When it comes to the EU budget, the bad news just keeps on coming

David Cameron and George Osborne might be forgiven for thinking that when it comes the EU budget, it never rains, it pours. Fresh on the heels of the Commission's explosive demand for an extra £1.7bn for this year's EU budget, the ONS' annual Pink Book published this morning has revealed that the UK's contribution last year stood at a whopping £11.27bn - much higher than the £8.6bn the Treasury had forecast (see page 14 of this HMT document) and a 32% increase on 2012.

There are a number of reasons why there is such a large discrepancy:

• Partly this can be accounted for by the €11.2bn that was retroactively added onto the EU budget late last year (one of the European Parliament's conditions for swallowing the cut to the EU's long-term budget for 2014-2020). In addition, the growth of the UK's economy resulted in an adjustment and increase of £781m to the UK's contribution (-£190m via a separate VAT adjustment) - the same mechanism partially responsible for the £1.7bn demand. 
• Due to its strong economic growth relative to other EU member states, a situation which looks set to continue in the near future, we also warned that the UK faced an 'EU stealth tax' via higher GNI, VAT and customs contributions.
• We warned last year following the landmark budget cut that the UK might yet end up paying more in net terms due to Tony Blair's rebate cut and a larger share of EU funding going to new member states but the latest developments (the surcharge + stronger relative economic performance) risk pushing this up even higher.

Needless to say, this will only crank up the pressure on the government which is already in a difficult position vis-a-vis the EU budget, EU free movement and the European Arrest Warrant and will make it even harder for David Cameron to give any ground on the £1.7bn surcharge. 

Updated: Commission silent as foundation for increased EU budget contributions remains unclear

Update 24/10/14 17.05:
Outgoing Commission President Jose Manuel Barroso has just given his press conference which frankly did not clear much up. Barroso insisted, as the Dutch position below does, that this payment demand is part of an annual adjustment which is based off of the revised figures for annual GNI (which are produced by national statistics agencies and then verified by eurostat).

Essentially, he is suggesting that the final figures for the UK in 2013 proved to be so far ahead  of expectations that they altered the UK's share of the budget significantly.

This is not a completely implausible scenario but it leaves some glaring gaps. Firstly, its hard to imagine the economy outperformed so much and other EU economies underperfomed so significantly that the UK has to stump up another €2.1bn. Secondly, this doesn't fit with the leaked doc from the FT. As discussed below, the figures clearly seem to relate to a longer term assessment based off the ESA changes to the way GNI is calculated.

All that said, its becoming increasingly clear that the positions of the Commission, UK and others are not quite compatible so something will have to give in a negotiation.

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Currently, there is still no clear explanation for where the demand for increased contributions to the EU budget came from or exactly how it was calculated - see our comprehensive analysis here. While the Dutch and the Brits are both concerned about being asked to contribute more, they are actually putting slightly different versions of events forward. These two split the prevailing theories about how this has come about.

The first version of events, pushed by the Dutch, suggests that this is not as surprising has been made out since it is actually down to the regular assessment of the four cycle of VAT receipts and tax returns related to GDP of countries. When asked by Dutch BNR radio ‘Does this revision have anything to do with the new accounting method?’, Dutch Finance Minister Jeroen Dijsselbloem responded,

“No, this seems to come from a [annual] source revision which is something different from the statistical method that is used to calculate [the GDP].” 

The point that surprised the Dutch was that the demand came out at almost double what they had forecast and there is no clear explanation of why this is.

The other version of events ties into the document leaked by the FT. Judging by this document it is hard not to see this cost as a result of a calculation based off the introduction of the new European System of Accounts 2010. The UK is suggesting it was unaware of such a significant overhaul to the EU budget calculations and has not been included in the discussion around the changes. The document clearly looks to alter the budget contributions over the period between the introduction of the previous system of accounts and the end of 2013. The total figures also line up with the reports and are yet to be rejected or even disputed by anyone. The fact the figures are so large also fits more with this version of events than the regular adjustment - in this sense something will have to give (size of demand primarily) for the first version of events to be true.

What do they agree on?

• There is clear agreement that this has been handled poorly by the Commission, who is still yet to provide any clarity into the debate or explain exactly how much they are asking for and why.
• Furthermore, the demand for payment immediately also seems to be a miscalculation by the Commission which caught some unawares at least in terms of the size, if not the timing.

While this may seem trivial it is vitally important that the Commission makes clear and gets to the bottom of what is going on here. Ultimately, Cameron’s options will be very different depending on whether the demand is driven by a unique one off event (such as long terms GDP changes) or part of a regular assessment of the EU budget. In any case, whatever the source serious questions need to be asked about how a bill of €2.1bn can materialise with little or no political discussion.

Why is the UK being asked to pay in more to the EU budget and what can it do about it?

There are a number of headlines today around the EU’s request for a further €2.1bn from the UK in terms of its contribution to the EU’s budget.

Below we breakdown exactly how and why this has happened and what options the UK has now.

How has this happened?

• The European Commission has launched a review of EU budget shares (based of VAT receipts and Gross National Income [GNI]) going back to 1995.
• This is tied in with the introduction of the new European System of Accounts (ESA) 2010 which came into force in September. This is a new approach to assess the true value of a country’s economy (its GDP) by counting some activities which are often missed. Many of you will have read the countless headlines about how GDP will now try to quantify the value of prostitution and the drug trade. However, the new calculations also give more weight to research & development and other softer types of investment. The Commission has estimated that these adjustments will push most member states GDP up, albeit by varying degrees.
• Essentially, since 1995 the UK has performed better than expected and better than many of the other EU member states. As such its economy is larger than originally thought. Under the review this means that its share of the EU budget – which is calculated off the back of GDP and population as a share of overall EU GDP and population – has increased.
• The EU is also in the process of producing an amendment to the annual budget which we discussed here. At some point, very recently, the EU has decided to almost combine the two issues possibly causing a speed up in the payment date for this €2.1bn lump sum.

Why has everyone been caught off guard?

• While the annual amendments to the budget are expected and usual (though often unnecessary and far too high as we have pointed out numerous times) this adjustment on GDP terms is unprecedented and seems to be largely a one off – as such it has caught most people off guard.
• It also seems that the release has been kept under wraps for some time. While the amending budget has been known and discussed for some time, with the final details circulated to member states a week ago in preparation for the current EU summit, the details of this were only released to member states a day ago. Essentially it was somewhat sprung on them ahead of the summit.
• This is exacerbated by the fact that this is clearly an extensive long term process and that the ESA 2010 adjustment has been running for years. To say the release and interaction with member states on this issue has been poorly handled would be a massive understatement.

What are the UK’s options now?

• First, it’s clear the UK is not alone in its outrage. The Netherlands has been asked to pay in a further €640m, while Italy has been asked for €340m. Dutch Prime Minister Mark Rutte has called this “an unpleasant surprise which raises a lot of questions”, adding, “when I say go to the bottom of this, it means to look at all aspects, including legal ones. It is still too early to run ahead on this.”
• The first option is to get an agreement to deduct any payments from future budget contributions. This would avoid having to pay in a lump sum now and also mean that it on net the UK does not pay any extra.
• The second option would be to secure a political or legal agree to ignore these uprated GDP shares and stick with the originals. This should be doable through a vote in the European Council. That said, because some members are getting a rebate – France and Germany in particular – this could prove a very tricky agreement to strike.
• As Rutte has already pointed out, countries may have legal recourse. Exactly what form this could take is unknown but the retroactive nature of the cost and its lack of discussion and warning could provide some grounds.
• Lastly, the UK (and the Netherlands) could simply refuse to pay. As large net contributors to the EU budget, there is little that others can do to force them to pay. Obviously the EU could launch its own legal action in terms of infraction proceedings; however, the maximum fine for the UK is around €225m on an annual basis – much less than it is being asked to stump up here. This could also be combined with the point above, with the UK refusing to pay until the legal proceedings have run their course. ***see update below***

Open Europe’s take
While this does not necessarily seem to be a political stitch up from the EU there is no doubt that it is unreasonable and politically irresponsible. Retroactively taxing someone over 20 years is fundamentally unfair. The fact that the UK and Netherlands are being punished for doing better than expected and better than others almost encapsulates everything that is wrong with the EU’s approach – particularly when the Eurozone economy is struggling to find any growth.

Once again the EU has failed to learn any lessons from the previous budget negotiations and has helped to feed those who want to leave the EU, possibly ultimately shooting itself in the foot. Still, what's interesting is that in a debate marred by splits, the UK political class is almost entirely united in its outrage against this move. It is ironic that in the week when one poll found British support for EU membership at its highest since 1991, the Commission has managed to unite everyone from Lib Dem MEPs to UKIP in outrage. If Cameron manages to resist the demand somehow, he would be able to score a massive victory.

Update 24/10/14 12:05:
One point to add regarding the refusing to pay option and the potential fines. On top of the potential fine from infraction proceedings mentioned above, the amount of €2.1bn will be charged 2.5% interest (standard 2% above the Bank of England base rate currently 0.5%), which increases by 0.25% for every additional month which the outstanding amount is not paid off. Such interest could clearly mount up very quickly and become very expensive. If the UK is eventually forced to accept £2.1bn figure, then it could clearly turn out to be very costly. Ultimately, though, if the UK is prepared to play hard ball, it would lead to a stand-off that will would need to be resolved by a political negotiation. Such disputes rarely reach such escalated levels and resolutions are normally found before costs mount up. 

EU hit with downgrade

While the spate of EU downgrades has slowed to a relative drip feed this year, it turns out there was at least one left in the locker – the EU, which Standard and Poor’s (S&P) this morning cut from AAA to AA+.

Many may ask, does the EU even have its own credit rating? And if so why? The answer is, of course it does, although why is a bit more ambiguous. It relates mostly to the rating of the EU budget and any bodies which borrow with EU guarantees. This includes the European Financial Stability Mechanism, the smaller €60bn bailout fund which is backed by the EU budget.

The move is largely symbolic but the reasoning behind it is interesting if a bit strange in places:

• The first couple of points are obvious: the on-going financial and political instability in some states has led to the downgrade. This is par for the course in terms of ratings.
• It’s also obvious that the EU rating would be reflective of the ratings of its largest members, some of which have seen downgrades over the past year.
• However, it then gets a bit odd. S&P cites the EU budget negotiations, which were admittedly tricky and divisive, as an example of declining support for the EU. Firstly, the budget negotiations are always difficult but were eventually concluded and were pretty much wrapped up early this year. It’s also a bit strange given that the budget cannot run a deficit and countries are obliged to contribute – it’s not clear exactly how this relates to a credit rating issue.
• The final point S&P raised was the issue of ‘Brexit’ and how the UK referendum could create uncertainty. Again this is some time away so the timing of the decision seems strange. Nevertheless, it does drive home an interesting point, in that S&P believe the EU would be less creditworthy without the UK. Something for members to ponder as the push for reform begins to get underway properly.

In any case, the main impact is likely to be symbolic. S&P have choice timing delivering the news on the same day when there was much backslapping and congratulations over reaching a deal on the banking union.

Economic downturn pushes up UK contribution to the EU budget, according to OBR

Yesterday's Autumn statement revealed that, under the latest OBR forecast, the UK’s net contribution to the EU budget is set to increase by a cumulative £10 billion between 2013-14 and 2017-18.

However, it is not quite as bad as it seems. According to the OBR, £4.9bn of the increase is “spending neutral” due to a change in how EU aid contributions are accounted for.

Nevertheless, the OBR does expect a real increase of around £5bn. This is due to lower than expected VAT revenues and customs duties (known as Traditional Own Resources) across the EU due to the economic downturn. The effect is that this will increase direct national contributions from the net contributors, including the UK's.

See the table below from the OBR's report (click to enlarge):

As we have noted before, it was always possible that the UK's net contribution to the EU budget could increase, despite the long-term EU budget real terms cut agreed in early 2013, due to a variety of factors (such as more more money flowing to the EU's poorer countries, which isn't covered by the UK rebate, fluctuations due to exchange rates, and the fluctuating revenues from VAT and customs duties cited by the OBR.)

Although much of the EU budget remains wasteful and irrational, these figures illustrate why it was so important to secure the cut in overall EU spending levels up to 2020. The deal brokered in February does at least mean that over the long term gross and net contributions will be limited in a way that they were not before. In addition greater pressure on overall spending might (we can hope) finally focus minds on reforming how the money is actually spent.

Historic EU budget cut one step closer, but still plenty of scope to reform how it is spent

Following a reported 16 hour marathon negotiation, representatives from member states, the European Commission and the European Parliament struck a deal on the 2014 annual budget in the early hours of this morning.

As the sides failed to agree under the normal timetable, the so-called 'conciliation' process was invoked to tackle the remaining sticking point  - the final billion euros either on or off the Commission's proposal. In the end the sides met roughly half-way - MEPs accepted a €400m cut and the member states agreed a €500m increase compared to their demands. As ever with the EU budget, politics and symbolism were just as important as the actual substance of how and where the money is spent.

Having said that, there is some good news - the budget sees actual payments of €135.5bn and new spending commitments of €142.6bn - decreases of 6.5% and 6.2% respectively compared to 2013. This reduction is because the 2014 budget is the first to be agreed under the new overall spending limits (2014-2020) agreed by David Cameron and other EU leaders back in February - the first ever long term budget to be lower than its predecessor. The coalition will therefore be able to credibly claim it has achieved tangible reform in this area.

The bad news, as we noted way back in June, is that in order to achieve these cuts, the UK was forced to swallow an additional €11.2bn in retroactive top ups (so called 'amending budgets') to EU spending in 2013. Without these tops ups, the EU budget would actually have seen a small real term increase from 2013 to 2104, albeit under the rate of inflation. The second tranche, coming in at €3.9bn, appears to have been formally signed off by ministers yesterday as well despite the UK's opposition.

Furthermore, as we've said many times before, as well as the size, the substance of the budget remains hugely flawed with the bulk of the budget composed of growth destroying farm subsidies and regional development funds recycled between wealthier member states, and millions wasted on unnecessary quangos and institutions. So in summary a good start, but still plenty of scope for further reform.

Another manufactured row over the EU budget?

On the 30th of June 2011, the Commission unveiled its blueprint for the EU's long term-budget (MFF) between 2020-2014. Since then, we've witnessed a rather drawn out and undignified scrap as member states, the Commission, MEPs and a whole assortment of lobbyists and vested interests have fought tooth and nail to ensure their own priorities secure as much funding as possible.

In the past, we compared this process to an ill-mannered round of bartering at a provincial flea market, but in retrospect this may have been an overly generous depiction. The depressing result is a budget that pointlessly recycles far too much cash around wealthier member states while not allocating enough to areas such as R&D which could enable the EU to take advantage of growth opportunities in innovate areas of the global economy.

To recap: this February, following an earlier aborted attempt, EU leaders finally struck a deal on the overall spending levels, agreeing on a historic cut in EU spending. MEPs were unhappy and demanded a whole host of concessions in exchange for their consent to the package, one of which was an additional €11.2bn to top up this year's annual budget. In May, member states approved a first trance of €7.3bn (despite the UK's objections), and two weeks ago provisionally approved the release of the remaining €3.9bn.

The problem was that MEPs demanded that the €3.9bn be officially signed off before they approved the MFF, and therefore postponed the vote until next month. However, this has prompted EU Commission President Barroso to warn that the EU could become "insolvent" by the middle of next month. This issue has become further complicated because the member states have apparently demanded that €400m in appropriations from the European Solidarity Fund - intended to compensate Germany, Austria, the Czech Republic for floods and drought over the Summer - be included in the €3.9bn while MEPs want the money to come from fresh national contributions.

This new argument seems particularly pointless as it affects 0.28% of EU spending this year and 0.04% of the budget for 2014-2020. It is inconceivable that the Commission could not make up this sum from existing allocations. Also, the European Solidarity Fund is primarily a symbolic instrument, especially when it comes to wealthier member states (€360m of the €400m has been allocated to Germany). Instead, this latest institutional argy-bargy has served as just another opportunity for MEPs to try to show off their importance. MEPs are also likely to publicly pick a fight over some of the cuts made by member states to next year's annual budget as a cover to secure some minor concessions.

Surely the EU can do better than this.

Finally a deal on the EU long-term budget?

On Wednesday, European Parliament President Martin Schulz wrote to Irish Deputy Prime Minister Eamon  Gilmore warning him that the latest compromise on the long term EU budget agreed by EU leaders in February would be rejected. Yesterday morning, however, a deal was struck between the two negotiating teams. So had member states suddenly given in to all MEPs’ demands?

Although not all the details are fully clear, it looks as though MEPs have not secured anything substantial above and beyond the compromise they rejected last week.

Retaining unspent funds and ‘flexibility’ – A decent win for MEPs; member states have agreed that rather than taking back unspent funds as before, these can be rolled over to next year’s budget – although a) in recent years there has not been much of a surplus and b) while unlimited unspent funds can be rolled over at the start of the seven year period, this is capped towards the end. There is also scope for moving some cash around between budgetary headings.

Topping up the 2013 annual budget by €11.2bn – A big win for MEPs who demanded payment in full of the additional €11.2bn requested by the Commission to retroactively top-up the 2013 budget (although this is less down to MEPs themselves and more down to the fact that annual budgets are decided under majority voting). So far €7.3bn has been committed despite the UK voting against. This leaves €3.9bn outstanding and Martin Schulz has already warned that if member states renege on this, after MEPs have approved the budget, they will hold hostage the 70 or so individual pieces of implementing legislation for the EU's long-term budget.

A mid-term review: It looks as though MEPs have secured their demand for a compulsory review mid-way through the seven year budget but crucially it seems all but certain that this will take place under unanimity, not majority voting as MEPs had demanded, a scenario which could potentially have seen the spending limits increased. Intriguingly, this could coincide with a UK referendum should David Cameron still be in Downing Street.

Direct EU budget taxes – A big defeat for MEPs who pushed for a complete overhaul of the “own resources” system which would have seen the introduction of direct EU taxes and the scrapping of the UK and other rebates. This issue is completely left off the Commission’s press release and at a press conference following the agreement, the parliament’s negotiator only mentioned further “debate” on this issue. This was a clear red line for member states.

Extra help for youth unemployment – MEPs have also secured an additional €2.5bn to help combat youth unemployment, although this will be reallocated from existing funds, so it is not new money. Member states will also be able to voluntary commit additional funds in this area if they chose to.

So, despite a huge amount of posturing, overall the threat to veto the agreement proved to be an empty one and many of the MEPs' key demands were unmet - as we predicted at the time. They will now get two votes on the long term budget – a non-binding one next week and then a binding one come September or October. A lot could still happen between now and then, especially if MEPs decide they want another stab at obtaining further concessions or if member states refuse to pay more money into this year’s budget.

Even though the UK would not have been in a bad position had the parliament vetoed the agreement, politically it is better for David Cameron to be able to point to a concrete cut (as has already been proposed for the 2014 budget) as this adds credibility to his argument that he is able to secure a better deal for the UK in Europe.

Commission's draft budget for 2014: The Good, the Bad and the Ugly

While all eyes will be on George Osborne and Ed Balls this afternoon, the EU Commission has slipped out its draft annual budget for 2014. This is important as it the first budget to be drawn up using the reduced expenditure limits (or 'ceilings' in EU-speak) agreed by David Cameron and other EU leaders in February. However, the European Parliament so far refused to sign off on these, so they remain provisional for the moment (more on this later). Here is our breakdown of the content of the budget according to the good, the bad and the ugly, continuing an earlier OE tradition.

The Good

Compared with 2013, there's a cut to the 2014 EU budget. The headline figure is a cut in both commitments and payments from €151.6bn and €144.5bn down to €142bn and €135.9bn respectively. This is a 6% cut in commitments and a 5.8% cut in payments. This is clearly a win for David Cameron who was mandated by parliament to secure a real terms cut in spending, but is also not all what it seems to be (see below). Next year's savings would be even lower if not for the fact some spending - such as the new €6bn youth unemployment initiative - is being 'front loaded' onto this years' budget.

Some particularly wasteful spending has been cut, for example the commitments on 'Communication actions' defined as spending aimed at "increasing the interest, understanding and involvement of citizens in the EU integration and policy-making process" has been cut by 20%.

The Bad

Somewhat bizarrely, the above savings have only materialised because a lot of money has been added onto the 2013 annual budget via a number of 'amending budgets' (a favourite tool for the EP and Commission) - increasing the total from €132.8bn to €144.5bn. If not for this additional cash, we would have seen an overall increase in 2014. While some of this additional spending can be justified - for example to accommodate Croatia - many believe that the bulk has been requested by the Commission simply to use up all the available money left under the current long-term budget rather than because it corresponds to an actual need for funds.

The European Parliament has made payment in full of this amount a pre-condition for agreeing to the 2014-2020 budget, and so far most of it has been pledged by member states (although the UK was recently outvoted on committing an additional €7.3bn of the additional funds requested as annual budgets are decided by QMV, not unanimity). In total, €3.9bn remains outstanding, so taking this off the total means we only have a reduction of 3.2%.

The Ugly

The substance of the budget remains broadly unreformed with the bulk of the budget still going towards distorting farm subsidies and regional development subsidies for wealthier member states (although the proportion of the latter has been reduced). In fairness overall spending on the CAP has decreased by 2.3%, but the amount going on farm subsidies tied to land ownership or production levels (the new CAP rules allow some re-coupling) will go up by 0.3%.

Administrative spending is set to go up again by 1.5% overall. The table below gives the full breakdown:

• While the drop in spending on European Schools is welcome, many of the other headings see increases at a time when the EU should be busting a gut to cut down on administrative spending, as member states have been for the last couple of years.
• The Commission has made some cut backs but due to salary increases of 0.9% it sees a 0.1% increase (or 0.8% increase when including cost of Croatia's accession). 
• Spending on EU officials' pensions has also increased by 7.2% due to the number of staff retiring ahead of the entry into force of the new Staff Regulations. This highlights the need to make further and more urgent progress on making EU expenditure on former officials' pensions sustainable.
• While the Court of Auditors, an institution that often flags up EU waste and mismanagement, sees its budget cut by 4.2%, the European Parliament sees its budget go up by 1.7% despite the fact that it has not committed to reducing its headcount unlike other institutions. This news comes the day after we highlighted a video of two MEPs pushing and shoving a journalist who had the nerve to challenge them for allegedly signing in to claim to their daily allowance before 'sodding off' straight away.
• Spending on the EU's 'decentralised agencies' which form the bulk of the EU's 52 quangos are set to receive a 3.8% increase while the European and Economic and Social Committee and the Committee of the Regions see a 0.2% cut and a 0.3% increase respectively despite the fact that these organisations are outdated, with no evidence of their usefulness whatsoever.
• While expenditure on the EU's external policies (aid and development) sees a fairly substantial cut of 8.2%, for some reason the institution that manages this expenditure - Baroness Ashton's External Action Service - has been awarded a 3.2% increase. In contrast the FCO sees an 8% cut in todays spending review.

The deal all rests on the European Parliament agreeing to the 2014 - 2020 MFF otherwise the 2014 budget will revert to 2013 ceilings + 2% for inflation. While this would not be an awful result for the UK mainly because of the security guaranteed by the rebate (see here for details), it would nonetheless most probably not result in an actual cut, thereby undermining David Cameron's claim to have achieved a degree of EU reform by cutting the budget for the first time in EU history.

Meanwhile, MEPs' initial responses don't exactly inspire confidence...

The EU budget proposal of the Commission for 2014 is again supporting the recession and unemployment instead fighting it.
— Hannes Swoboda (@Hannes_Swoboda) June 26, 2013

'My reaction was excessive, but the journalist was rude': Italian MEP caught on camera responds

Italian MEP Renato Baldassarre has responded to the posting of the video in which he's seen pushing and slapping a Dutch journalist (or at least the journalist's microphone) after being caught on camera allegedly signing in for a day's work, and then sodding off.

We posted a cut down version of the video on our blog, and it has generated quite a bit of interest .

As we're always keen on a right to reply, we've now translated Mr Baldassarre's response below. Again, judge for yourself (and if you understand Italian, the full interview is available here).

"First of all, I’m really sorry about that episode and the relevance which was given to it. But the truth has to be re-established. I answered the questions that I understood in a very correct fashion, until the insistence – and I would also say the rudeness – of the interviewer has triggered a reaction, perhaps excessive, but also justified by the fact I was not exactly in the best of moods given that around that time I had received the news that a very close relative of mine had been hospitalised."

"That said, this is about the usual episodes aimed at highlighting waste and privileges allegedly involving the European Parliament...I have a very high attendance record, 90% in plenaries and 85-86% in the various Committees. On that specific day, I had just arrived and was going to my office where I stayed until 10pm. Therefore, I really believe the whole fabrication around this episode is frankly excessive."

It is also worth noting that this story has unfolded on the same day as the Parliament has told member states it will not accept the latest compromise proposal on the EU's long term budget. In other words, MEPs are still holding the budget cut negotiated by David Cameron and other EU leaders hostage. Not a great day for MEPs from a PR point of view...

The 2014-2020 EU budget: The deal that never was?

After the umpteenth round of talks on the next long-term EU budget between negotiators from the Irish Presidency, the European Parliament and the European Commission, Ireland's Deputy Prime Minister Eamon Gilmore announced yesterday,

"We have concluded negotiations on the EU's multi-annual budget for the next seven years [2014-2020]. I have reached an agreement with the European Parliament's chief negotiator. We have agreed a package that we are both going to recommend to our respective institutions...This is a balanced package that addresses all four of the issues identified by the European Parliament as important for the EU budget." 

In exchange for agreeing (through gritted teeth) to a historic cut in overall spending from the 2007-2013 budget period, MEPs would secure concessions on "more flexibility" between spending areas and annual budgets, plus a mandatory 'mid-term review' of the long-term budget in 2016. There was also an agreement on "a method for carrying forward discussions" on direct taxes for the EU budget - whatever that means - but no binding commitment.

All sorted? Not quite. Alain Lamassoure, the French centre-right MEP who is heading the European Parliament's negotiating team, told a rather different story to AFP,

"Some members of the European Parliament's delegation are very cautious [on the outcome of the talks], and it's for this reason that I couldn't commit the European Parliament."

The leaders of the main political groups in the European Parliament will meet on Tuesday to decide whether or not they are happy with the latest compromise on the table. In other words, it seems the Irish Presidency was so eager to end its term with a landmark deal that it got a bit ahead of itself.

And not without consequences. German MEP Reimer Böge, from Angela Merkel's CDU party, resigned as the EPP rapporteur's on the 2014-2020 EU budget this morning in protest against what he described as "nothing more than a manipulation" from the Irish Presidency. According to him,

"The European Parliament's negotiating team last night decided not to continue the negotiations, if they can be called such at all, and submit the texts to the European Parliament."

A 'deal' that turned out not to be a deal after all. We can only wonder what ordinary citizens make of all this posturing, brinkmanship and back-room horse-trading.

Moreover, several important questions remain unanswered. How would this 'revision' work exactly, and what would it involve? Are MEPs prepared to drop their demand for it to take place under QMV and not unanimity? What's the point of having a non-binding discussion on 'own resources', given that there's no appetite for direct EU taxes across the bloc?

Ultimately, MEPs should be careful not to overplay their hand in seeking concessions - if push came to shove would they really veto the agreement painstakingly negotiated by EU leaders?

Things should become clearer next week. For the moment, it's worth keeping in mind that, whatever the outcome of the negotiations with MEPs, the deal will have to be endorsed by EU member states by unanimity - meaning that the UK would still have a veto over it.