Britain has taken up the EU's rotating presidency at a challenging time in the history for the Union. Not only was the proposed constitutional treaty derailed by French and Dutch voters, but the most recent EU Summit broke up acrimoniously, without an agreement on the 2007-2013 budget. These setbacks seemed to expose lingering weaknesses and divisions within the Union, dealing a blow to prospects for further expansion. Overcoming them and moving ahead will depend on co-operation and willingness to compromise, economist and former Romanian Finance Minister Daniel Daianu says.
An international rescue effort recently brought to the surface a seven-man crew of a Russian submarine trapped under 600 feet of water. A British Royal Navy underwater robot, the Scorpio Craft, proved essential to untangling a web of fishing nets and a misplaced antenna. The endeavour's success was in stark contrast with the Kursk submarine disaster five years previously, in which all crewmembers perished amid what many perceived as the Russian government's reluctance to seek outside help. There are lessons in this story -- among other things, lessons about the importance of co-operation and solidarity.
Britain is also playing a central role in a crisis of a different sort -- the turmoil that has come over the EU following French and Dutch voters' rejection of the Constitutional Treaty and the subsequent failure, at the June European Council summit, to agree on a budget for 2007-2013. These setbacks appeared to expose lingering weaknesses and divisions within the Union. As the current holder of the EU's presidency, Britain has taken on the challenging task of helping to steer the Union through a period of turbulence and self-questioning.
The budget fiasco is a bitter pill for the EU's new member countries (NMC). Whereas long-standing members derive only fractions of their national revenues from the EU's budget, the situation is much different for the NMCs, whose per capital incomes range between 35 per cent and 70 per cent of the EU average. EU structural and cohesion funds can reach up to 4 per cent of their GDP. Some NMCs have been ready to accept smaller net disbursements of EU funds in order to lower the Union's budget to 1 per cent of the EU GDP, rather than the 1.16 percent proposed by European Council President Jean-Claude Juncker, to no avail. Neither France nor the UK, the two heavyweights involved in this "battle", have demurred.
Since Britain is a main contender in the budgetary debate, perhaps an analogy with the Russian submarine rescue can provide some inspiration. At a time when the Union is facing peril, compromise and co-operation will be vital to mountain a successful "rescue effort".
Unfortunately, the draft EU budget was submitted for approval before the parties reached agreement on how to distribute the funds between so called "forward-looking" support for research and development, structural reforms and "backward looking" agricultural and regional policy activities. Further worsening the negotiating climate, the summit also combined a debate over the Union's Common Agricultural Policy (CAP) with debate over Britain's rebate.
It is hard to dispute that the CAP needs further reform, considering the failure of the Doha Trade Negotiations and the plight of the many poor countries that rely on the export of farm products. On the other hand, it would be unwise to make EU farm policy dependent on national prerogatives. EU member countries could end up fighting each other with subsidies, in spite of competition policy rules, thus further crippling developing countries' interests. Arguably, the solution is to scale down subsidies to farmers, but in a socially acceptable way and timeframe and by framing CAP within overall economic policy. At any rate, a consensus should not have been out of reach during the Summit, and the need for CAP reform -- though real -- hardly constitutes a valid reason for derailing the 2007-2013 budget.
The British rebate is a more complex issue. British pundits and politicians, Tony Blair included, frequently extol their country's economic success, demonstrated by higher growth and lower unemployment than in most of the core of the old EU. They may be overshooting, however, when they point the finger at an underlying economic model that should be propagated throughout the Union. After all, the best economic performance in the EU is on the Scandinavian fringe, which suggests that the "European social model" can work when labour market reform and proper research and development are undertaken properly. And French and German industrial prowess should not be underestimated.
Certainly, however, the British have a point when they insist on more workfare -- as opposed to welfare -- and on greater market flexibility. Their success over a period of two decades, however, undermines the logic of the Rebate, which was meant to reconcile the low UK per capita income decades ago with the implications of a weak farm sector. The UK now has a considerably higher income per capita -- a fact which clearly points to a need to reconsider the Rebate.
Finally, what some say about regional policy being a waste of resources is wrong, both conceptually and politically. There certainly has been some waste of resources. But it is hard to deny that the economic development of Spain, Portugal, Greece and Ireland is to some extent also due to the inflow of EU funds. This flow will be even more important for most of the NMCs, certainly for Bulgaria and Romania and eventually for the Western Balkans, which are less affluent societies with comparatively undeveloped infrastructure. Politically, it would be more than myopic to practice arm-twisting within the Union for the sake of pleasing home constituencies.
The British presidency should convene an extraordinary meeting of the EU council for the sake of mending fences and reaching a compromise on the budget. Politicians now have a chance to show that they can match the valor of the Royal Navy. For this to happen, however, there is need to prepare the ground better technically and show statesmanship at a time of international tension.
By: N. Peter Kramer
