Meet the EU budget 'veto team'

This EU budget stuff can come across as pretty dull and confusing. To lighten things up a bit, we will turn to the universal language of football. So meet the EU budget 'Veto Team' - the eleven EU leaders that so far have threatened to veto the EU budget unless they get a better deal. Needless to say, given that this is its first outing, the eleven-man team is far from a cohesive unit - with lots of big egos and players who play for themselves.

(Click to enlarge the picture)

CF: David Cameron leads the line, ready to strike and seen as the most likely to pull the trigger on any veto.

RW: Swedish Prime Minister Fredrik Reinfeldt at right winger hugging the line (sticking to his guns), happy to put in a shift for the team and more likely to offer an assist/support for Cameron than to deliver the final blow himself.

AM: French President François Hollande is the mercurial trickster playing between the lines but not quite sure of his role or his aims. Ultimately a selfish player (as are many of the others) but whose own personal gain could ultimately be detrimental to the rest of the team.

DM: Italian Prime Minister Mario Monti is playing the stoic holding role, refusing to budge and occasionally gesticulating wildly at the referee, although never actually getting into the danger zone at the forefront of the action. More likely to break up play and provide a stumbling block than deliver a knockout blow to the opposition. Unlike the rest of the team, not here on merit (elected) but parachuted in by the powers above.

LW: Portuguese Prime Minister Pedro Passos Coelho takes on the Cristiano Ronaldo role as a marauding left winger and not just because of the nationality. His red line that Herman Van Rompuy's proposal is unacceptable makes him more of a threat than many expected. Under pressure to perform from his home fans (electorate) he needs to put in a big showing – the question remains though whether he will rise to the challenge or crumble under the pressure.

MC: Dutch Prime Minister Mark Rutte is playing the 'box-to-box midfielder' role, akin to the days of Johan Cruyff's 'total football'. Usually more inclined to side with Germany (the opposition), Rutte finds himself dragged end-to-end with action not quite sure where he should be or where he is best suited. One things for sure, his hometown team (the VVD party) would love to see him score.

LB: Belgian Prime Minister Elio Di Rupo, naturally inclined to the left, find himself at left back. His demands are relatively minor and he’s not a regular in this team (usually part of the core EU group whose views align closely). He’ll put up a fight for a bit but he’s not a star player in this game.

CB: The towering centre-back, Danish Prime Minister Helle Thorning-Schmidt provides a solid spine to the team. Not one of the more flashy players but they know their job and what they want out of it (a clean sheet). Unlikely to score (pull the veto) but will definitely provide a blocker against any increases in the budget.

CB: Austrian Chancellor Werner Faymann is another unfamiliar member of the team. Stuck in at centre back because of its experience in the eurozone crisis and playing a key blocking role in minimising the liabilities. Unfortunately, his aims are different in this game and, as with Hollande, he may end up scoring an own goal (getting more spending in the budget).

RB: Romanian President Traian Basescu, at right back, is there as a late replacement and now a token entry. The previous incumbent (Romanian Prime Minister Victor Ponta) looked set for an interesting game, but after the substitution this role is unlikely to provide much action.

GK: Latvian Prime Minister Valdis Dombrovskis is in goal because, well, the smallest kid always gets stuck with the worst job.
 

Britain is not about to get completely stuffed in Europe

On his Telegraph blog, Mats Persson argues:

Take a deep breath. Britain is not about to get completely stuffed in Europe.

The FT ran a story the other day claiming that the EU could circumvent the UK’s veto over the EU’s next long-term budget (2014 to 2020) , effectively turning David Cameron into a spectator in the talks and forced to accept spending increases. Stories like these fuel speculation that “Brixit” – the UK leaving the EU – is just around the corner.

But how much of this is actually substance as opposed to noise? The FT story was pretty implausible – ‘circumventing’ the UK’s veto will be very difficult. In case of no agreement before the end of 2013, EU officials could move to roll over the 2013 EU spending ceilings adjusted to inflation with up to 55 individual spending items decided by Qualified Majority Voting (QMV). This would be extremely messy. There's no way 26 countries would agree amongst themselves to take a common position against Britain on 50+ spending areas – at least eight countries have already threatened to veto the EU budget for different reasons.

But let’s do some war-gaming around EU events this autumn, to see how bad things really are for Cameron.
EU leaders will discuss the long-term EU budget this week, starting tomorrow. There are effectively three possible outcomes from the Brussels summit: a new veto moment for Cameron, a deal or postponing the decision. Though all options are on the table – and a deal this weekend isn't impossible – the latter remains the most likely.

Following the recent vote in British Parliament, in which a majority of MPs voted for a cut to EU spending rather than a freeze, Cameron can hardly accept the proposals for an increase that are floating around.
But forcing Cameron to veto the EU budget this week could trigger a “perfect” storm not only for Britain, but also the EU as a whole, in which everyone would lose. A new veto would really sour relations between the UK and Europe, and any attempt to try to press ahead without the UK would be met with fury in Westminster as it would effectively involve taxation without representation. Agreement on an EU “banking union” – the far bigger fish to fry as it links with the stability of the euro – would then be much more difficult to reach at the EU December summit, when leaders will hammer out those details.

The UK also has a veto over the banking union. Though it’s currently broadly supportive, should the UK be singled out in EU budget talks, the banking union will be far more difficult to manage in Westminster as every front page in the land will be splashed with “EU stitch-up” headlines. Cameron will come under pressure to pull a second veto over banking union to take back control over events.

EU officials say they have a familiar back-up plan should this happen: ignore Britain. The EU, they say, could press ahead with banking union under so-called “enhanced cooperation”, allowing a limited number of member states to pursue more integration, if not possible at the level of all 27.  But this would trigger a massive crisis as the UK would, for all practical purposes, find itself “not in the euro but run by the euro” – London’s worst nightmare. Legal challenges and massive uncertainty for the eurozone would follow. Britain would also be half-way through the exit door.

Far-fetched? Most certainly. It could happen. But Berlin and Brussels will get cold feet long before it gets to that. The legal foundations of trying to rewrite the role of the ECB, turning it into a bank supervisor, using enhanced cooperation would be so weak that Angela Merkel’s lawyers could well suffer a nervous break-down.

And this also shows that beyond the huffing and puffing – and the indulgence of “isolation” stories – it’s in everyone’s interest to reach a deal. But that’s only with regards to events this autumn of course. There will be plenty more fraught moments to come.

The long queue of potential 'EU budget vetoes': Who will join next?

Update 21 November, 16:15

Portugal has stepped up its rhetoric by a notch, and has now joined the group of countries that have explicitly threatened to use their veto. Portuguese Prime Minister Pedro Passos Coelho told MPs, "The proposal that has been tabled [by European Council President Herman Van Rompuy] is completely unacceptable for Portugal. By saying this, I mean that I would block a decision [by EU heads of state and government] that had this proposal as its final result."

In practice, this means that one third of EU member states have so far explicitly said that they are ready to veto the next long-term EU budget.  

Update 21 November, 10:40

Another day, another EU budget veto threat - this time from Latvia. Prime Minister Valdis Dombrovskis has said that his country is prepared to veto the 2014-2020 EU budget unless it gets a better deal on agricultural subsidies and cohesion policy.

Update 20 November, 17:00

Italy has today officially moved to the group of countries that have explicitly threatened to veto the 2014-2020 EU budget. Italian Europe Minister Enzo Moavero Milanesi said Italy will be "ready to use its veto" if it considers that the next long-term EU budget is "harmful for the country and burdensome for the Italian taxpayer."

Also, Portugal added its voice to the group of member states that consider Van Rompuy's proposal "unacceptable", but stopped short of threatening a veto. 
 
And here's our original blog post,

You will have read a slew of stories about how the UK is threatening to veto the EU leaders' budget talks later this week and the various terrible consequences that will follow should it do so. The FT has a story today that EU diplomats are working to "circumvent" the UK's veto by moving to annual Qualified Majority Voting, which actually only means that they're working on a scenario for a roll-over, should a deal fail to be struck (we've already looked at that scenario in detail here) so don't get too excited.    
As some European sources have put it, a "miracle" would be needed to strike a deal on the 2014-2020 EU budget when EU leaders meet in Brussels on Thursday and Friday. And the UK is certainly not alone when it comes to putting its veto on the table. In fact, veto threats are flying around all over the place - we count seven veto threats in total. Here is a list of EU member states who have either explicitly threatened to veto the next long-term EU budget or said they are unhappy with the compromise currently on the table - which means they could wield their veto unless something changes.

UK: Has threatened to veto any proposal which does not involve, at worst, a freeze based on 2011 payments.

Denmark: Has warned it will use its veto unless it gets a rebate worth 1 billion DKK (slightly over £100 million) from the 2014-2020 EU budget.

France: Has said the compromise proposal put forward by European Council President Herman Van Rompuy "is not a basis for negotiations". Paris wants EU farm subsidies to be kept at least at 2013 levels, and said it will threaten to veto the talks should CAP spending be radically changed.

Sweden: Has hinted at using the veto in the past and believes Van Rompuy's proposal still does not go far enough. According to Swedish Europe Minister Birgitta Ohlsson, what is missing is "a clear model for reducing agriculture subsidies".

Austria: Has threatened to veto the long-term EU budget unless two conditions are satisfied. Firstly, Austria wants to continue receiving its 'rebate on the UK rebate' over the next seven-year EU budget period. Secondly, the Austrian government is opposed to cutting the rural development component of the CAP.

The Netherlands: Does not want to see the annual or long-term EU budget increase above inflation, and explicitly said it will use its veto if necessary.

Romania: Has warned it could use its veto, calling Van Rompuy's proposed cuts to farm subsidies and regional funds "unacceptable".

Italy: Has not threatened to veto the talks but dismissed Van Rompuy's compromise, saying it is "not a positive contribution" to the negotiations. Italy wants to see its net contribution to the EU budget cut, the reason being that its GDP per capita has now slipped slightly below the EU-27 average. Rome also opposes cuts to farm subsidies and cohesion policy.

Spain: Has rejected Van Rompuy's proposal as "unacceptable". Reports have suggested that, under the proposal, Spain risks losing up to €20 billion in total over seven years in both farm subsidies and cohesion funds. However, Madrid is still to drop the "V" word.

Poland: Has not explicitly threatened to wield its veto, but is clearly not happy with Van Rompuy's proposed cuts to EU regional spending. Poland is trying to muster support from other net recipients from the EU budget, such as Portugal - the so-called 'Friends of cohesion group'.

So, it looks like circumventing a veto on the 2014-2020 EU budget would mean much more than circumventing the UK.

Why David Cameron can threaten to veto the EU budget

Over on the Spectator's Coffee House blog, we argue,

When in 1996 the US Congress threw out Bill Clinton’s Federal budget they precipitated a partial shutdown of the US Government. However, anyone looking at the growing prospect of a UK EU budget veto and cheerfully imagining Eurocrats being shut out of their offices on 31 December 2013 will be disappointed. Because when it comes to EU budgets, a veto is not quite a veto – the EU will continue one way or another to claim its dues.

Nethertheless, a UK veto is not meaningless. Not least because, as we have set out here, the scenarios that could play out after a UK veto may not be that much worse for the UK than those already on the table (including, ironically, the UK’s own suggested ‘freeze’). It is important to realise that a ‘freeze’ in the overall EU budget could actually mean a rise in the UK’s net contribution. This is because the UK’s rebate only applies to spending in the ‘old’ member states and so shifting funds to the newer states would leave the UK out of pocket. We estimate that even under a ‘freeze’ the UK’s net contribution could rise by between €1 billion and €2.4 billion over seven years.

After a veto there are broadly two possibilities. The first is that the EU carries over its 2013 budget ceilings, adjusted for inflation. Member states would then have to negotiate an ad hoc deal, based on a Qualified Majority Vote rather than unanimity, which could see the overall EU budget increase above and beyond anything Cameron wants to see. However, this could actually mean a limited rise in the UK’s net contribution as the rebate reduction would not kick in.

Secondly, and less likely, the European Parliament could tear up the current budget altogether. Should they do so, the Commission could then table a completely new proposal for the annual budgets without any spending ceilings. These would be subject to QMV and could also lead to a large increase in the UK contribution.  This would also be a major act of hubris as MEPs aren’t exactly popular as it is.

However, a clear majority of member states desperately want a new deal. The new member states would lose out from the previous year’s budget. In addition, all other budget corrections – including the Swedish and Dutch rebates on the UK’s rebate – will expire in 2013, while the UK rebate would stay, meaning many net contributors would also stand to lose if there’s no new deal.

This all gives the UK veto potency which should be used all the way up to 2014 to push for radical reform of the largest spending items such as the Common Agricultural Policy and to repatriate EU regional policy.

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.