11.26.12

Useful Euro Summit?

The latest inconclusive European summit helped clarify the divisions over spending, subsidies, and austerity.

“European Union summit breaks up without agreement” are dead words at this point. In a contest to name the most redundant headline, it would have to be given serious consideration for the top prize.

This latest summit—held last Thursday into Friday, in order to negotiate the budget (or the Multi-Annual Financial Framework, MFF, in Euro-speak) for the next seven years—was shambolic. The president of the European Council, Herman Van Rompuy, and the president of the European Commission, José Manuel Barroso, met with each national leader to discuss demands and proposals in what were supposed to be 15-minute intervals that soon became 35. Dinner—over which the most important negotiations between member states are traditionally conducted—was pushed back to midnight, by which point attendees were merely served cold cuts and coffee. The following day, and after little movement, Van Rompuy abruptly concluded meetings at lunchtime, stating that the leaders of Europe would come back and try again “early next year,” most likely in February.

This is not to say, in spite of the assertion from one member of the United Kingdom delegation that Van Rompuy “f--ked up” the whole thing, that the gathering was a worthless one. While the conference did indeed end in rancor, division, and finger-pointing, it helped to clarify the nature of the schism at the heart of Europe—and to reveal the divisions that exist between the various member states.

The broadest division rests between two parties. The first is the cluster of nations that make a net contribution to the EU and favor a level of spending lower than the €973 billion ($1.26 trillion) proposed by Van Rompuy. (That’s down already from €1.025 trillion floated by the Commission, but still above the €886 billion put forward by the U.K. as a marker prior to the summit). The second group consists of the net recipient states who are seeking to protect the budget from cuts.

As to the latter, Poland led a caucus of central and eastern European nations who benefit a good deal from the European Regional Development Fund, the European Social Fund, and the Cohesion Fund. All of these schemes, which constitute €309.5 billion of the Van Rompuy budget, redistribute central funds to the less-developed nations and regions to be spent on job creation and training, social services, and upgrading infrastructure. Indeed, EU spending in Hungary and Lithuania, for example, accounts for more than 5 percent of those countries’ GDP, and for about 4 percent of GDP in Poland and Latvia.

During negotiations—and in the face of initial speculation that Prime Minister David Cameron would find himself isolated in Europe, just as he was during negotiations over the Fiskalpakt in December 2011—the U.K. came to lead Germany, the Netherlands, Denmark, Finland, Austria, and Sweden in opposing augmented expenditure. Together, they called for a cut of at least €30 billion. The deal tabled and rejected on Friday by Van Rompuy shuffled around the direction of expenditure, but kept in place the ceiling of €973 billion.

Not all of Europe’s larger economies backed austerity, however. Italy, the third-largest gross contributor, argued that “better solutions” needed to be found on cohesion and agricultural spending, with Prime Minister Mario Monti arguing that Italy would not “accept solutions that we consider unacceptable.” Spain, a net beneficiary but the fifth-largest gross contributor, was keen to protect the funds it receives for its peripheral regions such as Catalonia and the Basque country, from cuts to structural funds that have helped pay for its high-speed rail projects, and from farm subsidies.

Dinner—over which the most important negotiations between member states are traditionally conducted—was pushed back to midnight, by which point attendees were merely served cold cuts and coffee.

Indeed, the Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP)—which together constitute €364.5 billion of proposed spending—was a red-line issue for France, the largest receiver of CAP monies to the tune of 0.5 percent of GDP. “There can be no question of us withdrawing even one euro from the CAP,” Prime Minister Jean-Marc Ayrault insisted before the summit. Instead, President François Hollande pushed for cuts to the rebate the U.K. has received from the EU since 1984. This refund—currently €3.5 billion—was negotiated by Margaret Thatcher as compensation for the disproportionate levels of funding France, Spain, and other states with large farming sectors continue to receive from CAP.

In campaigning for the protection of CAP, France found allies in Spain and Ireland while exacerbating the split with Germany, one that has been gradually opening up since Hollande’s election in May. Franco-German cooperation has powered European integration for decades, and the leaders of both nations have typically agreed a joint negotiating position in the days before a major summit. This time, Hollande and Chancellor Angela Merkel found themselves on opposing sides of the austerity versus deficit-spending debate. Merkel thus aligned herself with Cameron, not only in calling for overall restraint, but in championing reform of the European bureaucracy and cuts to the administration budget—€62.6 billion in the Van Rompuy budget.

Such disputation is in the nature of the budgetary process. On the one hand, it is regrettable. Having heads of government take the lead in negotiations through the European Council encourages the formation of MFFs that protect national interests at the expense of what might be useful for the Union as a whole. Both the present and proposed plans are too regressive in character, spending exorbitant amounts on farming and fisheries, and protecting boondoggles like the British rebate and perks for Brussels apparatchiks, while neglecting future challenges pertaining to clean energy and transcontinental transportation and communications.

At the same time, the fact that there is a debate at all over potential cuts highlights the role the council has as a check on the European Parliament and Commission, both of which would only increase the budget at a great rate. Why would turkeys vote for Christmas, after all? What’s more, that the 27-member states have to come to a resolution eventually promotes cooperation and consensus building. In politics, the desire to seek common ground is oftentimes an overrated virtue. But in Europe, where the burden of its awful past is always present, harmony and understanding are very much desirable.

For better or worse, then, when Europe does come up with budget sometime in February, the result will be that other great continental product: a Euro-fudge.