A fuss about what?

Political Editor Graham Dines explains the background to the row over the European Union budget.ALL member states contribute to the European Union's budget and much of it is then redistributed throughout the 25 countries to support farming and to help poorer regions.

Political Editor Graham Dines explains the background to the row over the European Union budget.

ALL member states contribute to the European Union's budget and much of it is then redistributed throughout the 25 countries to support farming and to help poorer regions.

As the UK qualifies less for these subsidies than most other countries, Margaret Thatcher handbagged the other leaders of the then EU-9 in 1984 and won the rebate as a way of helping correct the imbalance.

The EU budget is currently about £70 billion a year. Without the rebate the UK's net contribution – the payment to Brussels after deducting the subsidies the nation receives back – would be about £5 billion a year. The rebate cuts that to £2 billion.


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But over the decades since the Thatcher victory, Britain has become more prosperous. Now that the EU club has risen from 9 to 25, other governments maintain we don't need the discount any more.

With Gordon Brown boasting how well the British economy is doing compared to the countries in the euro zone, and when there are newer, poorer member states with a greater call on budget cash such as Slovenia and Slovakia, the odds look stacked against us.

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However, Tony Blair insists the rebate remains fully justified. The UK is the second-largest net contributor to the EU kitty after Germany and pays in two and half times more than the French, which has a similar-sized economy. Without the rebate, the UK net contribution would be 15 times that of France.

Into the melting pot comes the Common Agricultural Policy, which props up uneconomic French farmers who have far more political clout than any other group across the EU-25.

Half of all subsidies from the EU budget go to Spain. The scale of farm subsidies to France every year exceeds the size of the annual British rebate – France gets £7bn annually from the Common Agricultural Policy.

Despite the inequity of the CAP, quite naturally President Chirac doesn't want to do anything to worsen the incomes of his farm lobby.

And Germany's leader Chancellor Gerhard Schroeder, who would normally be seen as a left-wing ally of Mr Blair, is siding with the French. This week he told the Prime Minister that there was "no place for national egotism" over Britain's EU rebate, although it's doubtful if he said anything similar to Chirac.

Britain's EU Commissioner Peter Mandelson added fuel to the French case. In what looks like a deliberate snub for the Prime Minister, Mr Mandelson – who's gone native now he lords it over a Brussels empire – called on Britain to be "courageous in their reformism" and that opposition to the EU budget was part of the "old conservatism" in Europe.

Ministers had to look at reforming Britain's rebate, said Mr Mandelson adding: "It is surely wrong to ask the poorer new accession states to pay for any part of the rebate."

The rift between Tony Blair and the other 24 heads of government has been sparked by European Commission president Jose Manuel Barrosso presenting plans for the EU's budget for the period 2007-13.

It's one of the worst crises to engulf the Union, even dwarfing the attempts to ratify the controversial constitutional treaty which has to be approved by all 25 member states for it to become binding.

Referendums in France and the Netherlands voted it down and the UK, Denmark, Ireland, the Czech Republic and Portugal have abandoned plans for similar votes.

Although the heads of government decided to put the document on hold for a year – a "pause for reflection" – the federalist dreams of the original founding nations are still alive and well.

Luxembourg's Prime Minister Jean-Claude Juncker, who chaired the summit, insisted that the constitutional treaty was "perfect" and that there was no need for any renegotiation of its terms. "I believe neither the French nor the Dutch really rejected the constitutional treaty."

The deepening rift between the Tony Blair and President Chirac over the British rebate and the future of the CAP suits both men. It enables Chirac to divert attention from France's `no' referendum vote while Mr Blair can hone his credentials among the largely Eurosceptic British voters.

n Net contributors to the EU in 2003 in descending order were: Germany, the UK, Netherlands, France, Sweden, Italy, Belgium, Austria, Denmark and Luxembourg.

For Finland, the budget was neutral while the net gainers in ascending order were Ireland, Portugal, France and Spain. The other 10 nations of the EU joined in 2004.

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