Thursday, 28 October 2010

A day of deal-making in Brussels

As European leaders meet in Brussels today everyone seems to have something to sell. David Cameron and new Dutch prime minister Mark Rutte have stepped off their trains this morning with demands for an EU budget freeze for 2011. Angela Merkel and Nicolas Sarkozy arrived this morning having formed a pact between them a few days ago to jointly demand treaty changes allowing the EU to sanction eurozone countries who misbehave. And representatives of the European Parliament will be on hand to demand the introduction of direct EU taxation that would go directly to Brussels. It will be an intense day of horse-trading as each block tries to get what they want.

The British and Dutch conservatives want to freeze next year's budget at 2010 levels, opposing the 6% increase approved by the parliament last week. They say it would be obscene to increase the EU budget, which is financed by member states, at a time when national governments are pursuing drastic budget-cutting measures. Members of the European Parliament (MEPs), on the other hand, point out that a 6% increase is significantly lower than what they usually call for. But they say they would be willing to consider a freeze if the member states agree to new forms of direct EU taxation on things like aviation, financial trading and carbon credits. Right now the EU is entirely funded by member state governments.

Meanwhile, German Chancellor Angela Merkel and French President Nicolas Sarkozy want to reform the union's Stability Pact to remove voting rights for member states using the euro if they fail to obey the rules set for the currency, as Greece did in the run-up to its financial collapse. But their idea is being met by fierce opposition both from the European Commission and from other member states. Justice Commissioner Viviane Reding picked yet another fight with France yesterday when she called the plan a "Franco-German diktat" and said, “The decisions of the European Union are not made in Deauville,” referring to the French seaside resort where the two leaders came to their agreement.

David Cameron, for his part, has his own reasons for opposing the pact. Though the UK does not use the euro currency and therefor would be unaffected by the treaty changes, he would likely be forced to put the change to a referendum because during the British election campaign he promised the British public a referendum on any EU treaty change. In reality he would probably like to see the changes instituted, after all the UK economy depends on a strong euro. But he cannot take the risk of putting forward a referendum which would not only almost surely fail, but also make his party look quite foolish for putting such a minor change to a vote.

The stakes are high. After pushing so outwardly and aggressively for these treaty changes, Sarkozy and (particularly) Merkel risk being humiliated if they are defeated. Whether they are bested or not largely depends on whether they can get Cameron's support. It is thought he might lend that support in exchange for a commitment from them to freeze the 2011 EU budget. In such an instance he would surely find some way out of calling a referendum on the changes, but would need some kind of compensation from Merkel and Sarkozy for the inveitable cries of hypocracy he will face at home. But if he can get an agreement for a freeze from the European Parliament in exchange for supporting an EU tax, he wouldn't have to take the political risk of opening up the Lisbon Treaty for another round of potentially painful changes. After the debaucle that followed the last treaty change, nobody wants to go through that again.

But Cameron's office has admitted that his quest for an EU budget freeze will be "difficult". They won't say the reason, but it's quite clearly because Mr Cameron has few allies in continental Europe. And while Merkel and Sarkozy oppose the parliament's attempt to raise the budget by 6%, they do not want a freeze - instead favouring the commission's proposal of a 3% raise. Cameron is unlikely to convince many other member states to back him on the freeze without using the eurozone issue as a kind of extraordinary bargaining chip.

As usual Britain cannot wage the persuasive power of Germany and France in Brussels because they have not invested the time in forming solid relationships with European allies. Britain punched below its weight on the council during the Labour years as well, but under Cameron Britain's influence could be even less because the Tories are so reviled by their Western European Conservative counterparts (who in fact got along much better with Labour). Merkel and Sarkozy's conservative parties have not hid their disdain for the Tories' attitude toward Europe in the past, and both leaders have cold relations with Cameron. But considering today he has something they want - support for a eurozone treaty change - perhaps he may find Angela and Nicolas to be a bit more friendly on this visit.

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