Europe’s painful summit

Jun 17th 2005
From The Economist Global Agenda

At a summit in Brussels, leaders have agreed to put the European Union’s proposed constitution on hold, but a deal on the EU's budget looks unlikely. Nor is much progress expected on the long-term challenges of economic reform and enlargement

THE European Union has faced crisis before. The 1970s are widely considered a lost decade for European integration. In the 1990s, Danish voters rejected the Maastricht treaty. And Irish voters did the same with the Nice treaty in 2001. So while French and Dutch voters have recently delivered a stinging slap in the face for “ever closer union” between the EU’s 25 members, by voting to reject the Union’s proposed constitution, the show will go on. On Thursday and Friday of this week, the leaders of the EU’s member states are meeting in Brussels to try to determine exactly how.

The first thing the summit has had to determine is what to do about the constitution. It would have made some (mostly sensible) reforms to the EU’s voting system and created a longer-term presidency. It would have also given Brussels power over more areas of formerly domestic policy (such as some bits of justice and home affairs). But the French and the Dutch associated the document with a whole host of mostly unrelated things, such as EU enlargement, and blew it an almighty raspberry in referendums on May 29th and June 1st respectively.

Immediately after the votes, Jean-Claude Juncker, Luxembourg’s prime minister, who holds the six-month presidency of the EU, said that other members planning to hold referendums should go ahead with them despite the Dutch and French noes. Jacques Chirac, France’s president, who had thrown his weight behind the yes campaign and was left humiliated by the result, agreed. But Britain, scheduled to hold a referendum next year, announced that it was suspending plans to do so. Tony Blair, the prime minister, feared losing it in any case, and is happy to put it on the shelf.

Though many European leaders were, unlike Mr Blair, extremely reluctant to put the constitution formally on hold, on Thursday evening they bowed to the inevitable and did just that. Mr Juncker announced that the original ratification deadline of November 2006 no longer applied. Immediately, several countries, including Sweden and the Czech Republic, said they would delay ratification until the future of the constitution was clear. This in effect leaves the document, in its current form, dead.

The issue on the agenda for Friday, the EU’s budget, will be thornier. The member states’ leaders must agree a framework for spending for 2007-13. But a row has developed between the countries that pay the most in and those that get the most out. A group of the biggest paymaster countries wants to cap the budget at 1% of the EU’s GDP. The European Commission, the EU’s Brussels-based executive, would like 1.14%, and the budget’s biggest net recipients tend to agree that the pie should be bigger. The Luxembourg presidency has offered a compromise leaning towards the smaller budget.

But an even more divisive question than the size of the budget is that of who gets what. In the spotlight is Britain, which for two decades has received a special annual rebate. When Margaret Thatcher secured the “abatement” (in Eurospeak) in 1984, Britain was both a big net contributor and one of the EU’s poorer members. Since then, Britain has prospered (while on the continent France, Germany and Italy have stagnated in relative terms) and is now one of the richest members. When the ten countries that joined the EU last year—most relatively poor ex-communist lands—start paying their full share of the budget, they will be contributing to Britain’s rebate. All of them see this as deeply unfair, as do France, Germany and most other older members of the Union.

But Mr Blair has found an answer for them: the biggest item in the budget, the common agricultural policy (CAP), is egregious too. It consumes a great deal of money—close to half of the total budget (see chart)—on the 4% of the EU’s population that still works the land, drives up food prices in Europe and hurts farmers in the poor world. With his new-found zeal on reducing poverty, especially in Africa, Mr Blair says he will only negotiate on Britain’s rebate in the context of an overall reform of the budget. Since the CAP is the main reason for Britain’s budget imbalance (it has relatively fewer farmers than other members do), trading the rebate for CAP reform seems to make sense.

To Mr Blair. For Jacques Chirac, France’s president, it is out of the question. Mr Chirac is a former farm minister who cut his political teeth in rural France. And though farmers nowadays make up a small percentage of the population, even in France, they are a crucial part of Mr Chirac’s Gaullist party’s support base. They are also adept at direct action, sometimes even blocking the streets by dumping tons of produce or manure. There are other countries that do well out of the CAP—Spain’s farms are big beneficiaries, and Poland’s will be—but it always seems to be France that prevents reform. In 2002, Mr Chirac and Gerhard Schröder, the German chancellor, stitched up a deal to keep farm spending from being cut before 2013, which other leaders later ratified. Mr Schröder says Germany honours its deals, which means he will stand with Mr Chirac.

On this issue, too, Mr Juncker has tried to find a compromise, suggesting that the rebate debate be linked to farm-subsidy reforms, and that Britain’s rebate be frozen in nominal terms for several years. That, of course, would mean it would shrink, both in inflation-adjusted terms and as a percentage of the (growing) EU budget. Mr Blair met Mr Juncker on Tuesday, ahead of the summit, and then later Mr Chirac. But the British leader’s office has said that freezing the rebate would cost Britain €25 billion-30 billion over the 2007-13 budget cycle, and Mr Blair said after his “immensely amicable” meeting with Mr Chirac that they had failed to reach a deal. Nor is one likely at the summit.

What won’t be said

The constitution and the budget will take up most of the time at the summit. This is unfortunate, as Europe needs to talk about reforming its economy, and when and how to enlarge again. The “Lisbon agenda”, which is meant to make Europe’s economies more competitive and technology-driven (through the sharing of “best practice” and the naming and shaming of laggards), is moribund. Big European states, especially France, Germany and Italy, have constipated labour markets. But since many Frenchmen rejected the constitution precisely because it didn’t create enough of a “social Europe” (ie, job protection and the like), a call for economic liberalisation is unlikely to appear in strong form in the summit’s final communiqué.

Nor will another word appear: Turkey. The EU promised in December that it would begin membership negotiations with the big, poor Muslim country in October 2005. But the leaders will include only an oblique reference to enlargement in their final statement, mindful that this is a delicate time for a Europe struggling to define itself. It seems the Turks, who desperately want EU membership, and not the second-class status some would like to give them, face a very long wait.

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