A deal to allow the UK to defer its EU budget debt is being held up by MEPs. Yet that could be more about political theatrics than holding member states accountable.
On 1 December, the British government will in theory be hit with an interest rate of over 2% on its €2.12 billion of outstanding EU payments. By 1 January, it will be paying 2.25% in interest; by 1 February, the figure will be up to 2.50%.
Yet in reality, the United Kingdom has little to worry about. It knows the slate, including millions of euros in interest, will be wiped clean the moment that the European Commission delivers on a promise it made to give Britain (and others) some breathing space.
The problem is that doing deals in Brussels always presents an element of risk. That was the case when Kristalina Georgieva, the Commission vice-president for the budget, offered David Cameron, the UK’s prime minister, a dignified way out of paying his €2.12bn EU bill when it was due, because the European Parliament did not hesitate to use the situation to gain political leverage.
Georgieva’s reasoning was relatively straightforward. As a result of highly complex budget calculations, the UK found itself in the unenviable position of having to pay an unusually large amount of money into the EU’s budget.
While the figure of €2.12bn should not have come as a complete surprise to British diplomats, it is true that the annual adjustment of the financing of the EU budget is notoriously fickle.
The amount that each government has to pay is linked to the gross national income (GNI) and the value added tax (VAT) that it collects. But both of these are linked to statistics that merge both estimates and final data, meaning that they need to be constantly updated.
Yet even allowing for the vagaries of the system, just why the UK was hit so hard this year is not entirely clear (the Netherlands also faced a higher than usual bill of €642 million, which it has agreed to pay by 1 December).
A briefing paper prepared by the European Parliament suggests the problem is that member states and the Commission recently stepped up their efforts to resolve “problematic elements from the past” – leading to the revised GNI figures provided by member states covering a larger timeframe. This “contributed to the magnitude of the adjustments”.
For Cameron, the bill could not have come at a worse time. Already outflanked at home by the Eurosceptic UK Independence Party (UKIP), the EU cash-grab was political poison. When the reality of the payments kicked in, Cameron had a much reported outburst at the European Council summit in late October.
The Commission responded by being unusually accommodating. Georgieva offered to change the rules so that all EU member states could opt for an “extended deadline for payment” (1 September of the following year) under “exceptional circumstances”. The deal would be reserved for cases in which the total requested adjustment payment was “more than half of the total monthly contribution” of all member states.
The Commission’s new-found flexibility was tailor-made for the UK. Cameron’s position was also boosted by the revelation that his government was due to receive a €1bn rebate on the EU payment – a legacy of a deal struck by the British back in 1985.
“We have halved the bill, we have delayed the bill,” George Osborne, Britain’s finance minister, said in Brussels earlier this month.
Parliament seizes the initiative
The problem with the deferral deal was that to be implemented in time for the 1 December deadline it required the “opinion” (but not the outright approval) of both the European Court of Auditors (ECA) and the European Parliament.
The ECA responded late on Thursday (27 November), begrudgingly acknowledging the Commission’s need to act quickly on the matter. In its opinion, the ECA gives the deal the green light while calling on the Commission to address long-standing concerns that the calculation of the annual adjustment figures is overly complex and unpredictable.
But the Parliament had other plans. On Tuesday, a plenary sitting in Strasbourg opted to thumb its nose at the Commission’s request that the issue be dealt with as a “matter of urgency” and effectively scuppered any chance that the deferral could be implemented by 1 December.
If nothing else, the Parliament was transparent about its motivations: it wanted to put both the UK government and the Commission under pressure over the EU’s 2015 budget.
“There is an urgent need to approve the budget for 2015,” said Gérard Deprez, a Belgian liberal MEP and the bill’s co-rapporteur. “There is no urgent need to give a premium to member states to reach their internal balance.”
In other words, the Parliament was happy to use the issue of finding a face-saving measure for Cameron to gain leverage on the somewhat unrelated issue of the budget. The Council, representing the EU member states, wants to reduce budget spending, with Germany and the UK leading the calls for austerity; the Parliament wanted to put them under pressure.
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Yet behind the scenes the British are not too concerned about the Parliament’s intransigence.
Firstly, the British know that when a deal is finalised (and they say ‘when’ rather than ‘if’) it will be retrospective – which means all interest payments accrued from 1 December will be scrapped. Secondly, they point out that the Council, not the Parliament, has the real authority to deal with this. The Council has already written to member states on the deferment of payments issue and national governments appear to be firmly on board. It is effectively a done deal.
Which is why the UK government is not straying from its plans of repaying its EU debt in two instalments, in July and September 2015. Anything else is just political posturing.