Tiny Slice of Budget Devours 100% of EU’s Political Energy

A sum equal to 1 percent of the European Union’s gross domestic product devoured 100 percent of the bloc’s political energy as leaders squared off over subsidies for everything from bridges and windmills to olive trees and the dwindling honeybee population.

The euro debt crisis and a deadlock over Greek aid raised the stakes for EU budget talks that were scheduled to conclude today but, as in 2005, end in stalemate. The 27-nation bloc’s political leaders will probably need one more summit to hammer out their next seven-year spending plan. (Update: As expected, the summit failed late Friday afternoon.)

“We are really not there yet,” Dutch Premier Mark Rutte said upon arriving for the second day of the meeting. “There are huge differences between the parties.”

Left to economists, a deal on a proposed €1.033 trillion ($1.3 trillion) package for the years 2014-2020 could come together quickly. Veto threats and uncrossable red lines are typical fare in EU budget negotiations. The 2012 rendition has run true to form. A clique of net payers including Britain, Germany, Sweden and Finland has insisted on a spending freeze or reduction, while fragmenting over other demands.

France, the biggest beneficiary of EU farm aid, wants subsidies to keep flowing to its dairy producers, cattle breeders and wheat growers. Even when it comes to bees, France is ahead. It got the biggest share, 529,615 euros, of EU-wide financing for 2012 research into rising bee mortality.

Britain’s bees got half as much, underscoring the U.K.’s longstanding complaints about European agriculture spending. That perceived injustice led to the rebate won by Margaret Thatcher in 1984, something sacred to every U.K. government since.

Only an amount equal to 0.1 percent of EU-wide GDP remains in dispute, said EU President Herman Van Rompuy, a former Belgian prime minister who is leading the summit. Van Rompuy last week proposed a package of 973 billion euros, down both from the original proposal and from the 994 billion euros for the current seven-year period.

All 27 countries need to sign off on the budget, and the net donors aren’t the only ones threatening to walk away. Latvia, which pocketed 3.62 percent of GDP to make it the third-biggest net recipient last year, would say no “if our interests are completely ignored,” Prime Minister Valdis Dombrovskis said.

The summit hasn’t quite re-enacted the arguments made last time around, when then-French President Jacques Chirac hurled accusations of “shameful” and “unreasonable” at then-U.K. Prime Minister Tony Blair for foisting lower subsidies on his purported allies in eastern Europe.

It took two summits to strike a bargain. At the first one, in June 2005, eastern leaders sought to break a stalemate by trudging back into the meeting room with a vain offer of last-ditch concessions. It wasn’t until December, with Blair trapped into a honest-broker role as the summit’s chairman, that a pact came together.

“It was a nightmare of detail, political cross-currents, national pride, presidential and prime ministerial ego, all played out in vivid public technicolor,” Blair wrote in his memoirs. “The meeting rooms are so ghastly that you always have an incentive to agree and get out. We got a deal which actually left Britain paying roughly the same as France for the first time. The U.K. media called it a betrayal, but frankly they would have done that even if I had led Jacques Chirac in chains through the streets of London. And by then I was past caring.”


For another perspective, check out this video featuring former Belgian Prime Minister Guy Verhofstadt discussing the EU budget debate with Bloomberg TV’s Maryam Nemazee.
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