The European Project 2007- 2013: Will it meet Europe's Challenges?

25 February 2005

European Commissioner Dalia Grybauskaité began by remarking on the difficult environment within which the negotiations on the Financial Perspectives for 2007- 2013 were taking place. The poor economic climate and looming elections and referenda in many Member States could create a difficult atmosphere for negotiations. Nonetheless, she remained adamant that an agreement must be reached, as “the life of the EU depends on what is negotiated and whether it is done on time.”

Commissioner Grybauskaité argued that the timing of the agreement was almost as important as what was agreed. Preparing the legal bases for the Union’s non-compulsory expenditures for the period took between 12 and 18 months (only agricultural payments and administrative expenditures are compulsory). Agreement among was thus needed by June 2005 in order for the Financial Perspectives for 2007- 20013 to be ready on time. She stressed the dangers of failing to agree by the deadline, warning that the budget could be practically paralysed and that up to half of it (including the cohesion funds) would possibly not be executed in 2007. In light of these dangers, most Member States were in agreement with the Commission that a conclusion of negotiations by 2005 was “absolutely necessary.”

Turning to the priorities of the Commission’s proposed Financial Framework, Commissioner Grybauskaité said that Lisbon competitiveness and the creation of growth and jobs were among its primary concerns. She regretted that Member States had agreed to these same priorities but had been subsequently reluctant to finance them. This had led her to be pragmatic with regard to the negotiations and to accept that the final Financial Framework, which might not be agreed until the “last hour of the last night,” would differ substantially from the current draft.

The Commissioner outlined three main issues currently under discussion in the negotiations. First, the ceiling on expenditures needed to be agreed. On this issue, three groups of opinion existed among Member States. One group supported the Commission’s proposal of 1.24% of GNI while another argued for between 1.10 and 1.15%. A third group, the so-called ‘group of six’ who are the main net contributors to the Budget, argued for retention of the current 1% level. This latter position was untenable, Commissioner Grybauskaité argued, as it would result in an effective Budget reduction of 29% or 200 billion euros. The cuts required by such a reduction would place most of the policies already agreed by the Member States in jeopardy, she said.

The second area of debate concerned the threat to the Union’s priorities posed by such a low expenditure ceiling. Contributions to European research and other programmes linked to the Lisbon Agenda would suffer severe cuts, as would the cohesions funds, including for the new Member States. In addition, the Commissioner argued, a reduced budget would adversely affect the EU’s ability to act as a regional and global partner.

Finally, the issue of budget revenue remained a sticking point in negotiations. However, Commissioner Grybauskaité argued, the requirement of unanimity meant that substantial changes in this area may not be possible in these Financial Perspectives. Meanwhile the UK rebate and the Commission proposed generalised Correction Mechanism were proving sensitive issues for all parties. Commissioner Grybauskaité said that even if 24 Member States (all except the UK) were in agreement, no simple solution could be found. While she supported the Generalised Correction Mechanism put forward by the Prodi Commission, she acknowledged that the eventual outcome would likely be a much more complex compromise.