Germany gets tough as EU nears budget overhaul deadline

Date: 25/02/1999

By Simon Taylor and

Tim Jones

GERMAN Chancellor Gerhard Schröder will isolate EU government leaders from their most trusted ministers and aides at this week's summit in a bid to break months of deadlock over the Union's long-term budget.

In a letter to fellow leaders outlining his plans for a special summit in Bonn tomorrow (26 February), Schröder told them: “I think we should reduce the number of accompanying people to what is absolutely necessary; no more than four. In the conference room itself, only the heads of state and government and the president of the Commission should be present.”

By 'hothousing' the group of leaders, the chancellor hopes to force France, the Netherlands, Spain and the UK into early concessions on the EU's 2000-06 spending plans in time for a deal in Berlin on 24-25 March.

“We should keep in mind that, on this day, it is not a question of reaching final decisions but developing approaches for possible compromises within an overall package, to prepare the ground for a final decision in Berlin,” Schröder stated in his letter.

Bonn is stepping up the pressure for a deal by warning of an impending political crisis and even a further weakening of the euro if no agreement is reached next month. “A delay would be understood as a sign of Europe's inability to act, of political divisions in Europe; it could even have effects on currency stability,” Deputy Foreign Minister Günther Verheugen said in an interview with European Voice.

The 6&percent; fall in the value of the euro since its inception, to 1.0970 dollars this week, has rung alarm bells at the European Central Bank, where officials fear that a rise in import prices could feed inflation.

In the run-up to the Bonn summit, France and Germany were at loggerheads over Schröder's wish to establish a €283.5-billion ceiling on farm subsidies over the next seven years before agreeing fundamental reforms to the Common Agricultural Policy.

In Bonn, the chancellor wants to focus on cracking three critical elements of the budget package: devising new revenue streams for the EU; compensating fiscally overburdened governments; and setting spending caps for farm subsidies and regional aid.

Only a minority of governments, led by Germany and the Netherlands, are still pressing for the creation of a new 'mechanism' to refund countries deemed to be paying more than their fair share into EU coffers.

Given their failure so far to win over France, Italy and Spain, diplomats expect Schröder and Dutch Premier Wim Kok to round on British Prime Minister Tony Blair at the summit. Both leaders believe Blair should put the annual €3-billion rebate the UK receives for excessive contributions back into the pot to help pay for a 'generalised correction mechanism'.

Schröder will also seek the support of the Spanish, Irish, Portuguese and Greek premiers for a flexible cap on farm spending in 2000-06 of €283.5 billion and on regional aid of €200 billion. This would amount to a real-terms freeze of 80&percent; of the EU's budget.

At recent meetings of finance and foreign ministers, 11 governments expressed their support for these spending ceilings but Spain, Ireland, Portugal and Greece stood firm in opposing them.

Member states are closer to agreement on 'stabilising' spending on internal policies (education, research, transport and employment programmes), and on foreign policy.

A draft budget accord prepared by Bonn suggests that internal spending should be €5.9-6.1 billion in 2000 and rise to no more than €6.7 billion in 2006. Expenditure on foreign policy initiatives would be even tighter, starting at €4.6-4.7 billion, and rising to no more than €4.85 billion.