ECONOMY

Gloom over EU budget

BRUSSELS – European Union leaders warned that prospects were dim for a deal on the bloc’s long-term budget at a summit starting today after a double blow to the EU Constitution rattled Europe’s self-confidence. Luxembourg Prime Minister Jean-Claude Juncker, who will chair the two-day meeting, said yesterday he was almost certain he would be unable to broker a deal on the 2007-2013 budget because of wide differences over who should pay how much. The president of the executive European Commission, Jose Manuel Barroso, said unless the summit resolved the budget problem and found a way forward on the constitution, Europe would «sink into a permanent crisis and paralysis.» Financial deadlock would hold back urgently needed public investment in the poorer new member states in Eastern Europe, on top of the political uncertainty wrought by the French and Dutch voters’ rejection of the constitution. «I am pretty sure we won’t get the financial perspectives through at this summit,» Juncker told the European Parliament, hours before he was to circulate a compromise proposal on the budget to EU leaders. He said member states were close to agreement on the spending side but wide differences over Britain’s annual rebate and how much other major net contributors should pay into EU coffers made a deal this week improbable. It was not clear whether the wily veteran of EU negotiations was deliberately sounding gloomy to lower expectations and raise pressure on his peers, or whether he has really concluded he has no hope of clinching an accord. Barroso said leaders should agree to a pause in ratifying the constitution, meant to make an enlarged EU work more effectively with streamlined decision-making, rather than risk more defeats. His native Portugal was the latest country to say it was thinking of calling off a planned referendum with opinion polls showing a surge in support for the «no» camp. «The referendums have plunged the EU into doubt. We must dissipate this doubt and return confidence to European citizens,» Barroso told a news conference, saying the best way was to boost growth and employment through economic reform. Less reform? However, many analysts believe the referendum defeats make it less likely in the short term that the EU will be able to agree on the painful reforms he advocates to rekindle growth and make Europe more competitive in a globalized economy. The French «no» vote was largely driven by hostility to economic liberalization, symbolized by a draft EU law intended to open up the services sector to cross-border competition. The budget battle has pitted France and Britain against each other, but Juncker said there were also problems with other big net contributors to the EU budget – Germany, the Netherlands and Sweden. Britain has said it will only accept a review of its widely criticized refund from Brussels, worth 5.1 billion euros ($6.18 billion) this year, if EU farm subsidies that mainly benefit France are also reduced. Juncker backed France in saying that agricultural spending, pegged at its current level until 2013 in a 2002 deal to which Britain subscribed, could not be called into question now. But Barroso suggested a possible way out: The extra cost of farm aid to Bulgaria and Romania, due to join in 2007, should be met under the agreed ceiling, and that all spending should be reviewed again in 2008 – a typical EU solution. The big contributors who want to cap EU spending argue there is no urgency to reach a deal this week, since pressure on the net recipients will grow as the start of the next budget period approaches.