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Thursday, December 10, 1998 Published at 16:45 GMT

World: Europe

Germany seeks cut in EU contribution

Gerhard Shcröder: There can be no taboos in EU finances

German Chancellor Gerhard Schröder has said he will use Germany's presidency of the European Union, which begins next month, to push for a cut in Germany's contribution to the EU budget.

The BBC's Caroline Wyatt in Bonn: The Chancellor was "very much playing to his domestic audience"
On the eve of the EU summit in Vienna, Mr Schröder told parliament in Bonn that Germany could not go on with a policy of buying its neighbours' goodwill.

Mr Schröder warned that on the reform of EU finances there can be no taboos.

He said that even the British budget rebate would be up for discussion, an option that has already been rejected by the UK Government.

However, on the thorny issue of tax co-ordination, Mr Schröder said he and UK Prime Minister Tony Blair were in full agreement on the need to fight unfair tax competition within the EU.

The BBC's David Shukman: A growing belief among many in the EU that the rebate is no longer justified
Germany is by far the biggest net contributor to the EU budget, paying in about $13bn more than it gets back in aid and subsidies.

It was so high, Mr Schröder said, that it risked alienating Germany's citizens from the entire European project.

Mr Schröder also said it would also be incredibly difficult to allow new members to join the EU without first reforming its finances.

Blair's pledge to veto

Mr Blair has vowed to veto any moves towards ending the UK's annual £2bn EU rebate - while sticking to the government's stance of constructive European talks.

[ image: Joint statement: Designed to defuse tax row]
Joint statement: Designed to defuse tax row
The rebate was agreed in 1984 by the then prime minister Margaret Thatcher following a series of rows over the UK's contribution to what was then the EEC.

Under the deal, for every £1.50 per capita the UK pours into European coffers, it gets £1 back.

On the issue of tax harmonisation, Mr Blair sought on Wednesday to negotiate a joint "position statement" with Germany - ahead of the gathering of European leaders.

Mr Blair's joint statement with German Chancellor Gerhard Schröder was designed to defuse the simmering row over the possible harmonisation of taxes across the union.

The statement said there was no intention to create a uniform corporation tax on company profits or link personal income tax rates across the EU.

But the UK will face a fierce battle to retain the tax haven status of areas such as the Channel Islands, and over a proposed "withholding tax" which could affect the City's traffic in Eurobonds and other savings and investments.

UK government 'in retreat'

William Hague on the Today programme
UK Conservative opposition leader William Hague told BBC Radio 4's Today programme the government was merely following the herd over the issue.

He said the government was "clearly in retreat".

The Vienna summit marks the end of Austria's presidency of the EU, and its President Viktor Klima is keen to use the summit to ensure preparations for the introduction of the Euro next month are in hand.

Mr Blair will be keen to stress his role in preparing a new, co-ordinated foreign and defence policy for the EU - stopping well short of a European standing army - to avoid the impression of the UK being sidelined because of its refusal to join the first wave of the single currency.

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