EU budget deal agreed
Anna Sonny, 15 February 2013
After 24 gruelling hours of negotiating last Friday, EU leaders finally agreed on a budget for 2014-2020. The collapse of talks last November raised concerns about whether an agreement could be reached, with some nation states favouring an increase in spending and others, like the UK, demanding that the austerity measures imposed by national governments across Europe should be reflected at the EU level.
Last October, a vote on the EU budget in the British Parliament saw the coalition defeated when 53 Conservative MPs voted with Labour to demand a real-terms cut in EU spending rather than the freeze proposed by the coalition. Cross-party support for a budget cut, a signal of real concern in Britain over the amount of money being poured into EU spending, meant that British Prime Minister David Cameron was under pressure to secure a ‘good deal for Britain’.
The €1.025trn budget that the Commission earlier proposed would have represented a 4.8% increase on the current 2007-2013 budget. There was a disagreement between the UK, Germany, the Netherlands and Sweden, all net contributors to the budget, and the newer member states in Eastern Europe, who are net beneficiaries and wanted to see an increase in cohesion funds that support poorer member states. The Commission and the Parliament also proposed an increase in funding for research and innovation, with the hope that this would boost growth in Europe. Talks stalled in November after European Council President Herman Van Rompuy’s proposed compromise of €973bn failed to secure a unanimous vote from member states.
As a result of last week’s negotiations, the agreed ceiling for spending is now €960bn, which equals €908bn in actual payments. This represents a reduction of 3.3% to the current budget, which is the first ever cut in EU spending. Herman Van Rompuy said the budget was one of three ‘dimensions’: firstly for the future, with increased spending to enhance competitiveness, secondly of moderation, with the first real cut in the total budget, and thirdly to deal with pressing concerns such as rising unemployment, particularly among the youth.
This week figures showed that both France and Germany’s economies contracted much more than expected in the final quarter of last year; Germany, the biggest economy in the eurozone, saw a contraction of 0.6%, its largest since the height of the eurozone crisis. France’s economy shrank by 0.3% over the same period, as did Britain’s. Over in the east, Japan is also experiencing financial problems as its economy has now contracted for a third quarter in a row despite forecasts of growth. A drop in export markets and low levels of domestic consumption caused the economy to shrink by 0.4%. While austerity is being prescribed for Europe, Japan has opted for a 10.3 trillion yen (£72bn) stimulus package, including spending on infrastructure and incentives for businesses to increase investment. It is hoped that the package will boost the economy by 2%, create 600,000 jobs and revive the stagnant economy.
It will be interesting to see the results of these very different economic measures – austerity in the west and stimulus in the east – and how this will affect domestic and global markets in the near future.