Political impetus to nail deal may outweigh divisions

AnalysisThere is cautious belief in Brussels that an agreement will be reached

European leaders meet in Brussels today in a bid to strike a deal on the EU budget, having failed to reach agreement in November.

At 3pm today European Council president Herman Van Rompuy will present his tweaked EU budget proposal to EU leaders, but the real conversation began a long time ago.

It's more than 18 months since the European Commission published its initial proposal on the so-called Multiannual Financial Framework, which will govern EU income and expenditure for the next seven years. Somewhat unfortunately for the EU, the substantive debate on the €1 trillion budget coincided with a period of public disillusionment with the EU.

Reaction to austerity

Arguing for a bigger budget at a time of widespread austerity across the continent was never going to be easy. For Britain, it also fed into a wider national debate about membership of the European Union, throwing the issue of EU salaries and administration costs into the spotlight at a time when Britain is trying to lobby for EU reform.

Nonetheless, the cautious belief in Brussels is that an agreement will be reached, for political reasons if nothing else. Europe cannot afford not to. As European Commission president José Manuel Barroso said yesterday in Strasbourg, reaching an agreement was a question of "external credibility" and would send out a "negative message at this time of fragile economic recovery".

Minister of State Lucinda Creighton delivered a similar message to MEPs, arguing that failure to secure a deal would "set us back just at a time when markets are beginning to discover renewed confidence".

Pressure on Europe has eased in the last six months, spurred by the European Central Bank's announcement of a bond-buying programme last summer. But the frailty of that tentative recovery has been exposed in the last few days, as Italian and Spanish bond yields have riseamid concern about political uncertainty in both countries. Failure to agree a budget deal this week would be another sign of a union beset by division, something EU leaders want to avoid at any costs.

But while the political impetus to secure a deal might outweigh differences, real divisions do remain between the member states about the budget.

Today's negotiations are likely to focus on how much more Van Rompuy is prepared to cut from the €973 billion ceiling proposed in November. With the UK rumoured to be pushing for a €30 billion reduction in payments, discussions will centre on where the axe will fall.

Firing line

In the firing line are parts of the research and development portfolio, particularly the Connecting Europe programme, which funds transport, energy and telecoms infrastructure projects of a trans-European nature.

The UK is also likely to push for a cut to the administration budget, something that is - unsurprisingly - strongly opposed by the European Commission and Parliament. While any cut could be seen as a symbolic victory for British prime minister David Cameron, its financial effect would be negligible, and could well mask a failure to secure any meaningful reform of the Common Agricultural Policy and cohesion funds, which continue to dominate EU spending. Jibes from François Hollande and, less forcefully, Enda Kenny, about the rebate also serve to remind Britain of its own idiosyncratic benefit from Europe, as member states head into the negotiating room. France and Italy are said to be particularly unhappy about the rebate situation, though moves to protect Cap and cohesion funds will assuage grumblings.

With pressure to secure a deal for the greater European good, such political give-and-take negotiations will determine the outcome of today's negotiations. The bigger ideological questions will have to wait for another today.