David Cameron's budget fight remains an EU sideshow

Written by Katinka Barysch [1], 29 October 2010
From The Guardian

David Cameron has won his first European victory. At this week's EU summit in Brussels, he seemingly persuaded a dozen other European leaders to back his demand to limit to 2.9% next year's EU spending increase. Britain's eurosceptics wanted a freeze or a reduction. But Cameron's limit looks sensible compared with the 5.9% increase that the European commission and the European parliament had asked for.

The odd thing is that no-one outside Britain noticed Cameron's success. A quick scan of German and French press coverage of the summit this morning did not produce one single mention of the "budget battle". That is because the budget was not actually on the summit agenda before the PM, briefly, put it there.

This EU meeting was devoted to agreeing on new rules to govern the euro, the currency shared by 16 of the 27 EU countries. The lively, late-night debates were about how the EU can make fiscal rules and sanctions bite. And in case sanctions don't work whether the EU needs a mechanism to bail out struggling eurozone countries while also allowing them to write down some debt. This mechanism will probably need a rewrite of the EU treaties.

Britain is not the only EU country that loathes the prospect of another protracted debate on treaty change. Most others, and the EU institutions in Brussels, are opposed or at least unenthusiastic. But since the Germans are adamant, EU leaders agreed to examine by December how to minimise the political aggro of a treaty rewrite.

British eurosceptics have told Cameron to agree to a treaty change only if the EU gives "some powers back" to Westminster. Not only is it unclear what "powers" they are referring to, Cameron also knows that politically this cannot fly. If there is a limited change of the EU treaties, it will only apply to eurozone members. The UK - and all other noneuro countries - would not be affected. If London nevertheless tried to foil attempts to fix the euro, it would antagonise the other EU countries and damage its own interests. The eurozone is Britain's biggest export market, and as Europe's biggest financial centre, the City of London stands to lose if turmoil returns to debt markets.

So Cameron was right not to threaten to hold up eurozone reform. Instead, he decided to fight a battle over the 2011 EU budget. Other EU countries, including Germany and France, did not need much persuasion to join the UK in limiting next year's budget rise. Although the EU's central budget is small (2% of total European public spending), it should not grow at a time of ubiquitous austerity.

However, like all EU annual budgets, the 2011 spending plan has very little wiggle room. The EU countries decide once every seven years on long-term spending priorities. The EU budget battles are legendary (remember when Tony Blair last fought for the British rebate in 2005)? If they took place every year, the Europeans would have time for little else. So Cameron's real achievement in Brussels was to make all EU countries agree that the next long-term budget plan - which will run from 2014 to 2020 - will be a prudent one. But even this victory went unnoticed in a Europe that is panicking over the future of the euro.