German Elections Affect EU Budget Talks

The ministers met over dinner in Brussels to sound each other out over their positions on the EU's long-term budget, before getting down to bargaining at an official gathering on Monday.

Luxembourg, which currently holds the EU's rotating presidency, was aiming to broker a deal between the Union's 25 members that can be signed at a summit here on June 16 and 17, but the negotiations were being held up by Britain's refusal to reconsider the rebate on budget contributions that former Prime Minister Margaret Thatcher won in 1984.

Repercussions of German elections

The announcement Sunday of early elections in Germany raised new questions about the negotiating position of the biggest contributor to the budget.

"It's an important point that should not automatically make things easy, but that's up to Germany to decide," Nicolas Schmidt, Luxembourg's deputy foreign minister, said.

Luxembourg was trying to bring minds together with a proposal that includes a suggestion to freeze and then reduce the British rebate.

However, that proposition raised the ire of Britain who, through the voice of Foreign Secretary Jack Straw, insisted that his government aimed to keep the rebate, which is supposed to compensate for the fact Britain receives less from EU agricultural funds than other nations.

It was justified in 1984 when it was agreed, it is justified today and we will not hesitate to use our veto if it is necessary," Straw said in the face of growing opposition to the rebate by other countries.

Limiting the budget

Luxembourg wants an agreement before Britain takes over the presidency for six months in July, during which the budget issue is likely to languish if there is no deal beforehand. With that aim, Luxembourg was to sound out EU leaders on their positions in order to make progress at a foreign ministers meeting planned for June 13.

The battle lines over the budget for the period from 2007 to 2013 were roughly drawn between the European Commission, the EU's executive arm, which wants to have as much money available as possible, and the six biggest net contributors -- Britain, France, Germany, Austria, Sweden and the Netherlands, which want to limit the budget.

The Commission was angling for a budget of one trillion euros ($1.26 trillion) while the six countries have demanded that the budget be capped at 815 billion euros, or 1.0 percent of gross national income

As a compromise, Luxembourg has proposed an overall budget ranging from 865 billion euros to 900 billion euros, representing the equivalent of 1.06 to 1.09 percent of GNI.

Policy consequences

European Commission President Jose Manuel Barroso gave a lukewarm reaction to the Luxembourg proposal, saying it was "a step forward in some ways because for the first time we have all the key elements of the package set out for negotiations," but was not "a proposal capable of moving the Union forward over the next few years."

The Luxembourg proposals showed an "underlying lack of ambition which is disappointing ... and could cost us very much in terms of credibility when judged against commitments we have already made," Barroso said. "The budget is not an abstract set of figures, it has hard policy consequences."