Setback to Irish hopes on structural funds

Ireland's attempts to retain significant EU structural and cohesion funding after 1999 took a severe blow at the weekend when German and Dutch ministers demanded massive rebates on their contributions to the EU budget.

The Dutch Finance Minister, Mr Gerrit Zalm, attending the informal meeting of EU Finance Ministers here, threatened to block the whole of Agenda 2000, the Commission's reform programme and financial perspectives for the post-1999 period, if the Dutch financial contribution to the Union is not brought into line with its per-capita income.

The threat recalls Mrs Thatcher's successful, but disruptive, campaign for a British rebate in the early 1980s which paralysed the EC for five years and eventually got Britain £2 billion a year back.

Mr Zalm's German counterpart, Mr Theo Waigel, making the same demand for a rebate, said that those countries which qualified to join the euro should by definition lose their entitlement to cohesion funding.

A reluctant Commission has now been asked to produce an objective study of the real budget winners and losers - the Luxembourg Prime Minister and president of the Council, Mr JeanClaude Junker, described net contribution figures being circulated by the Dutch as "pure fantasy". Irish sources said "very strong arguments" were made against opening up the debate.

The Commission's strategy in Agenda 2000 had been to use the natural growth in current revenues from the upturn in the European economy to fund most of the enlargement costs while not raising the overall ceiling of spending beyond the 1.27 per cent of Union GDP agreed in Edinburgh. Ministers confirmed over the weekend that they expect that 1.27 per cent ceiling to be kept to.

But the formula depends on no significant change in national net contributions to the budget, a review of which would have to wait until 2005. That assumption has been blown out of the water by the Germans and Dutch, both facing elections in the next period. The fear among diplomats is that the required unanimity for any agreement on structural funding is now likely to be far more difficult to achieve.

Although German sources insist their main targets for extra cash are the Danes, Belgians, and Luxembourgers, any rejiggng of the budget is likely to call into question the "soft landing" promised to Ireland as its strict eligibility for both structural and cohesion funding runs out.

Mr McCreevy has responded by arguing that any suggestion that states should get out of the EU exactly what they contribute runs counter to a "fundamental principle", the spirit of solidarity on which the Union is based. "The same logic applies to countries," he argued.

The point is to turn countries into net contributors to the budget. "I would be delighted for Ireland in 10 years time to be a net contributor," the Minister said. "That should be the objective of all countries."

Mr Zalm did not pull his punches. Either structural funding worked to reduce countries' dependence on the EU - in which case their entitlements should then be reduced - or the structural funds were ineffective - in which case they should be abolished and the funds returned to national exchequers.

"If the Dutch demands are not met," he told journalists, "then we are prepared to block decisions on Agenda 2000. What we want is a lower net contribution - that could be a net rebate like the UK, or, if we don't get anything from structural funds maybe we should not pay anything to them."

The Dutch say that although they are eighth in the league of income per capita, their net contributions per head to the EU budget are the largest.

But there is more sympathy here for the Germans. Their economy is not booming like the Dutch and yet they pay up to 60 per cent of the net contributions to the Union. The Belgian Finance Minister, Mr Philipe Maystadt, while warning against any move which would undermine community solidarity, admitted that the "German situation is beyond the reasonable". Discussions on the financial aspects of Agenda 2000 are at a very preliminary stage with no agreement likely until the end of next year.