Western European Member States Block Budget Increase

Britain and other net contributors insist that spending should be reduced.

European Union leaders on Friday failed to compromise on an agreement to finance the bloc into 2020. Germany, the Netherlands, Sweden and the United Kingdom insisted on deeper cuts to the European Commission’s spending proposal while most former communist states in Eastern Europe advocated a budget increase.

British prime minister David Cameron was the most vocal opponent of raising spending, threatening to veto a deal that did not meet his expectations.

Cameron faces an increasingly Euroskeptic electorate at home. An opinion poll published earlier this week found 56 percent of Britons in favor of leaving the European Union altogether. The majority of them voted for Cameron’s Conservative Party in the last election.

The British leader argued that the European Union shouldn’t increase spending by nearly 5 percent when member states are cutting back on their own expenditures. He called for austerity instead, telling reporters as he arrived for a second day of talks, “That is what is happening at home, that is what needs to happen here.”

German chancellor Angela Merkel, a Christian Democrat, played down the consequences of a failed summit. “I have always said that it wouldn’t be dramatic if today were only the first step,” she said.

Countries may still have a year’s time to reach agreement but the lack of clarity will delay investment planning in European energy and infrastructure projects, particularly in the Central and Eastern European member states that benefit the most from cohesion funds.

Although Latvia and Romania had also threatened to veto a budget increase while Spain was among the countries in favor of raising spending, the division fell largely along East-West lines with the states that pay more into the European budget than they take out blocking an increase.

The European Commission proposed more than €1 trillion in spending for the 2014-2020 period. Some 40 percent of the roughly €140 billion in annual spending would have been allotted to agricultural and fishing subsidies. France, whose farmers are the main recipients of such financial aid, opposed cuts to them so spending reductions would have come at the expense of economic investments in poorer countries which they, led by Poland, in turn blocked.

The Telegraph cites French sources suggesting there could be another summit as early as next month while Reuters believes the leaders will have another go at budget talks in 2013.

The last time the European Union set its multiyear budget was in 2005 when it took six months and a British veto to do a deal.