For the first time ever there will be a real-terms cut in the EU budget.
David Cameron was able to claim victory in Brussels yesterday after agreement was eventually reached on the spending plans for 2014–2020. The ceiling of 960 billion euros (£813 bn), equivalent to actual payments totalling 908bn euros, is a significant reduction to the seven-year budget of just over one trillion euros proposed in November.
As the lead voice among countries calling for lower spending, which include Sweden, Holland and, crucially, Germany, Mr Cameron can take some credit for the overall reduction. It is not only Eurosceptic Tories who find an above-inflation increase of 5% in the Brussels budget unacceptable. Austerity measures are biting at home. Nevertheless political opposition will rumble on as a result of the net increase in the UK contribution. This is the simple consequence of the wealthier nations contributing more to provide additional resources to the poorer, specifically the new member states to which Britain's rebate does not apply. With 27 member states, each with the power of veto, the deal reached yesterday after protracted negotiations was inevitably compromised by national interests. It would appear that intransigence over entitlement to agricultural subsidies and regional aid resulted in measures to promote growth, such as funding for research, taking the brunt of the cuts.
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This budget deal exemplifies the EU's inherent challenge of a long-term strategy being hobbled by the more immediate political imperatives of the leaders. With disastrously high levels of unemployment, especially among young people in many parts of Europe, the need for growth is obvious. Gradually the funding proportion allocated to agriculture has decreased but it will account for around 35% of the budget over the next seven years, compared with 7% for research and innovation. Yet it remained far easier to cut spending on transport, the digital economy, joint energy projects and research than on farm subsidies, despite the fact these are paid not just to subsistence farmers but to wealthy landowners. While Mr Cameron was correct to hold out for a budget reduction in these straitened times, the consequences of his success will not all be positive. UK universities, for example, are major beneficiaries of European research grants and will have to compete for a smaller funding pot.
Politically, Mr Cameron's quest for a renegotiated membership deal for the UK to be put to a referendum after the next General Election is a far bigger gamble. The German Chancellor Angela Merkel was an essential ally of the Prime Minister but Germany has no reason to support a country that wants to pick its own terms of membership. The division between the net contributors and the net beneficiaries became open hostility between Mr Cameron and French President Francois Hollande. Even providing British military aid to the French in Mali could not overcome the fundamental difference of opinion on the budget. As the loser in that battle, Mr Hollande will have no cause to support Mr Cameron over the UK's terms of membership. One success does not mean that playing hardball in Brussels is the way to get the best from the EU.