The response of most of the media to Tony Blair's EU budget deal has been strikingly hostile. The headlines of the week before the EU summit predicted failure - "Blair isolated!"; "British presidency a failure!". In the week after, they condemned success -"Blair's climbdown"; "Blair's Waterloo!"
The premise behind this negative commentary – and also of the criticisms offered by the Conservatives - is the old Europhobic notion that Europe is a faraway country of which we know nothing. This depressing parochialism displays no sense of the significance for us of the new conjuncture in Europe – the accession of the Atlanticist east Europeans to the EU, the decline of French influence, the beginnings of a new Euro-pragmatism in Germany. Since the 1950s, Britain has been on the back foot in Europe. As this at last begins to change, and Britain moves into a new leadership role, it seems that our commentariat simply cannot bother to pay attention.
The bare bones of the budget deal are quite simple. The EU requires a seven-year "budget perspective" covering the period from the beginning of 2007 to the end of 2013. Because of the long lead times involved, it was always desirable that this "perspective" should be agreed by the end of 2005. This has now been delivered by the British EU presidency – and, as builders say, "on schedule, and below budget."
The settlement involves a decrease in the share of forecast European GNI devoted to the European budget, from 1.26 per cent at its peak in 1996 to 1.045 per cent. There will be a substantial increase in the resources allocated to infrastructural build-up in the ten new member states – involving transfers in the order of 260bn euros over the seven years of the "perspective." Expenditure on other policy areas will rise slightly from present levels in most areas, but in 2008 the European commission and the European council will conduct a review of the overall structure of the budget, its revenues and its priorities for expenditure. Although the perspective covers the period as far ahead as 2013, changes flowing from the review can be introduced before that year.
On the financing side, the most important change is that the "abatement" of Britain's net contribution to the European budget – usually, but inaccurately described as a "rebate" – will not be applied to transfers to the new members. The upshot will be that Britain will receive some 10.5bn euros less from the abatement over the seven-year period than she would have been entitled to if it had also been applied to the new expenditures in eastern Europe. Without this change, by 2013 Britain would have made the second lowest net contribution to the European budget. With it, Britain's net contribution will be at the same level as that of France and Italy, but still less than that of Germany. At the same time, because the overall size of the budget has been contained, the net cost to Germany, Sweden and the Netherlands – as well as to Britain – will be considerably less than that envisaged in the settlement proposed by the Luxembourg presidency in June 2005.
In sum, the reasonable expectations of the new members have been met, the financial burden falls more equitably among the net payers and there is a realistic prospect of significant changes in the way in which the EU gets and spends its money.This is a more than satisfactory outcome for Tony Blair, considering where he had to start from at the end of the Luxembourg presidency in the summer.
Readers of my article "Time for a Deal" on the EU budget (Prospect, November 2005) will find a detailed account of the historical background, going back to the 1960s, and culminating in this summer's crisis. This began when Jacques Chirac, smarting from his defeat in the French referendum in May and determined to regain the European initiative for France, combined with Gerhard Schröder and Jean-Claude Juncker, Luxembourg's prime minister, to attempt to force a decision on the budget before Blair took over the presidency. Under the Luxembourg proposal, the British rebate would have been cut substantially - by a total of some 15bn euros more than the December settlement - and the budget structure would have been cast in stone for the full period 2007-13.
Blair refused to accept this, and he explained why in a bravura speech to the European parliament in July. Britain, he said, was prepared to give up some of the "rebate" - but only if there was the prospect of a shift in Europe's priorities away from costly agricultural protections and towards spending which enhances the EU's competitiveness.It was little noticed at the time, but Blair's objections to the Luxembourg proposals were joined by the Netherlands and Sweden, who also wanted a smaller total spend which would reduce their net contribution. This was always going to be difficult to sell to the east Europeans – particularly after the change of government in Poland in October gave President Chirac the opportunity to strike up an opportunistic alliance with a new regime in Warsaw which resembles that in Paris—rightist peasant nationalism. On the other hand, the new figure of Angela Merkel in Germany not only has a more balanced approach to managing the German-British-French triangle, but also has her own lines to Warsaw. The new German government, like the Dutch, the Swedes and the British, also wanted a smaller overall budget—and Merkel's careful distancing from Chirac, and her ability to talk to the Poles, finally shifted the balance in favour of Blair's approach.
So in spite of the hostile commentary, the British presidency has been a resounding success, with two historic achievements: the opening of accession talks with Turkey, and this budget settlement with its important long-term implications.
Since most criticism will concentrate on the planned 2008 review, let us look into the crystal ball. At the European council, Jacques Chirac fought to insert words into the communiqué preventing any conclusions being drawn from this review before the end of the new budget perspective in 2013. He failed – and although the French will no doubt go on arguing this point, they will fail again in 2008. Of course the French have a veto: the question is whether they will able to use it. By the end of 2007, the "Doha round" of world trade talks should have reached conclusions which will require further change in the CAP – indeed, they have already yielded an EU commitment to end export subsidies by 2013. Because Blair won his argument with Chirac that agricultural spending in Bulgaria and Romania should count against the CAP ceiling when these countries enter the EU in 2008, the funds available for financing the CAP will anyway run out by the end of that year. By 2008, the new German government will have worked out how to put into effect the long-standing CDU policy of renationalising CAP spending – which would lead to considerable savings for Germany. Meanwhile, on the revenue side the Germans and the other big net payers – now including France - will want to work with Britain to develop a new system governing net payments, which will at last bring the rich net recipients into the net (Belgium, Luxembourg, Denmark).
In other words, there is a real prospect that the 2008 review will open the way to the sort of fundamental changes in the structure of the EU budget that were proposed in 2003 by the Belgian economist, André Sapir, but ignored by the then European commission. Those who want to stay ahead of this debate should get hold of a copy of Sapir's report, "An Agenda for a Growing Europe," available here.
Where does all this leave Blair? The fair-minded will recognise in this episode the latest instance of his remarkable ability to conjure rabbits out of the most unpromising hats. It may be the fate of democratic statesmen to be more honoured abroad than in their home countries – all the same, it should be interesting to us in Britain, how many foreigners in countries as different as the US, France, and Germany will tell you wistfully that they would like to do a swap.
