* EU leaders seek to divert spending towards growth, jobs
* Growth agenda comes as bloc debates next long term budget
* Farm spending may lose out to infrastructure, research
* Debate pits older EU states against newer member countries
By Charlie Dunmore
BRUSSELS, July 2 (Reuters) - A scramble by European leaders to find ways to boost growth and create jobs could have a significant unintended consequence - cutting a swathe through the EU’s huge farm subsidy budget.
At 55 billion euros a year ($68 billion), the farm budget consumes more than 40 percent of the EU’s total annual expenditure, more than any other sector.
But with leaders across Europe under increasing pressure to revive their stalling economies, the bloc’s farmers risk seeing a portion of their subsidies diverted to other priorities as part of a shake-up of EU spending after 2014.
Ironically it is France - the top recipient of EU farm subsidies and their most vocal defender - that has done most to shift the tone of the EU budget debate, after newly-elected President Francois Hollande called for EU growth measures to temper German-led austerity.
With negotiations on almost 1 trillion euros worth of EU spending between 2014 and 2020 due to reach a climax by the end of the year, governments could be faced with a straight choice between cutting farm subsidies or reducing infrastructure spending in the bloc’s less-developed economies.
“Everybody agrees that we have a unique opportunity to transform the EU budget into a tool for future growth,” European Council President Herman Van Rompuy told reporters at an EU summit last week, after talks among leaders on the bloc’s next long-term budget.
“We discussed how to make sure we get the best value for money by having policies with the right structures, incentives and controls to guarantee the biggest impact on growth.”
The renewed focus on growth-oriented spending has led EU governments to talk up the economic benefits of spending in areas that they are keen to protect.
In a sign that France will continue to defend the current level of EU farm spending, officials said they have noticed a subtle shift in emphasis by the new Hollande government.
EU officials said French agriculture minister Stephane Le Foll was keen to emphasise the economic contribution of farm subsidies when he met the bloc’s agriculture commissioner in Brussels earlier this week.
“The broad lines of the new French government on farm policy are exactly the same as the last,” said one official with knowledge of the talks.
“But the minister put more emphasis on jobs and employment, and in that sense it was a slightly different presentation of France’s position.”
The bloc’s executive, the European Commission, has proposed a small and largely symbolic cut in annual farm subsidies to about 50 billion euros by the end of the decade, as part of wider plans for a 5 percent increase in the EU budget to the end of the decade.
EU governments must now finalise the proposals, and the top priority for net contributors to the EU budget - including Germany, France, Britain and Italy - is to cut the overall amount proposed by the Commission by about 100 billion euros.
With almost three-quarters of EU spending going to either agriculture or infrastructure funding for the bloc’s poorer regions, officials agree that such a deep cut would have to come at the expense of one or both of these policy areas.
For many, the choice between investing in Europe’s underdeveloped regions or subsidising farmers as a means of driving economic growth is a simple one.
“I‘m not sure whether the agricultural spending, which addresses a very small part of the population, has the same impact on growth as some other areas of spending,” Klaus Rudischhauser, a senior official in the Commission’s development department, told a recent seminar in Brussels.
But advocates for farm spending argue that the EU’s common agricultural policy (CAP) plays a vital role in supporting rural economies.
“We feel strongly that agricultural spending has a multi-functional role to play, including maintaining jobs and in particular boosting the EU economy in rural areas,” EU agriculture spokesman Roger Waite said.
With poorer EU countries including Poland and the Czech Republic vehemently opposed to any cut in the proposed regional aid budget, and France, Spain and others equally unwilling to shrink farm subsidies, it is hard to see an easy compromise that can win the unanimous support needed for an agreement.
As ever, the key figure in the debate is likely to be Germany - the main contributor to the EU budget and the second biggest recipient of CAP funds after France.
Ultimately, German Chancellor Angela Merkel will have to decide whether investment in neighbouring central European economies is the better option for growth, and if so, whether she can risk angering rural German voters ahead of federal elections in 2013. ($1 = 0.8 euros) (Editing by Rex Merrifield and Veronica Brown)