Officials target February summit deal on EU budget

BRUSSELS Mon Jan 14, 2013 5:02pm GMT

The EU flag flies outside the Reichstag, the seat of Germany's lower house of parliament, the Bundestag, in Berlin November 29, 2012. REUTERS/Thomas Peter

The EU flag flies outside the Reichstag, the seat of Germany's lower house of parliament, the Bundestag, in Berlin November 29, 2012.

Credit: Reuters/Thomas Peter

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BRUSSELS (Reuters) - European Union officials are confident of reaching a deal early next month on the bloc's next seven-year budget, as long as deeper cuts can be agreed to the nearly 1 trillion euro plan.

A first round of talks among EU leaders ended without agreement in November, with some countries balking at demands by Britain and others to go beyond the 80 billion euros of cuts that have already been proposed.

But EU officials charged with convening the talks said an agreement can be wrapped up quickly, with European Council President Herman Van Rompuy expected later this week to announce a new round of negotiations at an EU summit on February 7-8.

"The basis for agreement will be the compromise put forward at the last summit, but we all know that we will have to introduce further cuts in order to get a deal," said one EU official involved in the talks, speaking on condition of anonymity.

While EU spending only accounts for about 1 percent of the bloc's gross domestic product, a deal on the 2014-2020 budget would be welcomed by southern and eastern European countries that rely on EU funds for a significant share of their public investment.

However, failure to reach agreement at a second summit would risk provoking a fresh European crisis, throwing future EU spending plans into chaos and diverting resources away from efforts to stabilise the euro zone.

Mindful of the risks, Van Rompuy has been reluctant to set a date for the second round of talks before gauging the appetite for a deal among EU capitals.

He will only confirm that talks will resume early next month once Berlin, London and Paris, in particular, have signalled their willingness to do a deal, officials said.

STICKING POINTS

About three-quarters of EU spending currently goes on farm subsidies and infrastructure and other projects in Europe's poorer regions. The remainder is spent on areas such as research, overseas aid and education.

Under the latest compromise put forward by Van Rompuy at the November summit, EU spending commitments between 2014-2020 would be fixed at a maximum of 972 billion euros, which is about 80 billion less than the Commission's original proposal and would represent a real-terms cut from the current 7-year budget.

As part of the compromise, Van Rompuy scaled back earlier cuts to farm subsidies and regional aid spending to placate countries including France and Poland, which receive most from these programmes.

As a result, further cuts to farm and regional spending are considered unlikely at the February summit, with some officials predicting a slight increase in agricultural spending compared with the current compromise.

That would mean deeper cuts would be needed in other areas of EU spending, with funds earmarked for cross-border energy and transport projects, research and overseas development aid the most likely targets.

Another area where Britain and other countries keen to limit EU spending will push for cuts is the bloc's administration budget, used to pay the salaries, pensions and other benefits of the EU's 55,000 officials.

While administration consumes only about 6 percent of total EU spending each year, British Prime Minister David Cameron has said cuts to EU staff numbers and spending are necessary to reflect the austerity policies imposed by many governments.

One issue that could prove a sticking point in February is Britain's annual budget rebate worth 3.5 billion euros in 2011.

French President Francois Hollande supports a proposal to make all EU countries pay for the rebate including Britain itself, effectively reducing its value to London.

But with Cameron's consent needed for any change in Britain's rebate, first negotiated by Margaret Thatcher in 1984, such a move is unlikely, meaning linked payments to Germany, Sweden and the Netherlands are also unlikely to disappear.

(Editing by Luke Baker)

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