Marathon negotiations between European Union leaders in Brussels produced a deal Feb. 8 on a seven-year budget following 36 hours of tense discussion. Indeed, that compromise appears as much a reflection of the considerable differences still dividing the 27-nation bloc as it is a convergence of vision and priorities. The budget for the 2014-2020 period is being viewed as a success for EU champions of austerity, because while it outlines maximum credits of €960 billion ($1.3 trillion), it limits actual spending to around €908 billion ($1.2 trillion). Overall the document represents a 3% cut from the plan covering 2007-2013—the first budget reduction in European Union history.
The accord announced Friday afternoon represents a victory for UK Prime Minister David Cameron and his German budget ally, Chancellor Angela Merkel. The pair had teamed up with demands the same belt-tightening national governments have applied to address debt-swamped public finances also be extended to the EU through budget cuts. That drive led an initial budget proposal of nearly $1.4 trillion to be scaled back to $1.3 trillion during a November summit that ended without a full agreement. The final budget came after the UK-German duo—supported by countries like Sweden, Denmark, and the Netherlands—clawed back around $15 billion more from the November proposal. Overall, EU officials say, the penny-pinching camp erased about $45.8 billion in previously proposed spending.
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One way the austerity camp did that was by imposing an additional condition that only €908 billion of the total €960 billion credited to the budget will actually be spent—effectively slapping a reduction on a cut. Leaders who resisted those slashing efforts tried to paint them as an inevitable evil within the context of the enduring European financial crisis and economic slump. But even as they sought to put the best face on an accord they clearly disliked, the anti-reduction crowd suggested they’d averted even worse cuts that London had sought to impose.
“My responsibility was to put forward what I thought was the best [compromises] under the circumstances, [and] the circumstances are the fiscal situation,” said French President François Hollande, who had been backed by Italy, Spain, Poland, and other countries opposing the clamp-down they blamed primarily on Britain. “Britain wanted less than €900 billion [in actual spending], and France thought €913 billion was the necessary sum. Everyone can decide for themselves who bent the most.”
In the wake of the agreement, most observers seemed to think France and its allies did the most bending. Though the final real spending ceiling of €908 billion may have been closer to France’s €913 billion than the UK’s lower position, it was still a far cry from the nearly €975 billion budget Hollande and his peers had come to Brussels defending. Cameron seemed to be quite mindful of that as well, and used the budget outcome to again fan the Eurosceptic fires he’s used of late to warm his domestic political fortunes.
“I think the British public can be proud that we have cut the seven-year credit card limit for the EU for the first time ever,” said Cameron—who in January pledged to hold a referendum in coming years to allow British voters to decide whether they want to remain in the EU or not. “It’s a good deal for Britain.”
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It would be hard to argue the budget accord isn’t a good one for both Cameron and the UK—at least for now. It not only imposed the kind of economic austerity remedies on Europe that the Cameron government has staked its future on in Britain. It also appeared to distance core EU members like Germany and the Netherlands from other pillars like France and Italy on fiscal questions, when their common stands on wider EU issues—including the necessity of greater European integration and regulation—tend to run opposite of Britain’s. With Cameron sounding like he’s slowly ushering Britain towards the EU exit, his return to the habitual outlier role in European affairs will likely find him more isolated once the partnerships forged in the budget battle have cooled.
Meantime, beware the proverbial devils in details. Closer inspection may find the difference between winners and losers looking a lot fuzzier over time. For example, while big budget defenders like France, Poland and Italy lost the macro battle, they triumphed in insisting that the funding of the Common Agricultural Policy (CAP) remain virtually untouched. The CAP represents about 40% of all EU spending, and it just so happens France, Poland, and Italy are among the biggest recipients.
“The objective on the CAP was obtained,” Hollande said of agriculture funds he earlier vowed he wouldn’t budge on.
And while his claims that British austerity had won out in Brussels, Cameron tends to skim over the areas where he didn’t do quite as well. Though initial reports suggest Cameron indeed fought off pressure from France and its backers to terminate the huge rebates the UK has gotten since the mid-1980s—and which generated related refunds that Germany, Denmark, the Netherlands, and Sweden now enjoy—his victory on that matter may be relative at best. The British rebates—which represent about $3.4 billion annually—are slowly being reduced under rules adjusting imbalances between finances contributed to and received from the EU. That means despite Cameron’s defense of the refund, Britain’s actual payments to Brussels may well increase in coming years.
Meantime, though the budget fight between EU leaders is over, the wider war isn’t yet won. The 2014-2020 budget is the first the European Parliament has the power to vote on, and indications are that the largely activist, pro-European legislators hate the skinflint proposal they see coming their way—and are ready to vote it down. Worse still, many of those parliamentarians suspect the creation of €960 billion in budget credits to cover only €908 billion in slated spending is an invitation for over-spending down the road.
“The European Parliament will not accept this deficit budget if it is adopted in this way–that is certain,” said Martin Schulz, the German president of the European Parliament. “As President of the European Parliament, whose signature is required for the definitive adoption of the budget, I cannot, will not and, indeed, may not accept what amounts to deficit budgets…We are talking about massive real cuts. I don’t know if this can be described as realistic financial planning.”
In other words, despite Friday’s hard-fought agreement, Europe’s budget drama is apparently only just beginning.
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