A deal briefly glimpsed before EU budget talks fail

BRUSSELS Sat Nov 24, 2012 1:36am IST

1 of 2. European Union leaders pose for a family photo during an European Union leaders summit in Brussels November 23, 2012. (1st row L-R) European Council President Herman Van Rompuy, Lithuania's President Dalia Grybauskaite and France's President Francois Hollande. (2nd row L-R) Slovenia's Prime Minister Janez Jansa, Portugal's Prime Minister Pedro Passos Coelho and Germany's Chancellor Angela Merkel.

Credit: Reuters/Francois Lenoir

BRUSSELS (Reuters) - For a few minutes on Friday afternoon, it looked as if the European Union might just get a deal on nearly 1 trillion euros of spending for its next long-term budget.

During a "tour-de-table" among the EU's 27 leaders, the first time they had discussed the 2014-2020 budget as a group, it seemed for a moment that France, Poland, Italy and others might accept deeper cuts than originally proposed, diplomats said on Friday after the summit broke up without agreement.

Britain, Denmark, the Netherlands, Sweden and crucially Germany, the bloc's main paymaster, were all pushing for Herman Van Rompuy, the president of the European Council, to offer further spending cuts beyond the 80 billion euros he had already knocked off the original budget plan.

"For about 30 minutes there was a sense around the table that a deal could be struck, that there could be an agreement on going further," an EU official tracking the talks told Reuters.

"But the mood quickly changed and the door slammed. It became evident that it wasn't going to be possible."

Another official said Italy, France and other southern states, changed their tune after hinting they might be willing to discuss deeper adjustments to farm subsidies and drew a line, saying no more reductions.

When the summit ended, after more than four hours of talks on Friday which followed nearly 12 hours of negotiation on Thursday, EU leaders were careful not to point fingers of blame.

Britain's David Cameron, seen as a 'danger man' after he threatened to veto any deal he didn't like, was more emollient both at the table and in public, saying it had been a group decision to call off the talks.

German Chancellor Angela Merkel said it was no drama and the chances of a deal in early 2013 were good, while French President Francois Hollande said progress had been made.

Cameron was still full of firm words on EU excess, but said no one nation was to blame for the impasse, a line others echoed.

"Frankly, the deal on the table from the president of the European Council was just not good enough," he told reporters.

"It wasn't good enough for Britain and it wasn't good enough for a number of other countries," he said, mentioning several northern European states which contribute more to the EU's budget than they get back in return.

"Together we had a very clear message: We are not going to be tough on budgets at home and then come here and sign up to big increases in European spending."

MISSED OPPORTUNITY

On the first day of the summit, Van Rompuy held one-on-one meetings with each of the EU's 27 leaders and Croatia, which is due to join the bloc in the middle of next year.

In his session with Cameron, the first that was held, the British leader made a tough opening bid, saying he wanted 200 billion euros cut from the first budget proposal, bringing the ceiling down to 890 billion euros.

But that, as with all negotiations, was an opening pitch. During Friday's talks it appeared that Cameron might be willing to settle for cuts closer to 105 billion euros, a similar range to that sought by Germany, the Netherlands, Sweden and others.

That would still have required Van Rompuy, whose first proposal lopped 80 billion off the original budget framework of around 1 trillion euros drafted by the European Commission, to find another 30 billion in savings.

"With 30 billion euros more in cuts, Cameron would have agreed to a deal. But Van Rompuy didn't go for it - he wasn't strong enough," said an EU diplomat who was in touch with delegates in the 5th floor meeting room during the talks.

"Cameron said 'give me 30 billion more and we have an agreement'."

The diplomat, from a southern European country, said the British leader had been a positive surprise in the negotiations, not playing as hard and immovable a role as expected.

"We were all expecting him to be the bad guy, but he played it very well," he said, adding that Cameron and Merkel had been tightly aligned. By contrast, Hollande seemed more lonely without the traditional Franco-German axis backing his position.

While some officials lamented a half-chance lost, others said there had never been a particularly strong chance of a deal at the first summit since historically it has nearly always taken two summits to reach a deal on the long-term budget.

Merkel and other leaders said as they arrived at the summit on Thursday that it wouldn't be a disaster if they didn't get an agreement right away and only returned to negotiations in 2013, and that is now what will happen.

It is unclear when the next round of talks will be held, but officials indicated that February was the most appropriate time.

"When I look at the complete picture of possible compromise, I see readiness on all sides and good possibilities to reach agreement," Merkel said of talks early next year.

"We must consider what it would mean if we were not to reach agreement. This possibility is extremely unattractive."

What EU leaders now have is a much clearer sense of where the deep red lines lie and which lines are more pink.

It is clear that for a deal to be struck, the final budget will need to be around 100 billion euros below the original Commission proposal.

Leaders reached an informal agreement to avoid further cuts to agricultural spending, which is dear to the French, Spanish and Italians, and funds used to help poorer EU member states and cherished by Poland and others.

That means the axe is likely to fall on administration costs - salaries, pensions and benefits for the EU's 50,000 civil servants, whom Cameron sees as ripe for a dose of austerity.

New funds for scientific research and cross-border transport and energy infrastructure - already cut in the current compromise - are also likely to shrink further.

At the same time, it is not solely about cuts, officials emphasized. Net contributors to the budget such as Britain will also have to surrender some territory.

Hollande homed in on Britain's rebate -- the refund it gets on each budget and which is largely funded by France following a deal struck in 1984.

"France will continue to push for a change to the way these rebates are calculated and keep asking for all countries to contribute to their payment," he said, naming no one but effectively targeting Britain with his words.

Britain has always maintained that the rebate, first negotiated by former Prime Minister Margaret Thatcher, will never be given up and Cameron has underscored that message.

But if a deal is to be struck, and especially one that arrives at around 100-105 billion euros worth of cuts, then some form of adjustment on the resources side may be necessary.

(Writing by Luke Baker; Editing by Paul Taylor)

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