a freeze or even a cut, when compared to the full 2007-2013 EU budget period. So budget period to budget period, the Government is in a pretty good position.

David Cameron had a very solid press conference after the summit – he sounded plausible (which hasn’t always been the case) – but to date, the Government’s communication strategy around the EU budget talks has been pretty appalling. It’s been very difficult to figure out what, exactly, the UK government actually was pushing for, and by focussing on a 2011 real terms payments freeze it may have been a bit too smart for its own good.

The real tragedy with these talks is that no one is actually focussing on the substance of the EU budget. As we have shown – comprehensively – the EU budget is an economic anomaly. It’s not a huge amount of money, but if targeted properly – rather than wasted on economically inactive landowers or recycling regeneration cash – it would make a real difference.

 It speaks volumes about the current state of the EU that this budget remains unchanged. That’s not only Cameron’s problem, but also the rest of Europe’s problem.


Mike Hanlon said...

I agree with all this except the penultimate paragraph. Too much money is being directed towards the EU and it is being asked to do too much to manage it properly. The EU budget is over-centralised, like so much else about the EU. Hence the endless failures to get a clean bill of health on its spending from auditors.

Much more needs to be decentralised and I don't see why even regional development 'cohesion' projects can't be organised by countries that wish to contribute to them via teams from the local embassies of the funders. Simple, direct, and ensures more money goes on investment because it saves the tens of billions the EU spends on (mis-)administration.

Rik said...

Good job from Cameron, best realistic outcome imho.

-Did well for his credibility at home (even no easy scoring by Labour is probably the best proof of that as well as several opposition newspaper changing the tone of their articles. No use to attack him on this, it only makes yourself look like an idiot).

-No compromise. Gives likely better financial result plus keeps it in the papers which is good for rebuilding credibility.

-Internationally several important (aka paying) countries back him on the issue (partly hide behind his back), not isolated. Some people will not like it, that is clear. But if he wanted to be liked he should not have become PM certainly not in difficult times. Anyway he has a mouser that apparently loves him (judging by the UK press) so who needs friends like Rompey or Barosso.

Put the reneg issue on the agenda. Should be a bit higher, but Rome wasnot built in one day as well. A lot of comments, media stuff start to bring that up.
Only the consequences are not really clear by some (loss of budget and becoming mainly a union of economic criples, for which others have to pay). Plus the mworld will think the thing falls apart (if markets start to see it that way and it is likely they will when it becomes daily stuff it is much worse than Greece leaving the Euro (big and rich go by its own will is much worse than small and nobody want to be seen with anyway (plus Euro member). Making the Euro, Europe and make Greece an essential part of Europe that has to be kept, simply translates that when a rich country wants to leave the thing, it looks like the rats leaving the ship).

Coalition with Germans, Dutch, Swedes seems to work. Likely if the UK leaves the EU they are stuck with a bunch (considerable majority) of basketcases and semi basketcases like France for which they have to pay one way or another.
Good to bring the fatcat wages up make the thing much more sympathetic. Same with treaty reneg bring up referenda and democracy (not the decision by the politicians but the platform by the people as now it appears you cannot solve crisis without having that so also for the future it is essential to have). The rest will not really like things like democracy or wagesreduction, but will have to support it anyway as they donot want to look very awful in the eyese of their voters. Makes it very difficult on basis of anything else than he is taking my playthings away comments (which work counterproductive for them anyway).

Would have been great if the whole thing could have had a bit of fresh air. But it simply looked that was not in it and first things first. Effectively he can bring it up in the treaty reneg.
Probably strategically beter anyway. Bringing up issues that they will have to show to be pro like more democracy and cutting fat and things like that, will bring the rest in a bipolair stage (works like the fatcat wages issue). Bringing things like CAP and cohesion largely back to local level (with some room) makes them much more acceptable in the eyes of the average Brit).
Technically not that difficult. Just let the nett payers pay for the admin and the transfers to the really poor (plus the ones that messed it up like Italy and Spain) and let them do most of the financial part of the job at home and from their own budget (so France can keep subsidising farmers if they like, but not from other people's money). Will lead to a much better allocation of resources so huge economic advantages. Not that many will care they simply like the green stuff.

Rik said...

Btw might be a good idea to get around the table with Merkel before the bankunion thing starts. Probably the interests are very similar as Germany looks to want to defer it as much as possible as well. Like the combination can be more effective than the sum of the parts seperately.

Anonymous said...

@ Mike Hanlon

Actually the spending is extremely decentralised. It is done according to national rules (the EU rules only provide a framework), projects are selected at national level, the money is spent by national administration and controlled by it, as well. [Control at EU level is actually limited by resources - for hundreds of thousands of projects across EU, there are maybe 100 EU auditors.]

But of course one would never guess it reading about "wasteful" EU spending accompanied by pointing fingers in Brussels. Open Europe, for example, never informs who actually picked these 'bad spending' projects it describes.

Rollo said...

I for one will blame Cameron if we end up spending a penny more that we do at the moment. The will of the British is for a cut, especially as our own budgets are being cut. No doubt Cameron will come back claiming a triumph, in the form of 'not as much more as they wanted'; to do so will be treachery.