Walker's World: UK survives EU budget row

By MARTIN WALKER, UPI Editor Emeritus  |  Nov. 26, 2012 at 12:04 AM
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VIENNA, Nov. 26 (UPI) -- It came as no surprise that the 27 heads of government of the European Union failed to agree on the bloc's next trillion-euro budget. But it was a surprise that Britain wasn't isolated and found key allies in Germany, Holland and Sweden to support its call for real cuts in planned future spending.

The European media had been filled for weeks with speculation about a Brexit, a British withdrawal from the European Union, partly pushed from Europe and partly pulled by the British.

Under this scenario, the push would come from the eurozone members who want more centralized control over the budget of nation states and over the financial system as a whole. Seeing this as an assault on the City of London, Europe's dominant financial center, the euroskeptic British would then pull Britain further and further from its EU partners until the link finally snapped.

It could still happen but the cleavage now looks both less likely and less immediate. German Chancellor Angela Merkel, despite her frustration with the lukewarm British approach to Europe, has signaled that she wants the British to remain.

And so she should. A British withdrawal wouldn't only leave the European Union less able to play much of a role on the world stage, it would also rob German of one of its few free-market and free-trading allies in Europe.

More to the point, it would mean that the British would stop pumping some $5 billion a year more into the EU budget than they take out. Germany, which already contributes more than $10 billion a year, would have to make up the lion's share of the consequent hole in EU finances.

Merkel's position also underlined the real and growing strains in the traditional partnership between France and Germany, hitherto the crucial locomotive of the entire European project. Nicolas Sarkozy, the last French president, cleaved so closely to Merkel (a fellow moderate conservative) that the duo was known in EU circles as "Merkozy." The relationship with Sarkozy's successor, the Socialist Francois Hollande, is less warm on both a personal and an ideological level.

Hollande has sought to forge an alliance of southern states with Italy and Spain to counterbalance Germany's growing weight in European affairs. As the crisis over the euro currency grinds on, Hollande has challenged Merkel's insistence on sending cuts and urged more spending to encourage growth. More recently Hollande has been wooing the eastern European states like Poland, Romania and Bulgaria, which like France do well out of the EU farm subsidies fund, to insist that the farm budget not be cut.

The key to this process in the net payments per head into the EU budget. Every man, woman and child in Germany pays about 92 euros a year more to the European Union than they get in return. The French pay 72 euros per head more than they receive, the British 75 euros a head more, the Italians 78 euros more, the Dutch 113 euros more and the Danes and Swedes each pay 117 euros more.

The British would be paying 124 euros more per head were it not for the famous rebate won by Margaret Thatcher 30 years ago, on the reasonable argument that a major food importer like Britain was disproportionately punished under the EU farm budget. The French have never forgiven her nor ever forgotten that rebate and they demand at every EU budget meeting that it be surrendered.

Since EU budgets run for seven years the bloc's last budget crisis was in 2005 when Tony Blair was British prime minister and Jacques Chirac was the French president. Under intense pressure, since at the time Britain's income per head was higher than that of Germany or France, Blair agreed to a reduction in the rebate but only on the firm condition and the sworn promise of Chirac that the swollen EU farm budget would be rationalized, reformed and cut.

Chirac's promises proved almost worthless. The farm bill still consumes about 40 percent of the EU budget, and still leaves the European Union as a major food importer. The figures are usually distorted by the way Europe calculates its import and export bill by putting food and drink together.

In 2010, the European Union exported $9 billion worth of spirits and $8.6 billion worth of wine, which helped produce a modest trade surplus of $11.6 billion on the agriculture (food and drink) account. Adding the income from wines and spirits meant that the deficit on the food account, mainly for animal feed and fish, was disguised. And yet under the bizarre rules of the European Union's farm policy, farmers are paid to leave their land untilled and the union's own fisheries (mostly British) have been overfished close to the point of extinction.

So the British are unlikely to fall for any more French promise on farm reform, just as the French won't give up their relentless attacks on the British rebate. This time, Merkel refused to fall for the French arguments, accepting that the British were right to say that it was absurd of the European Union to demand a real increase in its budget when EU member states were trying to cut their spending.

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