17 or 27?

The UK is about to wage war with Europe over budgets

October 11, 2012
Obsession
Euro Crunch
October 11, 2012

Up to now UK prime minister David Cameron had been a fan of European Council president Herman van Rompuy’s plan to introduce a centralized budget for the euro-zone countries, but now the two are exchanging jabs.

The 27-state European Union already has a budget of about €130 billion ($168 billion) per year, to which the UK is typically a net contributor. (It goes on everything from EU administrative costs to agriculture subsidies.) In a paper last month, van Rompuy said that a separate budget for the 17-state euro zone, with its own treasury office, could be the next step towards “a fully fledged fiscal union.”

The paper was less a proposal and more an outline for discussion, but according to reports it suggested that euro zone countries would be asked to contribute to a €20 billion budget that would be invested in programs across the region. This would be too small a sum to fix the region’s current debt and banking sector problems, but it would at least create some of the infrastructural framework needed for the euro area to function as a single fiscal unit. Europhiles hope that the plan would ultimately create a fiscal United States of Europe, where tax revenues could be transferred from a prosperous Germany to a struggling Greece the same way that federal tax dollars are currently moved from the wealthy state of New York to the relatively poorer state of Louisiana.

It may seem odd that the UK—which is not in the euro zone, doesn’t plan to join, and has little patience for Eurocracy in general—strongly supports this system. But those are precisely the reasons the plan suits the UK. Once the euro area has its own funds, Cameron wants to drastically reduce the UK’s contribution to the greater 27-state EU budget. He’s even threatening to veto a seven-year EU spending plan that will be debated next month and calls for a budget roughly 5% larger than the last seven-year program, which Cameron is not happy about.

His attempt to tie the two issues together is what has caused the spat with van Rompuy. Such bickering could once again escalate at two meetings of European leaders—later this month and in November—as the UK questions its role in a Europe increasingly focused on strengthening its smaller currency union.

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