Brussels, 18/12/2005 (Agence Europe) - In the small hours of 17 December, the European Council managed to reach agreement on the Financial Perspectives for 2007-2013. The overall budget was set at EUR 862.363 bn (1.045% of EU GNI) with gradual phasing out of the British rebate on all enlargement expenditure (apart from the Common Agricultural Policy) by 2013. There is also a commitment to a 2008 review of EU spending for the next budget (2014-2020).
The European Council also formalised the decision to give the Former Yugoslav Republic of Macedonia (FYROM) candidate country status (see EUROPE 9091), but the question of cut-rate VAT has been postponed and will now be dealt with at the 24 January ECOFIN Council.
Speaking to reporters, the President of the European Council, Tony Blair, welcomed the agreement, but has come in for a volley of insults from the British media for having given up the British rebate without getting any commitment from France to give up lavish farm subsidies. The Financial Perspectives 2007-2013 'would ensure Member States in Eastern and central Europe got the development cash they needed', which is a good investment for both the EU and the UK because everyone will benefit in terms of trade, economic growth and general prosperity, explained Tony Blair. He said it was simply fair for the UK and all the other old Member States to pay their fair share of structural aid for the new Member States but the British rebate still fully exists for all expenditure not directly linked to the economic development of new Member States, like farm subsidies (direct farm payments and market subsidies). Blair said that in real terms, the British rebate would increase, rather than fall, over the next seven years and the new budget deal put Britain's contribution on a par with nations like France for the first time. Tony Blair added that the UK did reasonably well out of the deal. He explained the UK had always said it was prepared to pay for the economic development of new Member States, but would not agree to give up the rebate on spending on old Member States and farm subsidies for new Member States until there was full reform of the Common Agricultural Policy.
Tony Blair explained that the UK had won a commitment to a 2008 review of EU spending, looking at all aspects of the budget (based on a European Commission report) to prepare the 2014-2020 budget. This should pave the way for a more rational budget, with the 2013 budget talks no longer being dominated by talks about rebates or the CAP, but rather by determining the areas where a modern and competitive EU should put its budget priorities. The 17 December agreement and the prospect of a fundamental rehaul of EU spending will allow the EU in the future to prepare Financial Perspectives that are better suited to the challenges of modern Europe, said Tony Blair. Asked about the danger of the European Parliament rejecting the budget agreement, the British prime minister only commented that agreement had to be reached.
At a press conference, the President of the European Commission, Jose Manuel Barroso, thanked Tony Blair for the excellent outcome and his loyal cooperation during the British Presidency. The budget agreement sent a very important positive signal, he said, that the EU was not paralysed but on the move. The cost of failing to agree would have been astronomical, added Barroso. He said that during the talks, the Commission had always defended Europe's interests and although the Commission had not got everything it wanted, the final agreement did make significant improvements on the British Presidency's first draft, including several proposals put forward by the Commission, like a significant rise in the overall budget and region aid for new Member States (compared with the British Presidency's 5 December budget proposals); greater flexibility for new Member States on actually using EU funding; a bigger reduction in the British rebate; establishing a Globalisation Adjustment Fund; and introducing a budget review clause (suggested by Barroso in June this year). On the budget review commitment, the European Commission will be unveiling a 'no holds barred' report in 2008 on changes to be made to ensure the EU can achieve its ambitions in an open, competitive world, said Jose Manuel Barroso.
Details of agreement on 2007-2013 budget for the enlarged EU
Overall spending. The compromise sets the overall budget at EUR 862.363 bn in terms of spending for 2007-2013, equivalent to 1.045% of EU GNI (gross national income). This is EUR 13.060 bn more than in the British Presidency's second budget plan (published on 14 December) and EUR 9.15 bn less than the Luxembourg Presidency's suggestion in June this year (EUR 871.514 bn, 1.06% of EU GNI) that was rejected by five Member States (the UK, the Netherlands, Spain, Sweden and Finland). The European Commission had suggested EUR 994.253 bn or 1.21% of EU GNI, and the European Parliament 974.837 bn or 1.18% EU GNI.
Competitiveness. (Research, trans-European networks, education, an integrated Common Market and social policy.) The budget deal is for EUR 72.01 bn over seven years, as suggested by the Luxembourg Presidency compromise suggestion of June 2005. In addition, the European Council calls on the European Commission and the European Investment Bank together to examine the option of increasing R&D funding by up to EUR 10 bn through a funding mechanism to share risks and boost private sector investment in R&D.
The European Council has decided to set up a Globalisation Adjustment Fund to provide additional aid to workers made redundant because of major changes in global trade to help them retrain and find work elsewhere. Strict criteria will be set for the funding, in line with the actual economic impact of the redundancy package and its impact on local, regional and national economies. The maximum amount available will be EUR 500 mil a year. No specific funding mechanism is set out in the budget deal to cover the new fund, which will be funded from other areas of the budget where less money was used than earmarked.
In order to avert the danger of nuclear accidents in the EU, the European Council wants the Budget Authority to provide aid for decommissioning various nuclear power plants in 2007-2009. Some EUR 375 mil is earmarked for Unit V-1 of the Jaslovske Bohunice power plant in Slovakia; EUR 865 mil for the Ignalina plant in Lithuania; and EUR 210 mil for the Kozloduy plant in Bulgaria.
Cohesion. (Structural Funds and Cohesion Funds). The agreement sets spending on cohesion at EUR 308.119 bn, 0.37% of EU GNI (more than EUR 9 bn more than the British Presidency's 14 December budget plan). The ten new Member States will get around EUR 157 bn over the seven years, EUR 4.7 bn more than in the 14 December draft and EUR 7 bn less than in the Luxembourg Presidency's draft of June 2005). The new Member States have also been given greater flexibility for actually making use of the funding (the deadline for making use of the funding has been increased from two to three years and the level of co-funding (the amount the countries themselves have to come up with) has been reduced from 20% to 15%.
Of the overall EUR 308.119 bn spending, EUR 252.234 bn is earmarked for convergence, including EUR 61.518 bn for the Cohesion Fund; EUR 12.487 bn for regions for which cohesion funding will be gradually phased out; and EUR 48.386 bn for regional competitiveness and employment (including EUR 10.368 bn for regions where aid is gradually being phased out). 'Territorial cooperation' will get EUR 7.5 bn.
Spain has been granted EUR 3.25 bn over the 2007-2013 seven year period to cover loss of Cohesion Fund money. The European Council granted Spain extra spending as a sweetener, namely EUR 2 bn under the European Regional Development Fund (ERDF), EUR 50 mil for the Spanish enclaves of Ceuta and Melilla in Morocco and EUR 100 mil for the Canary Islands. Italy has also been granted a sweetener - EUR 1.9 bn more in Structural Fund money, as has France for Corsica and the French region of Hainault (EUR 100 mil). EUR 300 mil in aid will be paid to regions of East Germany. The final budget agreement sets out a series of other sweeteners: additional ERDF aid for EUR 206 mil for the regions of Lubelskie, Podkarpackie, Warminsko-Mazurskie, Polkaskie and Swietokrzyskie in Poland (the five regions of the EU with the lowest GDP per inhabitant); EUR 1 bn for Poland to hedge changes in the zloty-euro exchange rate; EUR 140 mil for the region of Kozep-Magyarorszag in Hungary; EUR 200 mil for the region of Prague; extra aid for ultra-peripheral (remote) regions of the EU; EUR 200 mil for the Northern Ireland peace process; EUR 150 mil for various regions of Sweden; EUR 47.7 mil for Estonia and EUR 81.85 mil for Latvia; EUR 150 mil from the ERDF for regions of Austria on the EU's former external borders' and EUR 100 mil for Bavaria.
The budget agreement confirms the British Presidency's idea of increasing the rate of EU co-funding for the ten new Member States, Romania, Bulgaria, Greece and Portugal from 80% to 85%. These are the 14 poorest countries in the EU and from 2007 until 2010, the n+3 rule will apply (in other words, they will be given an extra year to actually spend EU funding). For these fourteen countries, unrefundable VAT is booked as eligible expenditure when calculating these countries' contribution to EU funding (for all other Member States, it is not usually possible to book unrefundable VAT as eligible expenditure).
Farming and fisheries. The final budget agreement confirms the decisions made by the October 2002 European Council setting direct payments and subsidies until 2013, namely a total of EUR 293.105 bn. This sum will also cover the EUR 8 bn in farm aid earmarked for Bulgaria and Romania. The new Rural Development Fund will get EUR 69.25 bn, including EUR 40.73 bn currently disbursed from the Guarantee section of the EAGGF. At least EUR 33.01 bn will be granted to the ten new Member States, Bulgaria and Romania. Of the remaining EUR 36.24 bn, EUR 18.91 bn will be divided among the old EU15 Member States (the European Commission will be proposing how the sum will be broken down) and EUR 3.57 bn will be shared by Austria (1.35 bn), Finland (0.46bn), Ireland (0.50 bn), Luxembourg (20 mil), France (0.1 bn), Sweden (0.82 bn) and Portugal (0.32 bn). If they desired, Member States will be able to transfer up to 20% of their farm subsidies and farm market aid to rural development programmes.
The new Common Fisheries Fund, made up of money from regional funding, convergence and regional competitiveness and employment, will be EUR 3.8 bn.
Freedom, security and justice. (Asylum, immigration, border control, illegal immigration, human trafficking, terrorism, organised crime, fundamental rights and strengthening legal cooperation.) Annual spending growth in real term of 15% on 2006, with total spending reaching EUR 6.330 bn.
Citizenship. (Culture, youth, broadcasting, health and consumer protection.) Spending is 1% up on 2006 in real terms throughout the seven-year period. Overall spending: EUR 3.640 bn.
The EU on the world scene. (Pre-accession funding, stability, development aid and economic cooperation, European Neighbourhood Policy, partnership, humanitarian aid and macro-financial aid.) Spending is up 4.5% on 2006 to EUR 50.01 bn. Cooperation with ACP countries will get EUR 22.682 bn at current prices for 2008-2013 under the existing intergovernmental heading of the European Development Fund (EDF). Money will be paid into the EDF as follows: 20.50% from Germany, 19.55% from France, 14.82% from the UK, 12.86% from Italy and 7.85% from Spain. Emergency aid loan guarantee funding will be funded from this heading, with a budget of EUR 221 mil. The European Council invites the Budgetary Authority to allow a substantial increase in spending on the common foreign and security policy from 2007 onwards to meet foreseeable requirements and allow reasonable room for manoeuvre for unforeseen events.
Administrative expenditure. Compared with the British Presidency's 14 December plan, the agreement cuts spending on administration in the EU by EUR 1 bn to EUR 500.300 bn.
Own resources. Own resources contributions are kept at the current level of 1.31% of EU GNI for commitment credits and 1.24% of EU GNI for payment credits. To meet the requirements of the biggest net contributors to the EU (the Netherlands, Germany, Sweden and Austria), the deal alters the own resources decision: the VAT call rate (in practice, the uniform rate) is frozen at 0.30%; only for 2007-2013, the VAT call rate is set at 0.225% for Austria, 0.15% for Germany and the Netherlands, and 0.10% for Sweden; only for 2007-2013, the Netherlands' gross annual contribution will be cut by EUR 605 mil a year and Sweden's by EUR 150 mil. These measures will allow the Netherlands to reach their target of a cut in their contribution to the EU budget of EUR 1 bn a year.
British rebate. If no changes had been made, the British rebate would have been between EUR 50 bn and EUR 55 bn over the seven year period (2007-2013). The UK finally agreed to cut the rebate by EUR 10.5 bn over the seven years. Under the final deal agreed by the European Council, the British rebate (budget adjustment mechanism) is retained, as are the cuts in the contribution to the British rebate for Germany, Austria, Sweden and the Netherlands (as agreed at the 1999 Berlin European Council). By 2013, the UK will have to fully contribute to funding the cost of enlargement (the new Member States joining the EU after 30 April 2004, i.e. the ten new Member States plus Bulgarian and Romania), with the exception of all farm spending (farm payments, market expenditure and rural development spending). The reduction will be phased in (20% of enlargement costs in 2009, 70% in 2010 and 100% in 2001 at the earliest and 2013 at the latest).
Budget reform. The European Council agreement instructs the European Commission to make an in-depth review of all EU spending (including the Common Agricultural Policy) and all EU income (including the British rebate) and report back in 2008-2009. The European Council will then decide on all issues covered by the review. This seems to open the door to amending the EU budget before 2013, as desired by the UK and Sweden among others.
President Chirac says perfect cooperation with Germany has helped Europe move on
At a press conference following the European Council, President Chirac of France said he thought it was a good agreement for the EU which would be given itself the resources it needed to fund its ambitions and common policies, along with enlargement. This outcome, he said, responded to EU demands for solidarity, fairness and stability and also met France's requirements. He said there was undeniable overall political satisfaction with the deal, despite some frustration among Member States that would have preferred a little more. He said the talks had revealed that cooperation between France and Germany had been constant and perfect at every moment and that was important for Europe. Chirac said he was delighted the EU was moving on and the experience had proved that when France and Germany agreed perfectly among themselves, the EU project progressed normally.
Chirac said it was important to underline the importance of Tony Blair's gesture, adding that the British Presidency had led the talks remarkably, with plenty of courage and intelligence because it had taken huge courage to agree to challenge benefits in a difficult political situation. The gradual change in the British rebate would enable the UK, he said, to play its normal role in the cost of enlargement, apart from market subsidies of course. During the talks, Jacques Chirac admitted that the sticking point had focussed on deciding how to cut the rebate and the UK's demand for the cut to be spread over the seven years.
France said the budget review commitment was a matter of principle rather than self-interest, said Chirac. He argued it was legitimate to discuss the structure of the budget for common policies, like the CAP, at the right time, but not to cut previous commitments. The UK wanted changes to be made before 2013, but such changes would not have been unanimously agreed, said Chirac, because France would not have agreed with a decision it didn't want.
Angela Merkel says the European Council gave a sign of hope
The long wait was worth it, said the German Chancellor, Angela Merkel, to a press conference. It had been her first European Council and she described the budget agreement as a sign of hope, meeting the expectations of Europeans. The agreement guaranteed that the EU would be able to act, she said, acknowledging that the deal was less than suggested by the Luxembourg Presidency. Without the Luxembourg Presidency's work, said Merkel, the outcome at the December European Council would not have been possible. She said the heads of state had included Jean-Claude Juncker (the Luxembourg pm) in their thanks to Tony Blair. Merkel welcomed the cut in the Birth rebate that would lead all countries to share the cost of funding enlargement. She also welcomed the commitment to review the budget in a fast-changing world. Germany had met Polish demands for greater aid for disadvantaged east Polish regions and had been granted flexibility for East German regions and extra funding for the border regions of Bavaria. Germany's contribution to the European Development Fund has been cut slightly because of adjustments in the way funding is carved up, pointed out Merkel, adding that the EDF was not actually covered by the Financial Perspectives. Merkel said Germany had played an important role and that this had been the result of good cooperation with France. In response to a reporter's question about the lessons to be learned from the Summit, Merkel said 'not to give up'. Germany's new foreign affairs minister, Frank-Walter Steinmeier, was radiant at the press conference, standing alongside Merkel and expressing delight at the success of the talks following the French and Dutch no votes in the referendums on the European Constitution and the failure to agree on the EU's budget back in June.
Jean-Claude Juncker says the deal is very close to the Luxembourg Presidency's proposals, but the European Parliament would be deciding on the figures
The 17 December decision is almost identical to the proposal put forward by the Luxembourg Presidency in June, to within 0.10%, said Luxembourg prime minister Jean-Claude Juncker, saying good eyesight would be needed to spot the difference. He said the atmosphere at the end of the talks had been quite good. Tony Blair himself praised the efforts by Luxembourg, which had made success possible. Jean-Claude Juncker said he would have preferred a more ambitious deal, but told reporters he was almost convinced that the European Parliament would ensure it retabled the figures Luxembourg had proposed when negotiating with the Austrian Presidency. The further six months that were needed to reach the December agreement had not been a waste of time because good processes need time to reach the necessary maturity, he said.
Netherlands welcomes EUR 1 bn annual cut in Dutch contributions to EU
Dutch prime minister Jan Peter Balkenende said he was particularly delighted with the final agreement following long work to win a cut in the excess contribution to the EU budget paid by the Dutch. Dutch foreign minister Bernard Bot said the Dutch had won a rebate of EUR 1 bn a year, or 61 euros a year per inhabitant.
Guy Verhofstadt: 'Acceptable agreement'
Belgian prime minister Guy Verhofstadt said the European Council budget agreement was not perfect or pretty but it was acceptable. He said it was far from the proposals foreseeing EUR 8 bn more than the actual agreement but given the tenacity of Josep Borrell, the European Parliament would be able to take the final step and improve it. Verhofstadt said the most important thing was the fact the budget tended to reaffirm solidarity and gave EUR 16 bn for improving the situation of the new Member States without ignoring funding for R&D, innovation and rural development. The Belgian pm said the heads of state had used the extra money for the future of the EU rather than for sweeteners for some countries. Verhofstadt said it was important to keep promises made to new Member States while not discriminating against net contributing countries. Drawing lessons from the tricky negotiations, Verhofstadt warned that this way of negotiating the budget was not suitable for the future because nobody mentions the interests of the EU and there is no transparency. It would be better to start the talks on the next budget from scratch and actually discuss what the EU really needs.
Polish are pleased
Polish prime minister Kazimierz Marcinkiewicz, clearly delighted at the deal, said he had won a victory tasting like the finest French champagne. He added that everyone had won a great victory, with a budget for solidarity for the new Member States. He said he wanted agreement even without a deal on the British rebate. The Polish prime minister welcomed the EUR 60 bn granted for regional policy (one fifth of the Cohesion Fund budget) in addition to the extra EUR 880 mil for the five poorest regions of the EU, are all in the east of Poland, rather than the money going to the ex-DDR as originally planned. This is a gesture of solidarity, thank you very much, said Marcinkiewicz.
Zapatero: a good day for Spain and a good day for Europe
Spanish prime minister Jose Luis Zapatero told reporters it was a good day for Spain and a good day for Europe. Fairness, solidarity and innovation had been taken into account. On solidarity first of all, Spain would be able to benefit from EU funding for seven more years. On fairness, the agreement fairly shared costs among the Member States. On innovation, Spain needed to boost productivity and competitiveness and the deal provided a good basis for modernisation. Zapatero also welcomed the extra funding for immigration, particularly under the EU's Neighbourhood Policy to help countries where illegal immigrants hail from or travel through (like Morocco). The Spanish prime minister felt that Europe's attitude had been very positive and it had retained solidarity with Spain despite the EU enlarging to new Member States.
Karamanlis is delighted, describing Tony Blair as acting as a European leader
Greek prime minister Costas Karamanlis said he was delighted at the outcome, not only in terms of what had been won for Greece but also because it was an important day for the entire European Union. Karamanlis said he was pleased that any changes to the CAP would not be possible before 2013, and described Tony Blair as acting as a European leader.
Bertie Ahern: Tony Blair demonstrated great courage
Three cheers for Tony Blair, said Bertie Ahern, the Irish prime minister, describing the initial agreement on the EU budget as a major success. He said Bertie Ahern had demonstrated great courage by agreeing to the compromise on the British cheque. The talks had gone well, he added, with a little extra for regional development and the Northern Irish peace process. He pointed out that Ireland would become a net contributor to the EU budget in 2011 or 2012.
A good agreement for Europe and a good agreement for Sweden
The Swedish prime minister, Goran Persson, said it was a good agreement for Europe and was also a good agreement for Sweden. He said Sweden had not got all it wanted, but had got enough. Persson said the deal would be useful for the future of the EU because there was a commitment to review the gigantic structure of the budget. He said the British Presidency had made that possible.
Happy Hungary
Hungary had blocked progress for a while during the talks in an attempt to win more money, but said it was happy with the final deal because it gave Hungary EUR 1 bn more than in the previous British budget bid. Per head of population, Hungary is second to the Czech Republic in terms of receiving the most EU funding among the ten new Member States. Hungary is also pleased with the increased flexibility in how to use EU funding.