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Feb 8, 2013 | 21:42 GMT

Ominous Budget Cuts Constrain EU Integration

Photo by Dan Kitwood/Getty Images
Summary

For the first time, the European Union is cutting its multiyear budget at the behest of the core countries subsidizing the bloc's poorer members, which had advocated increases. The 2014-2020 budget is expected to amount to 960 billion euros (about $1.3 trillion). The negotiations highlighted diverging national interests within the European Union — interests that could fracture further as a result of the budget cuts. While the spending reductions are intended to contain rising euroskepticism in creditor countries, they also could prompt newer EU members to question the willingness and capacity of Western Europe to support development in the east.

A budget proposed in November stipulated spending reductions on research as well as on transport, energy and telecommunications infrastructure. Agricultural outlays would fall below 40 percent of the budget. The structural and cohesion funds — which are designed to integrate more recently admitted, mostly weaker economies into Europe's core — are expected to account for nearly 33 percent of the new EU budget. Older members such as Spain or Greece, which have been hit hardest by Europe's financial crisis, are expected to receive funds to address high unemployment. The bloc will have to lay off staff and freeze salaries for the coming years.

EU Potential Future Members

EU Potential Future Members

The purpose of the multiyear budget is to provide financial means for the European Union's administration and support economic development throughout the bloc. The funding is especially important for poorer EU members whose national budgets cannot sustain large infrastructure projects or structural reforms. Budget cuts will reduce these economic opportunities, particularly for recently admitted states.

Even before spending negotiations began, threats to veto the budget should it have not met politicians' respective interests highlighted strong national differences. First, there is an ideological difference. Northern European countries, including the United Kingdom, Germany, Netherlands, Denmark and Sweden, argue that austerity on a union-wide level is important and should mirror national spending cuts being implemented as part of the structural reforms needed to overcome the European crisis. The peripheral countries, with support from France, a core member, generally argue that austerity is aggravating the crisis. They assert that government spending should compensate for the weakness of private sectors on the national level. At the EU level, this argument has been applied to oppose the budget cuts.

Domestic political interests are also at play, as illustrated by the debate regarding EU budget categories. For example, France profits strongly from agricultural subsidies, so it opposes cuts in that area. Meanwhile, Eastern and Central European members value the structural and cohesions funds, which account for several percentage points of gross domestic product in the budgets of many such countries. Since Central and Eastern European states are net beneficiaries of the EU budget, they have weaker negotiating positions. If any of these countries had vetoed the budget, the current annual budgets would have rolled over, thereby avoiding a reduction in spending. But such a move could have alienated EU creditor countries, including the United Kingdom, which would have been more inclined to distance itself from the union in the coming years. A veto also would have weakened the prospects of newer members garnering additional funding. Along with the Feb. 8 announcement of the budget came negative news regarding economic figures in a number of Eastern and Central European countries, highlighting the need for additional aid from the West.

Additional Negotiations Looming

Despite the compromise, which largely meets the demands of Northern European members, the budget negotiations are not complete. Since the Lisbon Treaty entered into force in 2009, the European Parliament has been required to approve the EU budget in addition to all 27 member countries. Martin Schulz, the head of the European Parliament, said Feb. 8 that the legislative body is unlikely to support the compromise, necessitating further negotiations in the coming weeks. While Northern European countries mostly achieved the spending reductions they demanded, leaders will still have to persuade the European Parliament to sign on.

Currently, most of the European Union's more developed countries are focused on stabilizing the eurozone and addressing increasing euroskepticism among their populaces. Rising unemployment, especially in the southern periphery, and general economic hardship are leading to discontent in a number of Western European states. The announcement that spending should increase on countries with especially high unemployment highlights the likelihood that Eastern and Southern European members will increasingly be competing for limited EU funds. Meanwhile, western countries such as Spain and Portugal will compete with countries in the east for unemployment benefits.

Budget negotiations also highlighted the divisions between Germany and France, the collaboration of which is vital for the sustainability of the eurozone and European Union. As a strong supporter of austerity, Germany sided with other Northern European countries, mostly non-eurozone states, to include cuts in the budget. France sided with Southern European countries, as has often been the case since French President Francois Hollande came to power. The new budget suggests France prioritized its relationship with Germany over defending the interests of the least-developed countries in the European Union. But as the French economy weakens, Hollande will find it increasingly difficult to agree with German Chancellor Angela Merkel's course for Europe. 

Effects of the Budget Cuts

The Northern European countries' push for cuts in the EU budget can be explained by two factors: First, voters in creditor countries would be upset to see EU spending increase while their own national budgets are slashed. Second, the leaders of those countries are trying to contain the rise of euroskepticism by emphasizing the limits to EU spending.

The spending reductions could have adverse effects in creditor countries as well beneficiary states. The fact that the budget was indeed cut could be seen as confirmation by euroskeptics in core countries that, if they push hard enough, they could reclaim power from Brussels. But in newer EU members, funding for infrastructure development drove growth over the past years. The budget cuts in critical areas could hinder efforts to integrate Europe's periphery, particularly newer members, weakening the cohesion of the entire bloc. Due to the economic crisis and Croatia's expected accession, more countries will be competing for less EU funding in the coming years.

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