Thursday, November 15, 2012

Grey mouse rocks France

EU Council president Herman van Rompuy has proposed an EU budget that is €20bn less than the current EU budget and at least €75bn less than the European Commission's original proosal. It focuses cuts on agricultural spending including a €13.2bn reduction in farm subsidies which drew a furious response from France. It does also plan to cut the UK rebate of €3.5bn.

There is also a row going on about cohesion funds. The Friends of Cohesion constitute a group of 14 member states from central and eastern Europe, with some from Southern Europe. They face a group of member states known as the Friends of Better Spending, but there are only seven of them (Austria, Germany, Finland, France, Italy, Netherlands, Sweden. Another name could be the 'group of net contributors': Better Spending .

Not all of those seven would sign up to a significant reduction in farm spending. Indeed, one could only rely on the Netherlands and Sweden.

Van Rompuy's proposals would mean €13.2bn less for Pillar One (P1) and €8.3bn less for Pillar Two (P2) for the 2014-2020 period than wanted by the European Commission in its initial CAP reform proposals. The cut is three times greater than the €6.8bn the Cypriot Presidency had suggested trimming off earlier this month, proposals which themselves caused a big storm.

The Cypriot plan would have seen €50bn cut from the overall EU budget, but Van Rompuy’s proposal would double that figure to nearly €100bn. Under the Council President’s plan, spending on P1 direct aid payments and market tools over the seven years would go from the €283.05bn tabled by the EU executive down to a maximum of €269.85bn, nearly 4.7% less. The CAP would bear the brunt of further cutbacks as a planned 'Crisis Reserve' to fund emergency measures - for which the EU executive had earmarked €3.5bn - would also be included under P1.

The P2 budget for co-financing national rural development programmes should go from €91.97bn to €83.67bn, around 9% less, Van Rompuy said. The Commission proposal for P2 already involves a 10% cut in real terms from 2013 to 2020, so a further €8.3bn reduction could mean some member states seeing their rural development envelope cut by more than 20% in real terms. Potentially, at least, this form of spending can be more socially useful than Pillar 1.

Somewhat predictably, EU Farm Commissioner Dacian Ciolos responded that the suggestion 'goes against efforts to make the CAP fairer, greener and more efficient'. He also said that this was the 'first step away from a common agricultural policy' and that it could set the CAP budget 'back 30 years'.

With the crunch talks on the multiannual financial framework set for next week (November 22-23), one interpretation is that the Council President has decided that some appeasement of the net contributing states is needed to ensure that the summit is not ‘dead on arrival’ and that progress can be made.

Meanwhile, Agra Europe analyst Brian Gardner has suggested a way to knock around 25% off the EU budget for 2014-20 in his latest comment article – reduce the size of the CAP budget by 75%.

He argues that with the strong likelihood that crop prices will remain at historically high prices in the years to come, largely due to increasing demand, the EU can afford to only provide subsidies to those farmers who really need it.

The EU's most efficient cereal growers in France, Germany and the UK, for example, with average yields of above eight tonnes per hectare, can make adequate profits without receiving EU income subsidies, he argues.

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