EU budget deal

February 09, 2013 - 6:23:17 am

Finally, European Union leaders have agreed a historic budget deal after a marathon 25-hour negotiation which has been likened to a ‘bazaar’. That they have come to an agreement is in itself a major achievement because the debate which preceded the deal was marked by acrimony, tension and even worries about the impact it would have on the future of the EU. The success of the bloc and its ability to carry out projects would depend on the budget at its disposal and the deal can have consequences which would spill into outside the region because of the seminal role the EU plays in global affairs.

The most important feature of the deal is that the bloc has decided to cut back its budget for the first time in six decades. A draft worked out overnight set 2014-20 actual spending or payments at 908.4bn euros ($1.2trn), with an absolute ceiling of 960bn euros for spending “commitments” to the budget. That is just one percent of the bloc’s gross domestic product. Originally, the European Commission had wanted a five percent increase in commitments to 1.04 trillion euros ($1.4trn) -- just over one percent of the EU’s total GDP.

This is definitely an austerity budget and shows that a compromise will not completely heal divisions. British Prime Minister David Cameron, who had demanded a cut or at least a freeze in the near €1trn budget, can claim victory. At the same time, France, along with Italy, Spain and a few others had fought to protect spending it saw as essential to boost growth and jobs at a time of record unemployment. 

One concern is that the cuts will affect foreign aid. Developing countries have expressed concerns at the prospect of aid cuts. The chief of the group of African, Caribbean and Pacific states said that cuts would mean poor countries falling far short of achieving the internationally agreed 2015 Millennium Development Goal of halving the number of people in absolute poverty. It’s said that aid hasn’t been cut, but it will not put the EU on track to meet the UN target of 0.7 percent of gross national income (GNI).

The leaders’ agreement is only part of the battle as there is another important hurdle to clear: the European Parliament must approve it where lawmakers are not in favour of austerity. The heads of the four largest groups in Parliament, which is to vote on the budget in July, said they would not accept the budget “in its current state” as it would not help boost the struggling EU economy. But a final deal is likely to be almost the same as that has been agreed.