EU tables budget deal that may please UK, anger France

BRUSSELS Wed Nov 14, 2012 11:04pm GMT

European Council President Herman Van Rompuy arrives for a meeting with Georgia's President Mikheil Saakashvili in Brussels November 14, 2012. REUTERS/Francois Lenoir

European Council President Herman Van Rompuy arrives for a meeting with Georgia's President Mikheil Saakashvili in Brussels November 14, 2012.

Credit: Reuters/Francois Lenoir

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BRUSSELS (Reuters) - European Union chief Herman Van Rompuy tabled a compromise draft EU budget on Wednesday, aiming to mollify Britain which wants spending cuts but risking angering France by reducing farm subsidies.

Britain has threatened to veto the 7-year budget, saying the EU should limit spending in light of austerity cuts being made by national governments. Germany, Sweden and the Netherlands have demanded similar restraint.

Van Rompuy's draft would reduce the roughly 1 trillion euro (803.8 billion pounds) budget for 2014-2020 proposed by the European Commission by about 80 billion euros and will be discussed by EU leaders aiming to strike a deal at a summit on November 22-23.

The proposal also safeguards a budget rebate paid to Britain each year to compensate for the relatively small amount of agricultural subsidies it receives - a payment that many other countries resent but recognise would be politically difficult to withdraw from one of the most Eurosceptic EU member states.

Under the proposal, all EU countries would share the cost. That means that Britain, paradoxically, would have to pay partly for its own refund, slightly reducing its net benefit. Payments would be made to Germany, the Netherlands and Sweden to compensate them for the cost of Britain's rebate.

The plan also protects EU spending on items such as research and energy infrastructure, at the expense of more traditional areas such agriculture, which should please northern European countries who say the bloc's budget framework is outdated.

But the suggestion to cut farm subsidies drew immediate criticism from top recipient France.

"We do not accept the proposal to reduce by 25 billion euros the money for the Common Agricultural Policy, which we consider a policy for growth," Bernard Cazeneuve, France's European affairs minister, told parliament.

An even bigger reduction in funds for poorer regions is likely to face similar opposition from southern and eastern European countries such as Greece, Italy and the Czech Republic.

NOT ENOUGH

But Von Rompuy's 80 billion euros cut to the Commission's proposal is less than the 100-200 billion that Britain, Germany, Sweden and the Netherlands want.

"The revised proposal means some small steps in the right direction but it's not enough," Sweden's EU Minister Birgitta Ohlsson said. "We need a clear model for reducing agriculture subsidies."

The proposal also says two-thirds of revenues from a new financial transaction tax planned by about a dozen EU countries should be paid directly to the bloc's budget. But the idea is unlikely to win the support of most of the states involved, including Germany.

Britain has pushed to reduce the seven-year budget cycle to five years, something EU diplomats said could form the basis of a plan B if there is no agreement in November.

"Look at the last EU budget. The economic conditions in which the budget was agreed in 2005 were thrown into complete disarray by the financial crisis," Britain's Europe Minister David Lidington told German weekly Die Zeit.

"There seems to me to be a good case for thinking about a shorter period."

Britain's enthusiasm partly stems from the fact that the current budget proposal assumes higher growth in 2019 and 2020. Excluding those years would lead to a deeper cut in annual budget contributions.

(Additional reporting by Brian Love in Paris, Daniel Dickson in Stockholm and Gareth Jones in Berlin; Editing by Robin Pomeroy)

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