Budget Deal Hints at Changing Power Structure in Europe

European Union leaders can breathe a collective sigh of relief after clinching a last-minute budget deal at the weekend.

The main story of the summit maybe one of an averted crisis but its subtext tells a more important tale of possible shifts in influence. It involves those who can truly bask in the glory of their achievements and those who will publicly claim victory while secretly licking their wounds as they retreat from Europe's latest political battlefield.

The 25-nation bloc hammered out its plans for the 2007-2013 spending period after a two-day marathon summit haggle which was ended by British Prime Minister Tony Blair brokering the EU funding accord in the early hours of Saturday morning.

Blair finally broke the deadlock after offering a 10.5 billion-euro ($12.6 billion) cut from Britain's cherished EU rebate in return for a vow to review the whole budget, notably the key thorny issue of farm aid.

"This is an agreement that allows Europe to move forward," Blair told a press conference. "If we'd failed to reach an agreement at all ... Europe would have been in a very severe crisis."

The prime minister was effectively saying that Britain had led the EU away from such a crisis while using the relief of a summit saved to deflect the fact that the near-crisis was one of Britain's own design.

Blair returns with a deal but also a financial headache

Whether Blair returns home to play the savior of the European Union remains to be seen. If he does, it may not be a role welcomed by his audience, especially when news that Britain made a bigger concession on its budget rebate than publicly admitted becomes common knowledge.

When announcing the 10.5 billion euros rebate cut, Blair said Britain will be losing around one billion pounds (1.47 billion euros) a year over the budget period. According to the Financial Times on Monday, Britain will be losing two billion pounds a year by 2011.

An analysis of the detail in the budget agreement showed the rebate would be untouched in 2007 and 2008, with the loss being "compressed" into the years between 2009 and 2013, the paper said. The British Treasury would lose around 500 million pounds in 2009, rising to two billion annually for 2011 to 2013.

President Jacques Chirac of France is likely to be another leader who will go back to his people with hopes of using the summit result to off-set his domestic problems.

Chirac hopes for prestige after "victory" over Blair

It's been a tough year for Chirac with political failures, ill-health and plunging public popularity dogging him through 2005 but he will certainly use the perceived "victory" over Tony Blair to bring some much-needed gloss to his image at home.

Chirac, who had led the assault on the rebate, managed to fend off Blair's counter-attack on EU agricultural subsidies from which French farmers benefit. Those subsidies -- which account for a third of EU spending -- will remain; though will be subject to a later review.

In a rare address broadcast on radio and television Saturday, Chirac called the budget accord "a good agreement" and sought to keep the momentum up by saying Europe "must go on to the next phase... we must have more democratic and more efficient EU bodies."

He added that "I will have the opportunity to make ambitious proposals for tomorrow's Europe which should be political, socially just and show solidarity ... so that it can become one of the main players in tomorrow's world."

While Blair and Chirac may continue to perpetuate their own images as the most important leaders in the EU, at least until either or both step down or are removed, German chancellor Angela Merkel looks well armed to take over the EU driving seat should it become vacant.

German chancellor forgoes grandstanding for hard work

Merkel -- a newcomer on the EU summit scene -- quietly emerged as a key mediator in the diplomatic hurly-burly, shuttling between Blair and Chirac, the two main protagonists in thrashing out the EU's future budget. It was a measure of her success that the deal eventually clinched by Blair was for precisely the spending limit Merkel had proposed.

Merkel's key mediation was to set the budget at halfway between the British offer and a Luxembourg version acrimoniously rejected at a summit in June. The figure corresponds to 862.4 billion euros, and Germany will remain the biggest net contributor although not by as much as if the Luxembourg proposal had been maintained.

Appreciative leaders heaped praise on the chancellor with Austrian Chancellor Wolfgang Schüssel calling Merkel "cool, calm and very professional" while Luxembourg's Prime Minister Jean-Claude Juncker referred to her debut performance at a European summit as "very impressive."

At home, however, Merkel already faced first criticism from the premiers of eastern German states who are worried that they will lose EU subsidies as a result of the deal.

But despite all the signs that Europe has got it right for once, there is still much to suggest it is fractious as ever.

Budget deal may be a false dawn as more rejection looms

European Parliament head Josep Borrell Fontelles criticized the deal, raising the specter of a showdown at the EU assembly.

"Without wanting to prejudge the positions which will be taken by the European Parliament, I note that the position of the council (of EU leaders) is very far from that of the European Parliament," he said in a statement.

The parliament has previously set the bar at 883 billion euros, while the EU's executive arm, the European Commission, wants a robust budget to pay for the bloc's ambitious programs and has called for 943 billion euros.

The budget has to be agreed between the institutions, and Borrell's remarks signal that the assembly, which rarely flexes its political muscle and has tended to back down in the past, could be ready to stand firm on its proposal.