EU leaders inch toward budget deal at tough summit

BRUSSELS - The Associated Press

European Union leaders gather for a group photo at a EU Budget summit at the European Council building in Brussels, Thursday, Feb. 7, 2013. EU leaders drew hard lines Thursday ahead of a struggle over EU spending for the next seven years that reflects deep divisions about the role of their union. AP Photo/Michel Euler

A European Union summit to decide EU spending for the next seven years entered a second day after all-night negotiations left a standoff over spending unresolved.

The leaders of the 27 nations inched toward a compromise Friday that would leave their common budget with a real-term cut for the first time in the EU’s history.

The hard-fought summit was, at base, a tussle about what Europe stands for: On one side were those who argue it’s an inefficient drag on national budgets in tough economic times; on the other, those who say that the crisis has only highlighted the need for a united continent to band together and help each other out.

The deal put forward early Friday appears to lean more towards countries led by Britain, which are insisting that the EU has to make the same drastic cuts. But any deal needs unanimous approval, and every country has a veto.

Those countries want tens of billions of euros slashed off the €1.03 trillion ($1.35 trillion) originally asked for by the European Commission, the EU’s executive arm, and in the early hours of Friday were working off a proposal with a total of €960 billion ($1.29 trillion). It included a two-year freeze on EU salaries, for instance, and promised a 5 percent reduction in staff.

The draft left the newer - and generally poorer - members, which see Europe as a club that is only as strong as its weakest member, fighting for sustained funding. Led by Poland and France, they argue that Europe means nothing if the budget isn’t used to bridge the wealth gap and help restart growth. The proposal puts aside €6 billion ($8 billion) to help regions with more than 25 percent youth unemployment, which has skyrocketed because of the economic crisis.

Both sides had threatened to walk away from the table - again - if they didn’t get what they wanted. The first summit to negotiate a budget collapsed in November, but leaders appeared to be inching toward a deal on Friday.

Adding to the complexity, the leader of the European Parliament warned late Thursday that his legislature was bound to reject the budget offer if it allowed for too much deficit spending.

In a sign of how tough the fight was, leaders delayed the official start of the summit for nearly six hours on Thursday as they huddled in smaller groups, trying to bridge their differences. The full meeting with all 27 leaders finally got under way in the late evening.

The 27-country EU, with a population of more than 500 million people and an annual gross domestic product of €12 trillion ($16 trillion), is the world’s largest economy.

The EU budget, which is separate from the national budgets, is designed in part to balance out the economic development of the region by injecting funding into poorer countries. The EU has funded hundreds of thousands of infrastructure and capital projects over the years, from the installation of a broadband network to upgrading parts of the road network. It also sends development aid around the world, to places like Mali.

The budget includes items meant to generate economic growth in the future, such as research and development, increasing digitalization and creating a new, more accurate satellite navigation system. It also funds regulation and administration in such areas as mergers and competition, the review of national budgets to ensure they do not include excessive deficits, and - now - banking supervision.

As the talks began, the leaders were set to negotiate tooth and nail over an annual difference to the average European taxpayer of €20 ($27). The most generous budget proposal would cost the average taxpayer €295 ($400) a year; the most pared-down proposal would cost €275 ($373).

The EU’s budget for 2012 is €147.2 billion ($199.4 billion) - less than one-fifth the size of the budget of the U.K. alone.

Leaders staked out uncompromising positions before the meeting began.

"We have to make savings, but without weakening the economy," said French President Francois Hollande on his way into the summit in Brussels. "If Europe wants an agreement at all costs and abandons its common policies, I do not agree."

While France’s economy is the EU’s second-largest, it supports poorer countries and is a strong advocate for wealth-sharing. And France itself receives a significant amount of money in agricultural subsidies.

Most of the EU leaders came in with a national agenda in mind, and Czech Prime Minister Petr Necas said the proposals he had seen so far were "unfair." He threatened to use his veto.

Britain was also threatening to tank the talks.

"The European Union should not be immune from the sorts of pressures that we’ve had to reduce spending, find efficiencies and make sure that we spend money wisely, that we’re all having to do right across Europe," said Prime Minister David Cameron, who said the numbers put forward in November were much too high.

The numbers "need to come down, and if they don’t come down there won’t be a deal," Cameron said.

In his opening speech, European Parliament President Martin Schulz raised the stakes even further, reminding the leaders that lawmakers have the right to reject the budget.

Schulz noted that a failure to reach a compromise would simply allow the current budget to roll over with an additional 2 percent for inflation - an outcome he said was workable.