Early morning deal ends year of horsetrading
By George Parker in Brussels
Published: December 18 2005 19:45 | Last updated: December 18 2005 19:45
The European Union finally agreed a €862bn, seven-year budget deal at 3am on Saturday, at the end of a protracted, painful and at times humiliating set of negotiations which portrayed the EU in a dismal light. If the year-long horsetrading that led up to the final deal was unedifying, there was one point upon which all EU leaders agreed: getting no agreement would have been even worse. In its simplest terms, failure to agree the 2007-13 financial package would have delayed the transfer of promised billions of euros to the new EU members of the former communist bloc. But the political damage of a failed budget negotiation at the end of the EU’s grim 2005 – which included voters’ rejection of its draft constitution – could have set off further paroxysms in the 25-member club. Many predicted that Tony Blair, the British prime minister, could not broker a budget deal because of his commitment to the UK’s budget rebate. After he compromised on that, he ended his six-month EU presidency with plaudits ringing in his ears in Brussels and howls of protest at home. Apart from the budget deal, the Brussels summit also raised hopes that Europe’s leaders might even have found a way to work together and reach other agreements in a cordial atmosphere. French President Jacques Chirac said Mr Blair had behaved with “courage, initiative and responsibility”; Angela Merkel, German chancellor, said he had shown “a great deal of readiness to compromise”. It had not looked so promising at a dinner on Thursday night, described as “poisonous” by one British official, as all sides set out tough negotiating positions. The atmosphere inside Brussels’ Justus Lipsius conference centre changed on Friday morning once news seeped out that Ms Merkel was bringing Mr Blair and Mr Chirac together on the question of the British rebate, and the terms of a review on future EU spending in 2008-9. A deal finally became likely over lunch on Friday when Ms Merkel proposed a budget equivalent to 1.045 per cent of the EU’s gross national income, up from the UK’s proposal of 1.03 per cent. “That then became the bottom line of the negotiation,” said one British official. “If she hadn’t said that, we would have probably gone for 1.04 per cent.” With an extra €4bn ($4.8bn, £2.7bn) now up for grabs, Mr Blair had to make sure it was fairly distributed. Spain, Italy, the Netherlands, Sweden and Ireland were bought off, but Hungary and Poland were still holding out for more. Eventually Mr Blair presented the final plan, still unsure whether Kazimierz Marcinkiewicz, Poland’s prime minister, would accept. It took an offer of a further €100m from Ms Merkel, a switch of EU aid from east Germany to Poland, to close the deal. “It was the most beautiful and wonderful gesture of solidarity,” said Mr Marcinkiewicz. British officials said it was slightly less romantic: the offer was “pre-cooked” with Ms Merkel, in case the Polish prime minister “kicked up rough”. Most EU leaders did not have the appetite to pursue the budget haggling into 2006, a dispute which had highlighted tensions between Europe’s rich and poor countries and provided yet another arena for the long-running Anglo-French dispute. The negotiations were at times humiliating for some member states, notably when Mr Blair decided to cushion payments by British taxpayers by cutting €16bn earmarked for eastern Europe. Britain’s ambassador to Warsaw aggravated the offence when he “joked” that his host country was “rude and ungrateful”. The budget dispute also illustrated Europe’s ability to lose sight of the big issues, devoting political energy instead to fighting over relatively small sums of money. At issue in the final stage of the talks was a €20bn difference between the British proposal and an earlier draft from Luxembourg rejected in June, spread among 25 countries over seven years. The US federal budget for this year alone was €2,068bn. But the budget dispute is not yet over. The European Parliament still has to give approval and could flex its own muscles to demand a more “ambitious” settlement. And the talks will start all over again in 2009 when the EU begins its fundamental review of the budget, with Mr Blair hoping cuts to farm subsidies could be implemented before the end of the next budget period in 2013. Time may judge that yesterday’s agreement was just a holding settlement, until the budget is properly modernised by the next political generation: by 2009 Mr Blair and Mr Chirac will have left the political stage. Will the successor to Mr Chirac, a defender of French farming interests for 40 years, be any less willing to reduce rural subsidies, which consume 43 per cent of the EU budget? Perhaps then Britain’s rebate could finally be dismantled alongside the EU’s common agricultural policy.
The leaders of the European Union have  struck a deal on the 2007-2013 budget. Negotiations were characterized by host country's Prime Minister Tony Blair as "extraordinarily complicated".

The biggest issues were different views between France, the UK and rest of the EU. UK wanted to keep it's high membership discount, negotiated before economic growth made it one of the richest members, while other members wanted it to participate with relatively equal net payment. France's primary issue was maintaining farming subsidies. Rest of the Europe was mostly interested in modernizing European economy by decreasing both UK's discounts and France's subsidies. Germany appeared as a pulling force between France and UK to secure the deal.

France continues to receive it's highly criticized subsidies. The UK gave up 10.5 billion euros in exchange for a review of farm subsidies in 2008-2009, but the net membership discount will actually increase. Small member states such as Sweden increased their role as largest net payers in relative to output.

Key features in the reached deal:
* Total budget will be 862.36 billion euros, equaling to 1.045% of the EU's total GDP
* Development aid will be 157 billion euros
* Farm budget will be 293 billion euros

Most see the resulted budget as a poor comproromise, but necessarily for the state of union and financial planning in the new member states.