Last updated: February 7, 2013 12:28 pm

EU budget hangs on creative accounting

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European Union Council president Herman Van Rompuy delivers a speech after receiving his award of the European Prize Coudenhove-Kalergi 2012, in Vienna, Austria on November 16, 2012.©AFP

Herman Van Rompuy’s proposal is expected to weigh in at €960bn

Herman Van Rompuy, the European Council president, will unveil a compromise proposal for the EU’s long-term budget as leaders from across the region descend on Brussels today for their second attempt to nail down an agreement on one of the bloc’s most contentious issues.

Mr Van Rompuy’s proposal is expected to weigh in somewhere around €960bn, or 1 per cent of the bloc’s gross national income – a reduction from the €972bn offer left on the table after a November summit ended in failure.

Creative accounting is set to play a role in reconciling the distance between British demands for a budget freeze and French calls for more robust spending. The two nations have emerged as central combatants in the squabble over the budget, which will cover spending from 2014 to 2020 and will dominate the EU summit.

On the eve of the gathering, all sides warned that a deal, though do-able, would be difficult, with fights brewing over civil servants’ pay, research spending and a slew of other items.

Diplomats have warned that if leaders fail to get a deal at this summit then they may not be able to return to the budget for months, possibly next year. That delay would disrupt billions-of-euros in EU programmes, particularly development funds, which cannot be drafted until the broader budget is in place.

In a worrying sign, the summit was running two-and-a-half hours behind schedule before it had even formally commenced.

In an effort to satisfy both the UK and France, Herman Van Rompuy, the European Council president, is expected to refine the €972bn proposal by offering deeper reductions to budget payments but more modest ones to budget commitments.

Commitments are the maximum amount of money authorised by the EU over the seven-year period, and have been the standard measure for EU budgets. The payments figure is the agreed ceiling for spending, and is always a bit lower – either because projects do not materialise or emergency funds are not tapped.

Through more than a year of negotiations, David Cameron, the UK prime minister, has focused exclusively on payments, arguing that the figure better reflects the amount of money leaving the Treasury to cover Britain’s EU obligations. It also has the benefit of being lower, and thus less objectionable to eurosceptic British voters.

By widening the spread between the two numbers, Mr Van Rompuy could make it plausible for both Mr Cameron and François Hollande, the French president, to claim victory.

Some estimates circulating on Wednesday suggested the cuts to payments could total as much as €30bn, bringing that figure to just over €900bn, while commitments would be reduced by only €15bn, leaving them nearer €960bn.

“I think there will be some slightly creative accounting here,” one senior EU official said.

Some have cautioned that the widening of the gap could pose problems in the future if it leaves the EU without funds to pay for projects to which it has already committed.

But a senior German official said his government was “ready to go along with” Mr Van Rompuy’s approach, and that it would allow “greater flexibility”.

After lending support to Mr Cameron during a previous – and failed – budget summit in November, Germany has been working to bring France on-board for a deal. France has signalled its unhappiness not just with the hardline stance adopted by Mr Cameron but also with Germany’s willingness to accept deeper cuts than Paris wants.

Mr Hollande and Angela Merkel, the German chancellor, were due to meet at the Stade de France in Paris on Wednesday evening to discuss the budget – and to watch a France-Germany football match.

They were not planning to table a compromise proposal at the summit, according to the German official, but intensive contacts meant that “our positions have got steadily closer”, he added.

Mr Hollande, anxious to limit cuts in areas such as research and infrastructure that he has presented in France as vital to regenerating growth, summed up his position in a speech to the European parliament on Tuesday: “Yes to economies, no to the weakening of the economy,” he declared.

The Elysée also continues to simmer over the rebates enjoyed by the UK, Germany, Sweden and Austria – for which Paris is the top contributor: “We can’t accept any more that our contribution to each rebate goes up,” a senior official said.

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