Nov. 22 (Bloomberg) -- A sum equal to 1 percent of the European Union’s gross domestic product will devour 100 percent of the bloc’s political energy when leaders square off over subsidies for everything from bridges and windmills to olive trees and the dwindling honeybee population.
The euro debt crisis and a deadlock over Greek aid raise the stakes for EU budget talks starting today in Brussels, testing whether the 27-nation bloc is heading for more integration and whether Britain, a foe of EU spending since the days of Margaret Thatcher, will finally say it’s had enough.
Left to economists, a deal on a proposed 1.033 trillion-euro ($1.3 trillion) package for the years 2014-2020 could come together quickly. Political leaders -- already sparring over Greece, the fate of the euro, banking union and EU expansion -- will take longer. The summit may run into the weekend and even then, as in 2005, end in stalemate.
“Resistance from some of our partners with other priorities will not be easy to overcome,” Prime Minister Pedro Passos Coelho of Portugal, a dual beneficiary of EU subsidies and debt-crisis aid, said in Lisbon yesterday. “It is crucial to reach an agreement in a timely manner not only for the bloc’s policies to be effective but also because it would lend enormous credibility to European policy.”
Veto threats and uncrossable red lines are typical fare in EU budget negotiations every seven years. The 2012 rendition has run true to form. A clique of net payers including Britain, Germany, Sweden and Finland has insisted on a spending freeze or reduction, while fragmenting over other demands.
France, the biggest beneficiary of EU farm aid, wants subsidies to keep flowing to its dairy producers, cattle breeders and wheat growers. Even when it comes to bees, France is ahead. It got the biggest share, 529,615 euros, of EU-wide financing for 2012 research into rising bee mortality.
Britain’s bees got half as much, underscoring the U.K.’s longstanding complaints about European agriculture spending. That perceived injustice led to the rebate won by Thatcher in 1984, something sacred to every U.K. government since. For its part, Germany, both the EU’s largest economy and the one with the deepest ties to subsidy recipients in eastern Europe, is more intent on a compromise.
“What’s at stake are Europe’s arrangements for the 2014-2020 period,” German Chancellor Angela Merkel told lawmakers in Berlin. “We might have to meet again early next year.”
On the other side, a 17-country group calling itself the Friends of Cohesion, comprising net recipients, warns against cuts in financing for things like rail lines and water-treatment plants, viewing European aid as seed capital that draws investment into projects to develop poorer regions.
Only an amount equal to 0.1 percent of EU-wide GDP remains in dispute, said EU President Herman Van Rompuy, a former Belgian prime minister who will lead the summit. Van Rompuy last week proposed a package of 973 billion euros, down both from the original proposal and from the 994 billion euros for the current seven-year period.
Infrastructure financing of 462 billion euros makes up the biggest share in the Van Rompuy draft, followed by 364 billion euros of farm aid. Britain is also taking aim at the 63 billion euros set aside for personnel costs, saying the EU’s roughly 50,000-strong civil service is bloated and overpaid.
Van Rompuy plans one-on-one meetings with selected leaders during the day and will release a revised proposal when the summit starts at 8 p.m. Security staff have been put on standby and extra helpings of snacks ordered in case the summit drags through the weekend. In the absence of a deal by late 2013, the EU would roll over its annual budget.
The Brussels-based European Commission, which oversees the subsidies and authored the original spending roadmap, made a line-by-line defense of EU-financed projects ranging from the “Erasmus Plus” scholarship program for scientists to the “Connecting Europe Facility” to fill missing links in the energy grid.
“I see a major threat,” commission President Jose Barroso told the European Parliament in Strasbourg, France. “Compromises have to be constructive. They’ve got to be about strengthening Europe and not about pulling Europe apart.”
Countries send money to Brussels based on size and wealth. Virtually every country claims it pays too much in or gets too little out, even if the numbers tell a different story. Germany, for example, held onto the title of biggest contributor in absolute terms in 2011, delivering a net 9 billion euros.
Relative to GDP, the top donor was Italy, which was simultaneously struggling with a debt crisis-induced increase in borrowing costs. Italy shipped a net 0.38 percent of GDP, besting the 0.36 percent of Belgium and the Netherlands. Germany came in fourth on this measure, at 0.34 percent of GDP.
Emboldened by that unaccustomed status, Italy is also in a veto-wielding mood. The Italian government would block a budget accord “if it were harmful to our citizens, if it wasn’t balanced and didn’t correspond to our criteria of solidarity and efficiency,” European Affairs Minister Enzo Moavero Milanesi said this week after a preparatory meeting in Brussels.
All 27 countries need to sign off on the budget, and the net donors aren’t the only ones threatening to walk away. Latvia, which pocketed 3.62 percent of GDP to make it the third-biggest net recipient last year, would say no “if our interests are completely ignored,” Prime Minister Valdis Dombrovskis said on Latvian television yesterday.
The summit risks re-enacting the arguments made last time around, when then-French President Jacques Chirac hurled accusations of “shameful” and “unreasonable” at then-U.K. Prime Minister Tony Blair for foisting lower subsidies on his purported allies in eastern Europe.
It took two summits to strike a bargain. At the first one, in June 2005, eastern leaders sought to break a stalemate by trudging back into the meeting room with a vain offer of last-ditch concessions. It wasn’t until December, with Blair trapped into a honest-broker role as the summit’s chairman, that a pact came together.
“It was a nightmare of detail, political cross-currents, national pride, presidential and prime ministerial ego, all played out in vivid public technicolor,” Blair wrote in his memoirs. “The meeting rooms are so ghastly that you always have an incentive to agree and get out. We got a deal which actually left Britain paying roughly the same as France for the first time. The U.K. media called it a betrayal, but frankly they would have done that even if I had led Jacques Chirac in chains through the streets of London. And by then I was past caring.”
Britain is now more estranged from the rest of Europe, the product of its own economic ills and the euro zone’s three-year battle to forge a more closely managed system in response to the debt crisis. A foretaste came last December, when Cameron found only one ally -- the Czech Republic -- to oppose a German-inspired deficit-limitation treaty for the euro area.
All 17 euro countries were in favor, as were eight potential additions to the euro economy, including Poland. Outnumbered 25 to two, Cameron was powerless to block the fiscal treaty; all he could do was prevent it, for now, from being elevated to EU constitutional status.
With Tory party allies calling for a popular vote on a possible U.K. exit from the EU, Cameron looked to Thatcher, the icon of British conservatives, for inspiration before heading to Brussels. His message was that the refund, worth 3.6 billion euros in 2010, is inviolable.
“The rebate negotiated by Margaret Thatcher is an incredibly important part of Britain’s position for getting a fair deal,” Cameron said yesterday in Parliament in London.
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