18 November 2012

FT: EU makes budget plans without UK

EU officials have begun work on a plan to create a long-term budget without the UK, in a move that reflects mounting frustration that Britain's demand for a spending freeze cannot be reconciled with the rest of the bloc.

Both EU officials and national diplomats have been studying the legal and technical feasibility of devising such a budget, according to people familiar with the discussions, ahead of a two-day summit beginning on Thursday in Brussels, where the EU’s 27 heads of government will try to reach an agreement on the long-term budget.

The plan may be a negotiating ploy to try to put more pressure on David Cameron, the UK prime minister, to compromise. Mr Cameron has staked out the most aggressive position in the debate over the long-term budget, which will cover roughly €1,000 billion in spending from 2014 to 2020, calling for a real-terms freeze from 2011 levels.

Mr Cameron’s officials believe that chances of a compromise deal this week have increased in recent days from about 10 per cent to nearer 30 per cent, but believe the most likely outcome is that negotiations will continue next year. Those Member States seeking to close a deal are most worried about Britain because they acknowledge that Mr Cameron stands to reap big political benefits at home if he issues his veto in Brussels.

The alternative budget being considered in Brussels would be done on an annual basis, which – under EU rules – requires qualified majority votes. By contrast, the traditional long-term budget, which covers seven years, requires unanimity. It would involve passing a raft of legislation on this basis to authorise hundreds of billions of euros in EU development funds, according to diplomats. But one problem is that the revenue component of the budget requires unanimous approval of members states.

Without it, budget rebates for Germany, the Netherlands and Sweden would be put at risk, as well as the system used to collect customs duties and other sources of EU funding.

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