€2.1bn bill further sours London’s relations with EU

It was a three-act summit, and the stresses and strains on EU leaders were all too evident.

Euro zone leaders left Brussels last evening after a plea from European Central Bank chief Mario Draghi for assertive action to prevent a third recession. This followed tetchy exchanges with British premier David Cameron over demands for a €2.1 billion budget repayment from London. The leaders struck a new deal to cut greenhouse gas emissions by 2030, but they steered well clear of any effort to settle national targets.

Taoiseach Enda Kenny declared himself pleased with the climate change agreement, which accords special recognition for agriculture. This will remove shackles from Irish farmers as they build up the dairy sector after the elimination of milk quotas, Kenny’s key objective going into the talks.

If there was a little something for everyone on this front, that was not the case in Cameron’s EU budget woes or Draghi’s demand for a “coherent” new strategy to overcome the crisis. Both dramas centre on the two biggest internal questions facing EU leaders: Britain’s ever-worsening relations with Brussels; and the unresolved fallout from the debt crisis that roiled the single currency for years.

The British question surfaced as an unexpected twist late on Thursday night when it emerged, via the Financial Times, that London has been told to pay €2.1 billion into the EU budget by December. This followed a recalculation of gross national income. By yesterday morning, the story had hit the front page of most British papers.

Merkel’s chagrin

Cameron rallied support from the Dutch and Italians to secure an emergency meeting of finance ministers next month. This was not to the liking of German chancellor Angela Merkel and incoming European Commission chief Jean-Claude Juncker, whose nomination Cameron opposed.

Nine countries, Ireland among them, are faced with extra budget payments this year due to a recalculation of national income figures to reflect the “black economy”.

Kenny appeared unperturbed by Ireland’s €6.4 million bill, but the sum in question is nowhere near the €2.1 billion required of Britain and lesser but still substantial requirements of Italy and the Netherlands. For Cameron the whole thing was “completely unjustified and completely unacceptable”. He said Britain would not pay the sum before December 1st.

Despite the commitment to revisit the issue in November, European officials were sceptical about the possibility of a recalculation in Britain’s favour. Although rows between London and Brussels are not new, Cameron’s critics pointed out his country had agreed to the revised calculation methodology four years ago.

But timing is everything. It was only last Sunday that Juncker’s predecessor, José Manuel Barroso, dealt a blow to Cameron’s push for a cap on migrants entering Britain. With the Tories under siege from the anti-EU UK Independence Party in the run-up to the British election next year, the latest debacle underscores how toxic the European question has become. Cameron has toughened his talk on immigration, but he faces criticism for following Ukip’s lead rather than confronting the party.

Shaky economy

It was in this heated milieu that Draghi addressed a lunch meeting of euro zone leaders yesterday. With 25 million unemployed in the euro zone and inflation at 0.3 per cent, concerns remain about the health of the economy underpinning the single currency.

Although Merkel is concentrating on fiscal discipline, Draghi called for a continued commitment to structural reforms and said a strong improvement in the business environment was needed.

Having signalled a demand for increased public investment in August, all of this was taken as code for resolute political action to match efforts by the ECB to boost growth and inflation by expanding its balance sheet.

Attention now falls on bank stress test results tomorrow. There are reports 25 institutions could fail, but the objective was to provide a credible assessment of banking. It still feels like Europe is a long way from recovery.