Friday, 29 October 2010

Everybody wins in Brussels?

The European leaders are exiting the Just Lips building now, and they are all smiles. To hear them tell it, everybody got what they wanted out of yesteray's horse-trading in the Autumn European Council. Merkel and Sarkozy got their eurozone treaty changes and David Cameron got his budget freeze. The British media sure seems to have swallowed Downing Street's line that Cameron was "successfull" in convincing 10 other member states to back him on his call for a cap at 2.9% for an EU budget increase. Hooray hurrah!

Er, but wait a minute...wasn't it a complete budget freeze that Cameron was asking for? The British media seem to have forgotten that between yesterday and today. In fact, Cameron's freeze proposal was roundly rejected by member states yesterday, so he then fell back to a position of wanting to keep the budget increase to the commission's proposed 2.9%. To claim that this was a "victory" for Cameron is pretty absurd, considering a 2.9% increase was the stated position of most member states going into the meeting. The 6% increase requested by the European Parliament was never a realistic figure - every year they request more than they expect to get in order to increase their bargaining position with the council. Yes, member states agreed not to negotiate to any figure above 2.9%, which will surely displease the parliament, but the other 10 member states certainly didn't need much "convincing" from Cameron to agree to this position.

Similiarly, Angela Merkel is stepping out now claiming victory for an agreement to make "small" treaty changes to change eurozone rules. It's true that the fact that member states did not completely reject her pact with Sarkozy has saved her some major embarassment. But did she really get everything she wanted?

The agreement will create a permanent emergency mechanism that would allow eurozone members to default on sovereign debt without threatening the euro as a whole. This mechanism will replace the €440bn temporary emergency fund created last year that Merkel is concerned will not stand up to constitutional scrutiny under the existing EU treaties. Under the agreement, the European Commission will now have new powers to scrutinize national budgets of eurozone countries and impose fines on those whose deficits are too high. But the fines will not be automatic as Merkel had wanted, and there will be no ability to strip member states of voting rights for continued violations as Sarkozy had wanted. A limited victory indeed.

So is yesterday's agreemenr the result of a quid-pro-quo between Britain and Germany/France? Probably not. Again, ministers were likely to set some kind of red line in how much the budget could be raised during this meeting either way. No matter how Downing Street would like to portray it, Cameron's role at this meeting was probably fairly irrelevent. But, he may get his wish for a budget freeze after all. The big loser here was the European Parliament, and MEPs may not take the defeat lying down. The two instuttions still have to come to an agreement on the budget in the next month, and MEPs look unlikely to back down on their demand the the budget increase more than just 2.9%.

If the two sides can't come to an agreement, then there would be no budget for 2011, and the existing budget for 2010 would remain in place. In other words, there would be no rise in 2011 budget levels after all. This is obviously not in the parliament's interest, so they may prove to be more flexible than they initially indicated. But if the UK feels strongly enough about freezing the budget amount, all they would have to do is stonewall during the next month's negotiations to get their wish. But 2011 is a different year from 2010, and this year's budget may not be so compatable with the year to come.

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