Jean-Claude Juncker, Luxembourg’s Prime Minister and current EU President, described ahead of the June 16-17 European Council how an agreement on the European budget for 2007-2013 could prove that “Europe has not been derailed” despite the rejection of the Constitutional Treaty in the French and Dutch referendums this May. Nonetheless, an agreement over the budget, though not impossible, may well be difficult - particularly over the question of Common Agricultural Policy (CAP) finances. Many aspects of the negotiations could well be tense given the No’s to the European constitution, the UK’s rigid defence of its 21-year-old budget rebate and a German general election on the horizon which leaves Gerhard Schröder limited room for manoeuvre. Matters are made no easier by the fact that spending is just as much a sore point as revenue for the 25 member states.
Tensions over spending
The likelihood of the EU continuing to devote 45% of its total spending to the CAP is fuelling a debate which has raged for several decades. It has become particularly fierce with the last two waves of EU enlargement. The ranks of those countries who lobby for a similar or increased CAP budget have been swelled by the accession of firstly small rich countries with interventionist and protectionist traditions (Austria, Finland and Sweden) and secondly ten new member states, mostly big agricultural producers. The issue is even more sensitive since many states, who either receive little from or contribute a lot to the CAP, point out that it is struggling to achieve some of its goals. They question whether its noted successes have been obtained at a reasonable price, particularly as various studies, attracting great public attention, suggest the opposite. One study conducted by the British National Consumer Council estimated that in 1996 the CAP cost the equivalent of €30 per family per week.
Yet the Common Agricultural Policy has taken a new direction, encouraging many member states to continue spending a significant part of the budget on it. The new CAP, which came into force on January 1 2005, contains a number of new objectives, amongst them considerable changes to the environmental impact of EU farmers. It will provide the means to penalise intensive farming because European Commission subsidies will be conditional on a respect for soil and water pollution regulations. The transition from a system centred on production to one which promotes the protection and development of a sustainable rural economy requires significant funding if it is to deliver the anticipated results on time.
Tensions over the British rebate
Arguments over revenue are focused in particular on the British rebate, negotiated by Margaret Thatcher back in 1984 on the basis of the UK’s poor economic performance and the modest sums provided for UK farmers by the CAP at the time. The British Foreign Secretary Jack Straw has threatened to veto any possible end to the rebate, which according to him remains justified. However the majority of member states and the European Commission believe that, on the contrary, the rebate needs dismantling as the UK economy is now one of the strongest in the enlarged EU. The British are, however, still willing to negotiate changes to the rebate. Jean-Claude Juncker has proposed to freeze it at its pre-enlargement 2004 level and then to progressively reduce it between 2007 and 2013; a suggestion which might allow the different member states to reach a mutually satisfactory compromise on this issue.