February 7, 2020 / 4:35 PM / in 2 months

EU goes into meeting frenzy ahead of February 20 summit on next seven-year budget

BRUSSELS (Reuters) - European Union leaders and institutions went into a frenzy of meetings this week to start the toughest job the bloc faces this year: agreeing on a seven-year budget that for many is the most tangible sign of what a united Europe will look like after Brexit.

FILE PHOTO: European Union flags fly outside the European Commission headquarters in Brussels, Belgium, October 4, 2019. REUTERS/Yves Herman/File Photo

In a marathon of preparations for a special summit on the budget on Feb 20, the chairman of EU summits, Charles Michel, and the head of the executive European Commission, Ursula von der Leyen, talked to 22 EU leaders over the last week.

Five more, including the two biggest budget net contributors France and Germany, are scheduled for next week.

“These are the most difficult negotiations we are facing,” a senior EU official involved in the process said.

The current budget, which started in 2014, expires in December, and a new one has to be agreed because farmers across the bloc depend heavily on its support, as do governments for infrastructure projects, education and research.

Michel will use the meetings this week and next to put together a proposal on the overall size of the budget and the distribution of money within it.

So far, proposals on the budget size from various countries and institutions range from 1% of the EU’s annual output, or about 180 billion to 190 billion euros ($197 billion-$208 billion), to 1.3% - about 240 billion euros, for 27 countries.

Three EU officials said on Friday that the bloc’s finance ministers were set to agree a more growth-friendly fiscal policy.

The talks are unusually tough because the departure of Britain, one of the top net contributors to the budget, leaves a net annual gap of more than 9 billion euros on average.

Other net budget contributors do not want to pay more to fill it, while the beneficiaries argue that EU support for farmers or to reduce development inequalities is a must.

The back-to-back discussions between Michel and sometimes as many as five prime ministers a day were aimed at getting across the point that both sides need to compromise or dozens of EU-funded programs and projects could be in danger from 2021.

“People have to get out of their domestic situation and look at the broader picture,” the official said. “The situation will not get easier as we wait. If we delay ...it will create serious practical and political problems.”

To help fill the funding gap left by Britain, the European Parliament wants the EU to get new dedicated sources of financing for the budget. These now include all customs revenues, a small cut of national value-added tax and fines the EU imposes. The rest comes from national contributions negotiated every seven years.

Ideas on such new dedicated revenue streams include a tax on all financial transactions in the bloc or a tax on plastic.

The gap left by Britain would have been bigger were it not for a rebate on its contributions negotiated by Prime Minister Margaret Thatcher in 1984. But since then Germany, Austria, Sweden, Denmark and the Netherlands have all also demanded and won rebates. Net beneficiaries of the budget say all these measures should be scrapped.

To complicate matters, the net contributors, concerned about changes in Poland and Hungary that undermine the independence of courts, want to link eligibility for EU budget money to observance of the rule of law.

“It is a puzzle where everything has to click into place at the same time,” the official said. “Everything is interlinked.”

Reporting by Jan Strupczewski; Editing by Hugh Lawson

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