LDN - Business

No deal in sight as "Frugal Four" stamp down on EU budget

[February 21, 2020] By Marine Strauss and Jakub Riha

BRUSSELS (Reuters) - Denmark, Austria, Sweden and the Netherlands dug in their heels over the next European Union budget, insisting it cannot top 1% of economic output, to leave the EU no closer to a deal on Friday after all-night talks.

Expectations for a breakthrough were low as the 27 national leaders reconvened on Friday. They had spent a day and a night in talks that failed to bridge divisions between richer and poorer nations over the size of the next budget and what to spend it on.

"I don't think we are going to reach an agreement," said Danish Prime Minister Mette Frederiksen.

Her Romanian colleague, Klaus Iohannis, said another summit of EU leaders would be needed to break the deadlock. Czech Prime Minister Andrej Babis channeled frustration, saying the leaders "can go straight home" if the four frugals do not budge.

Some EU countries want extra funding to match new ambitions to fight climate change and manage migration, some want a continued focus on development and farm aid, and some are pushing for greater realism in recognising the 75 billion-euro ($81 billion) fiscal shortfall left by net contributor Britain's departure from the EU.

A baseline proposal to cap the budget - which will run from 2021 to 2027 - at 1.074% of EU gross national income, or 1.09 trillion euros ($1.18 trillion), faced criticism from all quarters.

Dubbed the Frugal Four, the bloc's wealthy net contributors want a limit of 1% and refuse to pay more to make up for the loss of Britain's fees. Their less-developed peers want to keep generous aid coming.

After an initial session of all 27 leaders on Thursday afternoon, they broke for separate face-to-face meetings that went through the night and until 0600 GMT on Friday.

"The bilaterals took forever. But it seems things have not moved, the frugals keep on insisting on their position," one diplomat said on Friday morning.

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Italy's Prime Minister Giuseppe Conte arrives for the second day of the European Union leaders summit, held to discuss the EU's long-term budget for 2021-2027, in Brussels, Belgium, February 21, 2020. Ludovic Marin/Pool via REUTERS

An EU official confirmed: "The position of the frugals has not changed an inch ... so there is not much to go on."

A French diplomat echoed the sentiment: "I'm not very optimistic. Because of the frugals."

(GRAPHIC: What the EU pays for - https://graphics.reuters.com/EU-BUDGET/0100B5EX3MM/EU-BUDGET.jpg)

LONG NEGOTIATIONS ON CARDS

EU leaders have until the end of the year to agree, so chances of an early compromise appear low.

Beyond the size of the budget, the other fight is what to spend it on. The poorer eastern and southern nations want to hold on to development aid. They are backed by France, Ireland and others in seeking to uphold major farm subsidies.

But Germany, the Netherlands and others want to shift funds towards new priorities, including combating climate change, managing migration and expanding the digital economy.

The Germans and Dutch are also leading a small group who want to preserve rebates that reduce their payments to the current 2014-20 budget. Every other EU country is against that.

Poland and Hungary - where nationalist and eurosceptic governments stand accused of flouting democratic standards - refuse to link EU aid to upholding the rule of law.

"If we are so far apart, there is no basis for discussion," Babis said.

(Reporting by Michel Rose, Marine Strauss, Gabriela Baczynska, Jakub Riha, Sabine Siebold; writing by Gabriela Baczynska; editing by Larry King)

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