LDN - Business

EU launches battle for bigger post-Brexit budget

[May 02, 2018] By Jan Strupczewski and Alastair Macdonald

BRUSSELS (Reuters) - The European Commission proposed a bigger new multi-year budget on Wednesday that will trigger battles among member states over how to fill the funding gap left by Britain's exit next year.

During the 2021-27 period it would trim the biggest single item, farm subsidies, by 5 percent and wants a new plastics tax. It would spend more on research and technology, foreign aid, euro zone stability, compensation for job losses from open trade and on joint defense and frontier guards.

It also introduces a new mechanism to penalize countries -- notably in the ex-communist east -- where governments breach EU rules on ensuring judicial freedom and the rule of law. These could find some of their important EU funding being withheld.

"With today's proposal we have put forward a pragmatic plan for how to do more with less," said European Commission President Jean-Claude Juncker.

"A budget for a Europe that protects, empowers and defends," declared the Commission, urging the remaining 27 member states to make up the shortfall of at least 10 billion euros ($12 billion) a year to be caused by Brexit after 2020.

That language reflects a campaign from Brussels to persuade voters the bloc remains relevant after a decade of crisis that has seen ferocious austerity in countries hit by the euro zone debt crisis and uproar over the arrival of more than a million irregular migrants across the Mediterranean in 2015 alone.

"A Europe that protects," has also become a familiar demand from French President Emmanuel Macron, as he tries to work with German Chancellor Angela Merkel to tighten integration after the ever-skeptical British have left, while easing fears among voters that the EU means open borders and jobs exported abroad.

The German government reacted cautiously but the priorities it set out echoed many of those from the EU executive -- tougher border control, more EU defense cooperation, tech innovation and a stronger defense of democratic values in Europe.

It repeated its readiness, like France, to pick up a bigger bill if the budget strengthens the Union: "But that," it added, "includes fair burden-sharing among all member states."

The proposed budget of 1.28 trillion euros in inflation-adjusted future prices -- or 1.14 trillion euros at 2018 prices -- would be greater in real terms than the 1.09 trillion euros in the 2014-20 Multiannual Financial Framework.

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European Commission President Jean-Claude Juncker presents the EU's next long-term budget, at the European Parliament in Brussels, Belgium, May 2, 2018. REUTERS/Francois Lenoir

It will be around 1.11 percent of the bloc's economic output, the Commission said, up from the current 1.03 percent.

THERE WILL BE FIGHTS

EU Budget Commissioner Guenther Oettinger, who has called for states to show unprecedented speed and agree the budget within a year or so, said it was inevitable that there will be disputes: "There will be cuts, which many countries will complain about, and there will be new spending, which the others will complain about," he told German television.

Some of the richest contributors, including the Dutch and Swedes, have insisted they will pay no more to fill the Brexit gap, while poor, eastern states like Poland demand no cuts.

That could hit opposition from farm lobbies, notably in France, while the proposal to withhold cash from countries which fail to meet "EU values" in terms of independent courts will anger Poland and Hungary especially as their leaders are already at odds with Brussels over the "rule of law" issue.

"The rule of law is an essential precondition for sound financial management and effective EU funding," the budget proposal says, noting that independent courts were needed to ensure fair tender procedures, combat fraud and so on.

Other highlights include ramping up spending on the new EU border guard force, intended to block illegal immigrants, and a 30 percent increase in foreign aid to 123 billion euros over the seven years, reflecting an ambition to project European influence as the United States appears to pull back.

The proposal also foresees Brussels raising more cash for itself rather than relying on national contributions but its proposals for new taxes on plastics or big global tech firms or a claim on funds raised by carbon trading face stiff opposition.($1 = 0.8335 euros)

(Additional reporting by Robin Emmott, Foo Yun Chee, Robert-Jan Bartunek, Gabriela Baczynska, Peter Maushagen and Alissa de Carbonnel; Editing by Jon Boyle and Philip Blenkinsop)

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