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Friday, March 26, 1999 Published at 16:45 GMT

Business: The Economy

The EU budget deal

Germany's Gerhard Schröder and Joschka Fischer produced a result

The EU budget compromise reached in Berlin is an intricate numbers game, hammered out in 20 hours of non-stop talks.

The reforms are not as radical as many politicians had called for. Several countries fought hard to protect their share of EU money and, as all budget decisions have to be unanimous, they could have vetoed any deal going against them.

In typical EU fashion, the compromise budget is mixture of give and take, but there are some clear winners and losers.

[ image: As the sun rose over Berlin, a compromise was finally found]
As the sun rose over Berlin, a compromise was finally found
Most consumers living in the European Union should be among the winners, as the price of many foods could fall in the coming years.

Spain, Greece, Portugal and France did quite nicely, defending their share of EU subsidies.

The big loser is Germany. The host government tried to get its EU payments reduced by 3bn euros, but for the talks to succeed the Germans had to settle for a cut of just 700m euros.

Austria, Sweden and the Netherlands are the other big contributors to the EU's coffers and they did not achieve the big cuts they hoped for either.

Italy could soon become one of the big spenders. In two years new rules for calculating each country's budget share will sharply drive up the size of Italy's contributions.

Money matters

The EU budget is not very large, weighing in at around 85bn euros (£60bn). Germany, for example, spends more on unemployment benefit every year.

Budget freeze

[ image: A special deal for Dutch Prime Minister Wim Kok translates into a 1bn euro cut in net contributions]
A special deal for Dutch Prime Minister Wim Kok translates into a 1bn euro cut in net contributions
One result of the Berlin summit is a freeze of the EU budget at 1999 levels. At the same time, EU leaders reconfirmed a budget "ceiling" - it cannot be larger than 1.27% of Gross National Product. This figure, though, has never been reached before.

Payments

More importantly, EU governments decided to change the way the level of contributions is calculated. Until now, payments to Brussels have been a proportion of each country's VAT revenue.

In future the VAT-linked contributions will be replaced by money raised as a proportion of each country's Gross National Product.

Economically successful EU members will have to pay more as they can afford more.

Rebate

The United Kingdom, meanwhile, has managed to defend its rebate - a discount on its budget contributions agreed in 1984. The costs of financing this will be redistributed among the other 14 members. Germany, Austria, the Netherlands and Sweden will have to pay less.

The planned changes in calculating the EU budget contributions would have given the UK a rebate windfall, but the summit agreed that the UK would get no extra money.

Agriculture

[ image: The farmers' hero, French President Jacques Chirac]
The farmers' hero, French President Jacques Chirac
The Common Agricultural Policy (CAP) eats up half of the European Union's budget. The main beneficiaries are countries with large agricultural sectors. France, for example, gets more than a fifth of all EU farm spending.

The European Commission had proposed sharp cuts in farm subsidies, but France managed to fend off most of them.

Cereal subsidies will be cut in two steps by 15%.

Beef prices will be reduced by 20% in three stages, but beef producers will receive direct aid to make up for 85% of their losses.

The most contentious area was dairy products. In a typical Euro fudge, leaders decided to delay the planned cuts of 15% until 2005.

Regional aid

When Ireland, Greece, Portugal and Spain joined the EU, they were economic have-nots. Massive money transfers from Brussels have boosted their economies, and Ireland has grown so rich that it has overtaken some of the established EU members in the wealth league tables.

[ image: Spanish Prime Minister Jose Maria Aznar avoided cuts in regional aid]
Spanish Prime Minister Jose Maria Aznar avoided cuts in regional aid
The success of EU regional aid policy has not yet triggered an end to subsidies, but regional aid funds will be limited to 213bn euros over the next seven years. This is well below the amount demanded by Greece and Spain.

Some of the regions that have grown rich, for example parts of the Irish Republic and the region around the Portuguese capital Lisbon, will soon be dropped from the list of regions eligible for priority funding. But they will receive some money to help during the transition.

Extra money has been found for some other special cases like Northern Ireland, the Scottish Highlands and Islands, East Berlin and some barren regions of Sweden, which will get extra grants.