EU set for bitter budget brawl

European Union members do battle this week over hundreds of billions of euros in future spending just as the group prepares to embrace 10 mostly poor eastern European states and to thrash out a new constitution.

Tomorrow, the European Commission will fire the first shot when EU officials say it will insist the EU needs spending equal to the current ceiling of 1.24 per cent of the bloc's gross national income (GNI) over 2007-2013 to meet all its objectives.

This will be in defiance of a call from six wealthy EU states to stick to actual levels of spending of one per cent of GNI, which is the Commission's measure of national wealth.

"It will be a full bloody battleground for years to come," one EU official said last week. Tomorrow's budget presentation will be made to the European Parliament. Months of talks will follow. EU leaders are due to try to reach political agreement by mid-2005.

Although the current ceiling is 1.24 per cent of GNI, this is usually undershot. The Commission wants to make sure this cap is retained and fully used.

The fight commences just ahead of the May 1 enlargement to 25 states from 15 and has become linked with the tough negotiations over the constitution.

The Commission has rejected the calls for spending to be limited, saying the enlarged bloc, set also to include Romania and Bulgaria from 2007, will not be able to meet all its goals.

But Germany, Britain, France, Austria, Sweden and the Netherlands - the biggest paymasters - have said in a letter to Commission President Romano Prodi that restraint was needed when all EU states were being urged to reduce budget deficits.

"It's unrealistic and I regret that these member states who signed the letter pleading for one per cent in the future did not make a reality check," said Budget Commissioner Michaele Schreyer last week in Dublin.

The sums being fought over are small when compared with the spending of all EU states put together.

The Commission estimates that under its proposal, spending will rise to €154 billion a year by 2013 for 27 states, compared with around €100 billion in the current year for 15 states.

The combined spending of the 15 on national budgets is around four trillion euros, according to EU Parliament data.

But the EU funds are used for politically sensitive ends and are important to those receiving them.

The biggest share goes to farmers in the form of production and export subsidies. Many in the countryside, including in France, depend on the money to remain in business.

Germany and France have already agreed that farm spending will be frozen around current levels until 2013.

The second biggest element is funding for poor regions. Portugal, Spain, Greece and other areas have benefited from transfers of funds from richer EU states. Now, the new members will be clamouring for similar aid and the Commission is expected to recommend a rise and refocusing of the aid for them.

At the same time the EU has ambitious goals on investing in research and technology to rival the United States.