EU leaders face late-night budget battle

EU leaders face tough late-night negotiations on the bloc's 2014-20 budget Thursday under the watchful eye of a newly assertive European parliament unhappy at the prospect of major spending cuts. In November, leaders tried and failed to narrow sharp differences and while a compromise is expected to emerge this time, there is no certainty other than that the budget talks will be long and difficult. An agreement hinges on finding a balance between British and German-led calls for EU cuts to match the austerity of national governments, and French and Italian-led demands to ring-fence money for investment in areas that can generate jobs and growth. The European Commission, the EU's executive arm, initially wanted a 5.0 percent increase in member state contributions to 1.04 trillion $1.4 trillion) euros for 2014-20 but EU President Herman Van Rompuy cut that back to some 973 billion euros for the failed November summit.Now the task is to get closer to 900 billion euros, or about one percent of the EU's total Gross Domestic Product -- modest on that basis but crucial at the margins for many member states. The differences are serious enough but the situation has also been clouded by British Premier David Cameron's promise of a referendum on EU membership if he can re-negotiate London's ties with Brussels. "I can't exclude that we fall for the sirens of ridicule," said Luxembourg Prime Minister Jean-Claude Juncker, Europe's longest-serving head of government and the doyen of such gatherings after eight years chairing the eurozone finance ministers' forum."We will correct the figures downwards, not upwards," Juncker said. The 2014-20 budget tops the agenda for the two-day summit starting at 1400 GMT, with Friday's sessions set to cover relations with the EU's north African neighbours and progress on free trade deals with the United States, Japan and others. The EU is hoping that increased trade can deliver much needed growth to an economy snagged in recession and suffering record unemployment, another reason cited for protecting investment spending. The proponents of a trimmer EU budget argue that cuts should be applied across the board and reach right down into wages and tax-free benefits for about 35,000 EU civil servants -- some of whom have begun strike action against possible redundancies.Meanwhile, the EU parliament has been flexing its muscles as its approval is now needed for any budget deal, with assembly head Martin Schulz saying lawmakers were ready to throw out any agreement they think falls short. In a possible foretaste of things to come, several leading MEPs have warned against "suicidal" or "fraudulent" fixes which undercut growth and jobs. Juncker also cautioned Wednesday that EU leaders will not decide the issue on their own since parliament's position will be "important and central ... parliament has to give its assent, not just its opinion." The vast bulk of EU spending is accounted for by the Common Agricultural Policy and Cohesion Funds, the money spent to help new members invest in the social and economic infrastructure needed to catch up with their more-established partners. The focus up to now has been on the total contributions or commitments made by member states to the budget but with Britain pushing hard for sharp cuts, the emphasis has switched to the other side of the ledger books -- actual spending. In November, Van Rompuy proposed a budget based on "commitments" of 973 billion euros and diplomats say he will reduce that to 960 billion euros in search of a compromise. He is also expected to lower spending -- the payments made to member states -- closer to 900 billion euros, a level Britain's Cameron might be more comfortable with but which MEPs would likely condemn outright. But that leaves the question of what happens if the EU were to spend all the budget up to the 960 billion euros commitments agreed and then Britain and perhaps others refused to make up the gap. In that event, the EU would face the prospect of running a budget deficit, uncharted territory for Brussels, if all too familiar to national governments. Van Rompuy meanwhile, sounded positive Wednesday of getting a deal. "I am confident that with some adaptations, the proposal I made on 22 November can constitute the basis for a deal," he said.