Fiscal restraint for EU budget

In 1992 the then President of the European Commission, Mr Jacques Delors, predicted the EU would need to raise its spending by 1997 to 1.37 per cent of Community GNP - that is ú1.37 for every ú100 of wealth generated by the EU. The current legal ceiling, set at the Edinburgh summit the same year, is 1.27 per cent.

How times have changed. The chill winds of fiscal restraint that blow through domestic economies are also now de rigueur in Brussels. And yesterday the Commission came up with a budget framework that will involve spending by 2006 running at only 1.13 per cent of EU GNP.

With total spending likely to run at ú77 billion next year, or 1.23 per cent of EU GNP, the projections show a slight increase in the percentage spend in the budget's early years, but falling off by the end of the period. In 2006 the Commission expects to spend ú83 billion (at 1999 prices), or 1.13 per cent of EU GNP.

And while member-states will haggle over the share-out, it can be predicted with confidence that the Edinburgh ceiling will not be touched. This conjuring trick is possible because of an assumption of 2.5 per cent growth in the economies of the 15 and 4 per cent in the applicant countries of Central and Eastern Europe (CEECs).

Agriculture will take some half of total funding and structural and cohesion funding 30 per cent. That will allow spending on structural and cohesion funding of some ú222 billion - ú170 billion for the 15 current member-states, ú16 billion for the four poorer Cohesion countries, and ú38 billion for the acceding countries.

The Commission's figures beg a very substantial question, however. Can member-states agree not to touch the system of member-states's funding of the Union until the post-2006 budget period? Four countries are unhappy about what they see as unfairly high net contributions on their part.

Dutch Finance Minister Mr Gerrit Zalm sent Commission President Mr Jacques Santer a letter pointing to the inequity in allowing the British rebate to continue while not allowing others to make the same case. The Commission refused to discuss the issue.