Budget battle threatens more disunity for Europe

Already weakened by the confusion reigning over the future of its constitution, the European Union is now facing a bruising internal battle over money.

The 25 EU heads of government meet Thursday in Brussels for a two-day summit expected to be dominated by a fierce fight over who should pay what to finance the union, with Britain and France on opposing front lines.

The spectacle of public wrangling in defense of individual national interests - rather than a collective rethink - is unlikely to improve the European Union's image in the eyes of citizens increasingly dubious of its value, say some analysts.

"I don't think the voters in France and Holland" who rejected the putative EU constitution recently "expected a response about budget numbers and agricultural policy," says Francois Heisbourg, who heads the Foundation for Strategic Research, a Paris think tank. "They wanted something more substantive."

Some leaders argue, however, that the crisis caused by the Dutch and French referendums make the need for a budget deal this week even more urgent.

Agreement on a 600 billion euro ($725 billion) budget for 2007-2013 would show "Europe still works and is capable of taking decisions," said Jean-Claude Juncker, the Luxembourg prime minister who currently holds the EU presidency. "After the major difficulties that Europe has been through ... it would be advisable to reach an agreement."

Standing in the way of such a deal, however, are British prime minister Tony Blair and French president Jacques Chirac, who have used increasingly strong language in recent days to criticize each other.

Smarting from his defeat over the constitution, Mr. Chirac has sought to regain the political initiative by leading the charge against the EU budget rebate that London has enjoyed for the last 21 years.

Worth 4.6 billion euros, or nearly $5.6 billion, a year (and set to nearly double by 2013), the rebate compensates Britain for the fact that its small and efficient farm sector receives far fewer EU subsidies than other members, such as France.

It was first ceded to Margaret Thatcher, who famously demanded "I want my money back," and is now written into EU rules. But the rebate is deeply unpopular with the other 24 EU countries who have to pay for it, and who say it is not fair that such poor countries as Poland should have to fund such a wealthy country as Britain.

The rebate does, indeed, run counter to the logic behind the EU budget, which aside from agricultural subsidies goes mostly to poorer regions of Europe to even out living standards across the continent.

Mr. Blair has insisted that he will discuss the British rebate only if the whole EU budget structure is reformed so as to reduce agricultural subsidies, which currently eat up 45 percent of the EU budget. Chirac, whose country benefits the most from that money, has said he is not prepared to renegotiate the Common Agricultural Policy that provides the subsidies.

The sight of western European nations squabbling over money worries the new eastern members, says Andras Balogh, a former Hungarian government adviser.

"The new members really accepted that traditional nationalist chauvinist sentiments should be buried," he says. "If the message from Brussels is different, that everyone is fighting very fiercely for his national interests, the demands that we defend our patriotic interests will rise too."

Mr. Balogh, however, says "compromise is very possible" because the leaders meeting in Brussels "want to preserve the EU's achievements and give new life to the union." If a fresh failure "were considered part of a process of disintegration, that would be disastrous," he adds.

Other observers are more doubtful. "The rhetoric has been pretty strong and people have boxed themselves in," worries Alasdair Murray, an analyst with the Centre for European Reform in London. But there is no need for a budget agreement at this stage, he points out, since it will not come into force until 2007.

"There is a difficult balance between the understandable urge to show that you can reach an agreement in some form, doing business as usual, and actually reaching a good deal that shows you are thinking about reform," he adds.

There might even be a silver lining for the unity of the EU in all the bitter arguments expected, suggests Sergio Romano, a prominent Italian political commentator.

"Fights over money are never very noble or elegant to watch," he says. "But at least we are fighting over something we own in common. We are fighting for our share of something that belongs to all of us."