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Friday, February 26, 1999 Published at 18:16 GMT

Business: The Economy

CAP: Beggar thy neighbour

Mediterranean EU members profit nicely from the cohesion fund

The 15 member countries of the European Union are having so much trouble agreeing a reform programme for the EU budget that Jacques Santer, the President of the European Commission, believes the whole organisation's credibility is at stake.

Greening the Cap
He warns darkly that the whole EU could become embroiled in a "major crisis" if it fails to settle the dispute.

As always, the reason for the deadlock is money, two pots of it:

  • farmer's subsidies - distributed according to the rules of the notorious Common Agricultural Policy (CAP), which soaks up half of the EU's budget, worth 81bn euros ($100bn - £55bn)
  • the cohesion fund, which supports the poorer countries in the European Union, especially Spain, Portugal, Greece and Ireland.
If the EU fails to come up with new spending rules, the planned enlargement - taking in Poland, Hungary, Slovenia, Estonia, Cyprus and the Czech Republic - could be stopped in its tracks.

To concentrate minds, EU leaders have set themselves a deadline to solve the crisis, 25 March, the last day of a summit of EU heads of government in Berlin.

The snag is that every EU country has sharply differing views on how to go about the reforms.

BBC News Online looks at the different positions of each country:


[ image: Germany's chancellory is central at trying to draft a budget deal]
Germany's chancellory is central at trying to draft a budget deal
Germany currently holds the rotating EU presidency, and therefore is in charge of producing the draft for EU reforms. The country is by far the largest net contributor to EU coffers, chipping in 11bn euros ($12.13 - £7.5bn) every year, and is desperate to pay less.

The Bonn government has proposed to "stabilise" the EU budget at current levels and introduce a scheme to "co-finance" agricultural subsidies. This would force national governments to come up with some of the money spent on their own farmers.

The scheme would see the reduction of guaranteed price levels for farmers, replacing them with smaller compensation payments.

United Kingdom

Like all rich EU countries the UK wants to freeze the EU's budget and see cuts in farm subsidies. London is in favour of Germany's co-financing proposals. However, the UK is somewhat the outsider in the current budget debate as it already receives a £2bn rebate on its EU contributions.

Prime Minister Tony Blair says that this arrangement is "fair and equitable" and points out that the UK gets less EU money back per head than any other member state. This, though, is a direct result of the rebate. The other 14 EU members would like the rebate to be scrapped - or introduce a rebate for themselves.


France is the country putting up the fiercest resistance to agricultural reforms as France's farmers get the largest chunk out of the CAP pot. Paris says the German plan would take the "common" out of the CAP and suggests that farmers should receive progressively smaller aid payments to compensate for lower farm prices.

Spain, Portugal and Greece

[ image: Losing EU funds would be tough for poorer regions in Spain, Portugal and Greece]
Losing EU funds would be tough for poorer regions in Spain, Portugal and Greece
When these three countries joined the EU, the richer member states agreed to set up a cohesion fund to help modernise their economies.

The money has done much good, transforming the Mediterranean economies. However, once poor Eastern European nations join the EU, the Mediterranean countries are bound to lose out.

Spain, Portugal and Greece argue that their poor regions can't do without EU support from the cohesion fund, and are blocking any farming reforms to make their point.


Italy is happy with the current state of affairs. The country is only a small net contributor to the EU budget, but supports Germany's co-financing proposals.


Europe's richest country, as defined by economic output per head, is actually a net recipient of EU funds and is supporting Germany's plan for co-financing agricultural subsidies.


The Netherlands is another supporter of Germany's reform drive. The country is the second-biggest net contributor to the EU budget, and hopes to negotiate a reduction of its payments.


Austria is in a similar position like the Netherlands and Germany. It has a small, highly subsidised farming sector, but is the fourth largest net contributor to EU funds. Any deal that would reduce its payments to farmers in other European countries will please the Viennese government.


The 'Celtic tiger' has probably done best out of joining the European Union than any other country, getting the highest EU payments per citizen. Its booming economy has sent income levels soaring and Irish Gross Domestic Product per head has now overtaken that of many older EU members.

Dublin acknowledges that it should get less money via Brussels, but wants to phase out its subsidies over a seven-year period. Newcomers from Eastern Europe may not want to wait that long.


Belgium is pushing for a new way to calculate each country's contribution to the EU budget. The government wants to replace current - VAT based - payments with an energy tax.


Sweden is number three in the list of top net contributors, and believes it is sharing too much of the burden. Any deal that will bring down payment levels will be supported by Stockholm. The Swedish government supports the German reform proposals and the Agenda 2000 ideas put forward by the European Commission, but is quibbling with some of the details.


[ image: The Helsinki government hopes that its EU presidency in July will not be weighed down by budget disputes]
The Helsinki government hopes that its EU presidency in July will not be weighed down by budget disputes
Denmark's position is very similar to that of Sweden and Germany. It has suggested sharp cuts in the price levels guaranteed to EU farmers and wants the loss of income to be made up through direct aid payments.


In July this year, Finland will assume the EU presidency for the very first time. The Helsinki government hopes that Germany sorts out the budget mess before then. To help this along the country has proposed to hold yet another unofficial EU summit in Germany to solve the deadlock.

The issue of farm support could play a part in Finish elections, to be held just before the official Berlin summit at the end of March. Finland says its farmers need special support because of the country's harsh climate.

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