CENTRE FOR EUROPEAN REFORM
briefing note
THE JUNE EUROPEAN COUNCIL: FEAR AND LOATHING IN BRUSSELS? By Hugo Brady The French and Dutch No votes on the EU constitutional treaty have rocked Europe’s political establishment. The EU’s heads of government will debate the future of the document at their summit – and the equally fractious issue of the EU’s budget – in Brussels on June 16th. Luxembourg, which currently holds the EU presidency, has insisted that ratification must continue, a position supported by the majority of EU member-states. But some, most notably Britain, see no point in carrying on with referendums which are likely to be lost, further damaging EU credibility. These member-states believe that the French and Dutch will not vote again and therefore the constitutional treaty cannot enter into force. Bridging the gap between the two sides will not be easy. Rising tensions between EU partners have also made Luxembourg’s goal of securing a last minute deal on the EU’s budget for 2007-2013 more difficult. In particular, the UK has faced intense pressure to give ground on its special rebate. If the EU’s leaders fail to reach any agreement, they risk leaving the summit in disarray and deepening the current crisis.
The battle over the budget Even before the French and Dutch votes, the EU’s chances of reaching a deal on the EU budget for 20072013 appeared slight. EU budget negotiations are usually fractious, not least because every member-state can calculate the costs and benefits of any proposed deal down to the last euro. This set of budget negotiations is proving if anything, even more contentious. The member-states are divided over the overall size of the budget, the division of funds between old and new members and the vexed issue of the UK’s rebate. In the run-up to the Brussels summit, the Luxembourg presidency has desperately tried to find a compromise. The presidency has stressed the need for heads of government to show ‘solidarity’ – and demonstrate that the EU can continue to function effectively following the treaty setback. Luxembourg has made some progress on the overall size of the budget, breaking up the so-called gang of six – Austria, France, Germany, the Netherlands, Sweden and the UK – which had previously united to cap spending at 1 per cent of EU GDP (compared with the European Commission’s original proposal of 1.27 per cent). Austria and Germany have both indicated they are willing to compromise on a figure of 1.05 per cent. Meanwhile, Spain – the largest beneficiary of EU structural funds – has said it will accept that the majority of this money is diverted to the poorer central and East European countries, albeit after a lengthy transitional period. However, the EU presidency has made little progress on the UK rebate. As the rebate is currently calculated, it is becoming increasingly hard to defend. The UK gets back two-thirds of its annual EU contribution (currently S5 billion) in compensation for the limited funds it receives via the Common Agricultural Policy (CAP). But Britain is now a much richer country than when it first negotiated the rebate in 1984 – its GDP is 120 per cent of the EU average – while the relative size of the agriculture budget has declined. Moreover, the rebate is set to increase to S7 billion over the next budget period if the formula is left as it is.
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