EU budget talks wrangle with controversial cuts to Cap and regional funds

EU leaders on Thursday launched into  the first difficult round of a budget negotiation process that promises be every bit as tortuous, far more divisive,  and as complex as the Brexit process. And arguably as important.

Officials said the initial round of statements of national positions reflected deep chasms between northerners and southerners, old Europe and new Europe, net contributors and net beneficiaries, agriculture-based economies and  urbanites. Commission hopes that the deal can be wrapped up by next summer seem forlorn.

Ireland straddles many of those divides.  The Taoiseach is understood to have told fellow leaders that Ireland would agree to contribute more to the EU as long as its spending is reformed. He insisted that although Ireland is now a net beneficiary it remains committed to continuing cohesion and farm spending.

At issue is the seven-year 2021-2027 multiannual financial framework (MFF), Commission proposals to for the EU spend €1.279 trillion in the aftermath of Brexit and the €13 billion hole left in the budget by the UK. And its ambitious plans to spend substantially more on new budgets on migration management and border controls, defence, and  extra science, particularly digital, research. While, in theory, protecting the old spending programmes.

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In practice what is proposed is a 5 per cent chop to the Common Agricultural Policy, currently nearly 40 per cent of the union’s budget, and a 7 per cent reduction in regional funds, including cohesion funding for the poorer states, which overall now account for one-third of spending.

The financial blueprint unveiled by the commission smashes through the previous budget cap of 1 per cent of the EU’s gross national income (GNI), and wants to push overall spending to 1.114 per cent.

Among the many issues raised yesterday are concerns by the Hungarians and Poles that the leaders will try to leverage political reform by threatening their funding. States such as Germany have expressed resentment at funding programmes in states that refuse to demonstrate reciprocal solidarity with migrants.

On foreign policy, following a discussion of Russia's interdiction and arrest of Ukrainian ships in the Sea of Azov the leaders agreed to roll over the EU's  continuing sanctions on Russia, introduced after the annexation of Crimea.  France's Emmanuel Macron expressed disappointment at Moscow's continuing failure to meet obligations in Ukraine line with the 2015 Minsk agreement.

After it opened a bridge across the Kerch strait in May, Russia has gradually brought the entire Sea of Azov area under its control, causing severe economic damage to the Ukrainian trading ports of Mariupol and Berdyansk. The EU may offer financial aid to the affected regions, but, although some hawkish states are calling for additional sanctions, EU diplomats say they are not planned for the time being.

The meeting also discussed plans for a forthcoming summit with the League of Arab States which is likely to focus on possible common approaches to Mediterranean migrant flows, although diplomats stress the need for a more rounded all-encompassing relationship .

The council will on Friday morning move on to work on completing monetary and banking union. They will agree measures to strengthen the European Stability Mechanism, the union’s bailout mechanism,  and the establishment of  a banking “backstop” for the Single Resolution Mechanism,  which deals with default in the biggest banks.

There is likely to be some debate over French demands for a budget for the euro area to create a stabilisation instrument to  help member states weather asymmetric economic shocks. A consensus is likely on asking the commission to continue work on the issue without any agreement in principle.

Leaders will debate reform of the asylum system which is deadlocked over demands by frontline states to amend the “Dublin” regulation , which determines which EU member state is responsible for the examination of an application for asylum.

President of the European Parliament Antonio Tajani used his customary address to leaders at the beginning of the EU summit on behalf of MEPs to emphasise the need to pass the whole package, opposing moves to leave aside those parts which have not been agreed. "The seven files stand together," he said.