EU Braces for Budget Deadlock After Dutch, French Veto Treaty
June 2 (Bloomberg) -- The veto of the European Union's constitution by EU founding members France and the Netherlands may deepen a rift over the bloc's budget, as Eastern European newcomers seek more funding and richer states in the west try to curb contributions.
The budget ``is dead until the second half of 2006,'' Alexander Stubb, a Finnish member of the European Parliament who negotiated the current budget, said in a telephone interview. He blamed the French and Dutch referendum defeats and a German election due in September that will prevent Chancellor Gerhard Schroeder from making ``any form of concessions.''
France, the Netherlands, Germany, Britain, Sweden and Austria all pay more into the $132 billion budget than they get out of it and want to cut costs. Less well-off countries in the west, such as Spain, and eastern European members such as Poland that joined last year, are pressing for more aid to boost their standard of living. Spain is the only country that approved the constitution in a referendum.
Whether to scuttle or try to salvage the constitution, designed to streamline policy-making in the EU, now threatens to dominate a June 16-17 summit that was to be devoted to the spending plans. That raises the risk of a budget deadlock which would magnify doubts over the bloc's ability to deliver policies for its 450 million citizens as economic growth trails the U.S. for the 13th year in 14.
Those concerns prompted the euro to drop below $1.22 yesterday for the first time since Sept. 21.
`Burning' Need
``Everyone is telling me that now more than ever, after the French vote, and now the Dutch vote, we have a burning need to reach an agreement'' on the budget, Luxembourg Prime Minister Jean- Claude Juncker said at a press conference late yesterday. He said it's his ``firm intention to bring the issue to a successful conclusion'' at the June summit meeting.
The Dutch voted 62 percent to 38 percent against the constitution yesterday, delivering a more resounding ``no'' than France's margin of 55 percent to 45 percent on May 29. The rulebook requires unanimous approval to go into effect.
``It was already by no means certain that we'll get a deal,'' Graham Watson of the U.K., head of the Liberals in the European Parliament, said in an interview. ``Now it will be more difficult.''
France and the Netherlands were already among six nations demanding a seven-year freeze on EU subsidy programs before voters repudiated the bloc's first constitution. The six biggest net payers, while united in pushing for budget cuts, are divided on everything else.
French Farm Aid
France is clinging to its right to a quarter percent of EU agricultural aid, twice its share of the EU population. About 44 billion euros goes to support farmers, a holdover from the 1950s when Europe couldn't produce enough to feed itself and a war- chastened Germany opened its pocketbook to rebuild goodwill with its neighbors.
French President Jacques Chirac, who in 2002 made the EU's expansion to Eastern Europe conditional on farm support staying unchanged through 2013, now has fewer allies in defending the handouts.
``Make no mistake: France's decision inevitably creates a difficult context for the defense of our interests in Europe,'' Chirac said in a nationally televised address after the defeat.
Relative to the size of the economy, the Dutch are the EU's biggest financial backer. The Netherlands paid in a net 2 billion euros, or 0.43 percent of GDP, in 2003, topping the 0.36 percent of Germany and Sweden.
British Rebate
Britain refuses to give up its 5.2 billion-euro annual rebate from the EU coffers, won by Margaret Thatcher in 1984, while the Netherlands, Germany, Sweden and Austria want a cash-back guarantee of their own.
``The rebate is entirely justified,'' John Holmes, the U.K. ambassador to France, said in an interview in Paris on May 31.
As with the constitution, a veto by any one country would kill an accord on the 2007-2013 budget, leaving the EU to negotiate annual stopgap spending plans and casting doubt over projects such as a $1.6 billion airport subway line in Prague.
While equaling only about 1 percent of EU-wide gross domestic product, compared to 40-50 percent for national budgets, the EU budget casts a political shadow much bigger than its economic impact.
Economic Divide
An economic divide has replaced the political one that disappeared when the EU expanded beyond the former Iron Curtain last year. The bloc's four fastest-growing countries are in eastern Europe, led by Latvia with 7.2 percent this year, outstripping the 1.6 percent forecast by the EU for the 12 euro countries.
Seven Eastern countries -- the Czech Republic, Hungary, Slovakia, Estonia, Lithuania, Poland and Latvia -- have per capita gross domestic product below 70 percent of the EU average and the bloc's 10 poorest regions are in the East, EU data show.
The Dutch and French anti-constitution campaigns were fueled partly by fears of low-wage competition from eastern Europe. The average Polish worker earns 7,070 euros annually, compared to 34,620 euros in Germany, according to EU data.
The budget ``will be blocked by the `no,' and Poland and the other accession countries need to see the solidarity from the EU that it showed when Spain and Portugal became members,'' Bronislaw Geremek, a former Polish foreign minister and now a Liberal in the European Parliament, said in an interview.
