Following bitter recriminations in the last few months by the Germans over their "excessive" net contributions to the EU budget, the leaders agreed to move to a system of contributions based more fairly on member-states' national wealth. But, in a blow to Bonn's aspirations, they rejected the idea of a fixed ceiling on net payments.
The new system, which will begin in 2002, will gradually reduce the component of contributions based on VAT receipts in the member-states and increase the role played by a GNP-based resource. The old system seriously favoured Italy, whose huge black economy will soon be Europe's last VAT-free zone.
Tentative projections based on the old system of community financing by the Department of Finance show the Irish annual contribution rising over the seven years from £788 million in 2000 to £1,075 million in 2006.
A Commission paper on the financing of the EU put the effect of a change to a completely GNP-ased system as reducing Irish annual contributions by as much as £132 million a year. Although the new system is not as radical and thus not as dramatic in its effect, it will contribute to easing slightly the very sharp rate of increase in Irish contributions.
The summit shied away from taking on the British rebate head-n, the legacy of Mrs Thatcher's days, which means a return of up to £2 billion a year to the British Exchequer. Instead leaders agreed that, although the principle of the rebate would remain untouched, the member-states would claw back some €22 million from the British from "windfall" gains arising from two changes in the way the Union's finances are managed.
The first is the change to a GNP-based system, which will favour the UK substantially. The second arises from the effects of enlargement. Britain does not get a rebate on external expenditure to the acceding countries. Once they join, however, such expenditure would become internal spending and subject to a British rebate. It would therefore produce a substantial return to them. The leaders also adjusted the formula for paying the British rebate to ease the burden on Germany, Austria, the Netherlands and Sweden.
But suggestions by the Germans that a more generalised rebate system should also be created to give a refund to member-states when their net contributions crossed a ceiling of 0.6 per cent of GNP were vigorously and successfully opposed. In part that was because the effect of such a mechanism would have squeezed countries like Denmark, Finland and France, which would have to pay for such refunds.
Also it was because the very idea of "net contributions" is widely regarded as suspect. While all accept that member-states' gross contributions should reflect their wealth, net contributions levels conceal the real advantages of membership of the EU. To cite one example, the cost to the EU of decommissioning French fishing boats may be seen as a net budget benefit to France in strict accounting terms, but the real beneficiary would be the Spanish fisherman.
Leaders endorsed the continuation of the ceiling on EU spending agreed at Edinburgh in 1992 of 1.27 per cent of community GNP. Within that framework is a ring-fenced sum of €45 billion for acceding countries.