Briefing Influence

  • Following a series of publications from Open Europe on the need to cut the EU budget, EU leaders agreed the first ever budget reduction in February 2013.
  • The first analysis of the figures across various areas of the EU budget, following the historic cut of the EU budget.

The EU’s first real term budget cut (2013)

The EU’s long-term budget Has BEEN cut in real terms for the first time in its history: a measure that Open Europe has long been championing. The UK government and its allies should be given credit for securing this EU Reform success.Source: European Commission.

8 February 2013

A historic cut – what does the  EU budget deal mean for the UK?

The EU budget deal means that, for the first time, the EU’s long-term budget will be cut in real terms. The UK government and its allies should be given credit, especially since this budget will be for 28 rather than 27 countries. Compared to the current long-term EU budget (2007-2013), so-called ‘commitments’ will be cut by €34bn and ‘payments’ will be cut by €35bn. This represents a 3.4% cut and a 3.7% cut respectively (in real terms). The large gap between these two amounts – needed to secure a deal – could potentially cause issues down the line.

The UK’s gross contribution is likely to fall (as a share of UK GNI) but the net contribution could still increase as more money will be sent to the new EU member states – such spending isn’t covered by the UK rebate (which was preserved in full). However, it’s in the new member states that regeneration cash in particular can have the most comparative impact, so the UK government has done the right thing and this should not be seen as a “defeat”.

However, the European Parliament could still scupper the deal and, in a very odd move, some MEPs have called for a “secret” ballot, although they can only approve or reject the deal, not amend it.

However, the EU budget is still spent on the wrong areas

Overall, due to the inherent bias in EU budget talks towards the status quo, and the inbuilt stand-off between France and the UK (proportionally Paris contributes the most towards the UK’s rebate from the EU budget), the EU budget will remain inefficient and largely out of step with economic reality.

It is positive that the spending on these areas will be less than in the previous budget period. In particular, direct payments under the CAP have fallen €62.5bn in real terms – a positive development. However, the original Commission proposal and the proposal presented by Van Rompuy in November both saw more spending on areas such as R&D and energy infrastructure (via the so-called “connecting Europe facility) and even less on CAP and regional funds.

The political significance: as Germany goes, so goes Europe

The political significance of these talks was not so much the absolute numbers – after all the cut amounts to 0.3% of EU-wide GNI. The UK, the Netherlands, Sweden, Denmark and Germany, formed an alliance around a real-terms cut, outflanking France and Italy. The UK Government should be given credit for pulling this one off – it isn’t permanently isolated as some commentators would have us believe.

Unusually, François Hollande and Angela Merkel did not reach a common position going into the talks. This was another step towards a more self-confident Germany, which doesn’t simply write blank cheques – and another spanner in the works of the Franco-German engine. As expected, Angela Merkel acted as the lynchpin, conducting smaller meetings with Cameron and the ‘Northern bloc’ on the one hand, and Hollande and the ‘Southern bloc’ on the other. More than ever, Berlin holds the balance of power.

There will be a temptation in Westminster to see this as a green light for the UK government to go all in – and that Cameron’s strategy to negotiate a new deal in Europe followed by a referendum will get the unwavering blessing of the German Chancellor. But this would be premature. Both at home and abroad, Angela Merkel thrives on her role as a broker, constantly playing different alternatives against each other depending on the issue at hand. The lesson for the UK is that win enough support for your position among like-minded member states and Germany will back you.