Kenny faces summit test on complex fiscal agenda

Taoiseach Enda Kenny faces a big test this week as European leaders return to Brussels on Thursday for the first of two summits in three weeks.

At issue is a seven-year EU budget beginning in 2014, a complex plan which will set binding limits on European expenditure right into the next decade. This exceedingly knotty negotiation is likely to drag on into Saturday or Sunday, with equally pressing questions in the debt crisis held over until the next summit in mid-December.

Ireland’s €1.7 billion share of annual farm spending is under threat in the budget talks, with obvious and potentially damaging implications for the public finances and for Mr Kenny’s standing with the powerful farming community.

With a bank-debt relief deal still elusive, this is tricky ground for the Taoiseach.

Given Kenny’s weak negotiating position, his fate in the summit chamber will probably be determined by the fate of his allies.

European Council president Herman Van Rompuy is pushing for cuts to the overall agriculture budget, but the Taoiseach has a friend in French president François Hollande, who is determined to avert any reduction in farm spending. Kenny may yet count on Italy and, perhaps, on implicit support from Germany.

But if Germany’s force in any European negotiation is not to be underestimated, Poland is to the fore in a large group of poorer countries who are campaigning for increased cohesion funding to modernise their economies.

They too can block a deal, meaning nothing can be agreed without all sides in this 27-country negotiation yielding something.

Countries as diverse as France, Poland, Austria, Italy and Romania lined up last week to criticise the Van Rompuy proposal.

Quite where all of this leads remains to be seen, but the agriculture question is only one of two dangers for Kenny.

There is a sense of heightened anxiety in Brussels that British premier David Cameron is preparing to wield his veto next weekend. If agreement is not reached, it would then fall to Ireland’s incoming presidency of the EU to settle the matter in the new year.

Such an outcome would greatly complicate the presidency, raising the stakes for Kenny as he seeks to make the best of an opportunity to recover some of the esteem Ireland lost in the economic collapse.

These talks take place in the shadow of a long and still-unresolved economic crisis which has curtailed budgets throughout the union and led voters to depose a large number of European governments.

It was always going to be difficult to strike an EU budget deal in that context, a situation made more tricky still by the fact that the new plan must be unanimously approved by all countries.

Budget freeze

This is where Cameron comes in. He has campaigned relentlessly for a freeze in the EU budget and argued that any increase would be glaringly at odds with the fragile economic climate of the real world.

In the vexed Westminster debate over Europe, this left Cameron with negligible room for manoeuvre at the summit.

His scope for compromise narrowed yet more when a band of recalcitrant Tory backbenchers – with the aid of the Labour opposition – defeated him in a domestic vote in which they called for an EU budget cut.

Almost one year after the British PM’s storied boycott of the fiscal treaty, this threatens to isolate him again in Brussels. Although that might still prove popular in London, it is a major hindrance to other member states.

In spite of pressure from countries like Germany, the Netherlands and Sweden for EU budget cutbacks, there would appear to be a consensus (outside Britain) that some kind of an increase is in order.

Any rise would come dressed up in the guise of austerity, but that is still unlikely to please Downing Street.

Predictably enough, the drama in London has led to another round of fevered speculation in Brussels over the prospect of an eventual British exit from the union. But even as ranking EU officials fret anew over the ultimate fate of its membership, they are preoccupied in the first instance with next week’s negotiation.

Some EU figures say privately that talks are already doomed because Cameron has left himself no wriggle room. The big question now, say European insiders, is whether he engages seriously in the talks at all.

“Does David bring his man-bag or not?” says one official. “It all depends on whether they come out to play,” says another.

Arguing against him is a chorus led by German chancellor Angela Merkel, the dominant political figure in the union.

As she faces into a difficult general election next September, the chancellor wants to settle as much outstanding European business as she can before the countdown to the campaign begins in January.

With prickly questions over the euro zone “banking union” still to be confronted at the next summit, there will be no time then to revisit the budget question.

Compromise

This leads some talks participants to hold out the hope of a pragmatic deal can be struck next weekend, their calculation being that Merkel might just be willing to do what it takes to bring Cameron on board.

That, however, assumes that he is amenable – and that a compromise acceptable to all can be found.

The seven-year budget is supposed put a cap on the overall expenditure limits, with annual spending to be settled year by year. Diplomats freely acknowledge that failure last week of talks on the budget for 2013 does not bode well for the summit.