EU leaders agree to drastic budget cuts

Reported by Don Melvin and Sarah Dilorenzo
Saturday, February 9, 2013

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European Union leaders have agreed to a drastically reduced seven-year budget worth 959 billion euros ($A1.26 trillion) - the first cut in spending in the 27-country group's history.

European Council President Herman Van Rompuy said on Friday the agreement had been reached after two days of nearly round-the-clock negotiations.

"We simply could not ignore the extremely difficult economic realities across Europe," Van Rompuy told reporters. "It had to be a leaner budget."

He said it would amount to 1 per cent of the European Union's gross national income.

The final number was far less than the 1.03 trillion euros the EU's executive arm, the EU Commission, had proposed.

The two-day fight over what the EU pledged to spend on everything from infrastructure to development aid laid bare divisions over what the role of the union should be.

"The effort was worth it," said German Chancellor Angela Merkel. "The agreement is good and important," saying it would show solidarity and ensure predictability.

The EU Parliament must still approve the deal - and lawmakers there suggested drastic cuts would be unacceptable.

"This agreement will not strengthen the competitiveness of the European economy but weaken it," the leaders of the four largest political groups in the Parliament said in a statement. "It is not in the prime interest of our European citizens."

The proposed budget has also been criticised for cutting too deeply into aid for poor countries or other areas critical for Europe.

At its heart, the hard-fought summit in Brussels was a tussle about what the 27-nation European Union stands for: some leaders argued that it was a drag on national budgets in tough economic times, while others said the economic crisis highlighted the need for closer and deeper ties.

The deal that emerged leaned more toward the position of countries led by Britain, which insisted the EU couldn't look for more money at a time of belt-tightening across Europe.

But it seemed a loss for many of the newer - and generally poorer - members, who see Europe as a club that is only as strong as its weakest member. That group, led by Poland and France, argued that Europe meant nothing if the budget were not used to bridge the wealth gap between rich and poor members and help restart growth.

Both sides had threatened to walk away from the table - again - if they didn't get what they wanted. The first summit to negotiate a budget collapsed in November.

Van Rompuy noted, however, that the budget did put aside six billion euros to help alleviate youth unemployment, which has skyrocketed because of the economic crisis over the past few years, notably in Greece and Spain.

The EU, with a population of more than 500 million people and an annual gross domestic product of 12 trillion euros, is the world's largest economy. But the EU's budget for 2012 is 147.2 billion euros - less than one-fifth the size of the UK budget.

Separate from the national budgets, it is designed in part to balance out the economic development of the region by injecting funding into poorer countries. The EU has funded hundreds of thousands of infrastructure and capital projects over the years, from the installation of a broadband network to upgrading parts of the road network.

The budget also includes items meant to generate economic growth in the future, such as research and development, increasing digitalisation and creating a new, more accurate satellite navigation system. It also funds regulation and administration in such areas as mergers and competition, the review of national budgets to ensure they do not include excessive deficits and banking supervision.

17/04/2014 20:02Sydney, Australia. 17 April,2014
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