Europe fighting over money

The UK wants spending on farm subsidies cut - France and some other countries say no

Brussels is preparing for a row - a long, bitter argument over money.

On Thursday Europe's leaders will meet to decide on the EU's budget for 2014-2020. The meeting may extend into the weekend and there is both a fear and an expectation of failure.

At this meeting national interests will be paramount. Voters back home will judge what benefits were won and at what cost. Leaders are acutely aware of that.

The UK is singled out as the deal-breaker, by insisting on a budget freeze, but in truth there are many different agendas.

The summit will also cast light on how the EU spends its funds: Does the EU at this time need to build a House of European History at a cost of 50m euros (£40m; $64m)? Does the European Council need a new Europa HQ at a cost of 310m euros? Can shuttling the European Parliament between two places at a cost of 180m euros a year be defended?

When the Court of Auditors finds 4% of spending "irregular" what does that mean? Should a member of the Commission receive a monthly transitional allowance for three years after leaving office? And so on.

There are many in Brussels who will argue that these questions miss the point. Overwhelmingly funds from the budget go back into the community and help boost growth and innovation.

Different visions

The starting point for all this is a proposal by the European Commission to increase the budget by 5% over the next seven years to around one trillion euros. The UK, Germany, Sweden, the Netherlands and others say this cannot be justified at a time of cuts to national budgets. The EU cannot call for spending cuts in places like Greece and Spain whilst exempting itself, they argue.

The Commission has its allies - mainly those countries from Eastern and Central Europe, led by Poland, which benefit from the EU funds to help poorer regions.

Many countries have yet to reveal their final negotiating position. Britain wants to freeze the budget, allowing for inflation. That would mean about 200bn euros less than the Commission's plan. Germany wants to limit the increase to 1% of the EU's total output (GNP), which would come in about 130bn euros less than the Commission.

Other budget proposals have been tabled. The President of the European Council, Herman Van Rompuy, has suggested a budget that would be 75bn euros less than the Commission. That would involve the hard-pressed Spanish and Italians losing some funding. "Unacceptable", says the Spanish Prime Minister, Mariano Rajoy.

Behind these ballpark figures lie many other arguments. There will be pressure for Britain to reduce its rebate, negotiated by Margaret Thatcher in 1984, which is worth more than £3bn a year. No way, says the UK. Other countries like Denmark are insisting that they, too, get a rebate.

Farm subsidies

The arguments have focused attention once again on how the budget is made up. The largest single budget item remains farm subsidies under the Common Agricultural Policy. It accounts for 37% of the budget.

Many countries believe that reflects the world of the 1950s and not how it is today. So countries like Sweden and the UK want further cuts. The French see the subsidies as protecting their way of life. "There can be no question of us withdrawing even one euro from the CAP,' said the French Prime Minister Jean-Marc Ayrault.

The UK has proposed scrapping EU funding for the poorer regions of the richer countries. Italy won't accept that.

The Germans are arguing for a new structure that will allow for much greater accountability in the way money is spent. In exchange for compromise they are talking of independent oversight of spending.

Many leaders, however, will find compromise difficult. With even the opposition in Britain urging a "hard-headed" approach to the EU's problems David Cameron has little room for manoeuvre. The French too. President Hollande, increasingly unpopular at home, cannot easily agree to farm subsidies being reduced.

Some countries may be willing to see Britain to use its veto. It would allow the UK to be cast as spoiler and would mask the divisions elsewhere. If a new seven-year budget deal cannot be agreed then the EU will finance itself on an annual basis. That budget would be decided by qualified majority voting. Britain would not have a veto.

Some member states are inclining towards an annual budget as a way of sidelining Britain. It tells you something of the mood in Brussels that there are already discussions on how to circumvent a British veto.