Enlargement may lead to
further EU quarrels over budgets
Europe will bridge its final post- World War II divisions
when 10 mostly Eastern European countries join the European Union on
1 May. But that doesn't necessarily mean the battles are over.
"We are building Europe," European Commission President Romano
Prodi said in a recent televised interview. "It will be a long
The entry of Malta and its fellow acceding countries, which will swell
the EU to 25 countries with 450 million consumers, will worsen disputes
over subsidies, the euro currency and the EU's military ambitions, according
to Philippe de Buck, secretary general of the European employers federation.
Strains left over from 2003, such as the split over the war in Iraq,
German and French violation of budget-deficit limits and the collapse
of talks over the EU's first-ever constitution, probably will distract
German Chancellor Gerhard Schroeder, French President Jacques Chirac
and other EU leaders from reviving the economy after the weakest growth
in a decade.
December's breakdown of the constitutional talks is "an enormous
setback," de Buck said in a 15 December interview. "I'm afraid
that the whole discussion in 2004 will be focused on institutional issues.
We would like to have a focus on economic and social issues."
Germany and France, the EU's postwar architects, will face new deficit-cut
pressure from smaller countries. Britain and Germany are leading a six-nation
drive to slash aid to poorer EU countries. Spain and Poland are demanding
greater powers over legislation. Several months of bargaining loom over
a successor to Prodi, whose term ends in November.
Divisions over Iraq
The US invasion of Iraq provided a glimpse of the divisions in an EU
that will stretch from the Atlantic to the Russian border. Britain,
Spain, Italy and the eight eastern newcomers sided with US President
George W. Bush. France, Germany and Belgium opposed the war, splitting
the North Atlantic Treaty Organisation and the United Nations security
council as well as the EU.
New fissures are emerging over finances, at the national and EU levels.
When Germany, instigator of the euro region's limits on budget deficits,
broke the rules in 2003, it simply set them aside -- and steamrolled
objections by the Netherlands, Finland and Austria.
Chirac, who failed to stop the deficit caps when Germany proposed them
in the 1990s, joined Schroeder in cutting taxes to offset the economic
slowdown. Both countries' deficits may outstrip the limit of three percent
of gross domestic product through 2005.
Former German Finance Minister Theo Waigel, the author of the 1996 "stability
pact" curbs on public borrowing, called the rulebreaking "a
big mistake. It was bad that Germany and France spearheaded the movement
of the sinners," he said.
The economy, meanwhile, continues to lag the US Growth in the 12 EU
nations that make up the combined $8.7 trillion euro region slid to
an estimated 0.4 percent in 2003. Europe has outpaced the US once in
the past 10 years, and is likely to trail again in 2004 and 2005, the
Poland, Hungary, Slovakia and the Czech Republic, the four largest countries
joining the EU next year, will have the fastest economic growth in four
years as EU aid and a Western European recovery boost investment and
output, said executives at companies investing there.
Their $460 billion combined economy, accounting for more than 80 percent
of the 10 future members' gross domestic product, will grow at least
3.5 percent, compared with 3 percent in 2003, the European Commission
Flagging growth and eight percent unemployment in the current EU member
states exacerbate strains over the EU's EUR100 billion-euro subsidy
programs, originally designed to transfer money from the wealthier and
more industrial north to the poorer and more agricultural south and
In an echo of Margaret Thatcher's calls of "I want my money back"
for Britain in the 1980s, six national leaders including UK Prime Minister
Tony Blair are demanding a freeze on EU spending at no more than 1 percent
of the 25 nations' combined GDP for the next decade from 1.24 percent
Britain paid EUR2.9 billion more into the EU purse than it got back
in 2002, making it the bloc's second-biggest source of financing after
Germany, with EUR5 billion, according to the European Commission. While
Germany's bill has fallen from EUR10.4 billion since 1996, Britain's
has soared from EUR500 million.
Schroeder, who accuses Spain and Poland of torpedoing the constitutional
talks, is threatening to cut subsidies for both of them. Spain gets
the most out of the EU, netting EUR9 billion. Poland, with economic
output per head at 40 percent of the EU average and more dairy cows
than the current 15 EU countries combined, will also be a net aid recipient.
With each of the 25 countries holding veto power over EU policies in
areas such as taxes, spending, immigration and defence, legislation
on everything from food safety and labour regulations to border controls
and weapons procurement is forged by shifting alliances.
Britain, for example, supported Germany in gutting a proposed takeover
law of provisions that would have banned "poison pills" in
exchange for German aid in shredding pension rights for temporary workers.
Germany feared the takeover code would expose companies such as Volkswagen
AG, Europe's biggest carmaker, to hostile bids by foreign rivals.
Europe still trails the US in mergers and acquisitions. In the euro's
first five years, some 22,000 European companies worth $3.9 trillion
were bought out, lagging the US figure of 37,000 deals valued at $5.7
Crossick said Spain can't budge before elections due by March, in which
Prime Minister Jose Maria Aznar is campaigning for his handpicked successor,
Mariano Rajoy. The job of restarting the constitutional talks falls
to Irish Prime Minister Bertie Ahern, who takes over the six-month EU
presidency from Italy's Silvio Berlusconi tomorrow.
Next year is also an election year in the EU, raising a further hurdle
to getting things done. The EU parliament, which holds sway over most
business legislation, holds elections in June.
Prodi's commission leaves office in November. Presidential candidates,
according to politicians and the European media, include Luxembourg
Prime Minister Jean-Claude Juncker, Austrian Chancellor Wolfgang Schuessel,
former Belgian Prime Minister Jean-Luc Dehaene and former Finnish Prime
Minister Paavo Lipponen.