EU’s 2014-2020 budget battle poses ‘major threat,’ Barroso says

A fight over the future European Union budget risks provoking political rifts across the region, the head of the EU’s executive arm warned a day before government leaders try to thrash out a spending agreement.

Jose Barroso, president of the European Commission, said a U.K.-led group of EU governments seeking to freeze the bloc’s budget in 2014-2020 is misguided. He said European spending bolsters economic growth and social cohesion in Europe.

“I see a major threat,” Barroso told the European Parliament today in Strasbourg, France. “Compromises have to be constructive. They’ve got to be about strengthening Europe and not about pulling Europe apart.”

The EU’s seven-year budget guidelines, traditionally a tussle between richer nations that are net contributors and poorer countries mainly in eastern and southern Europe, are a gauge of the bloc’s political mood and coherence. Regional and agricultural aid soaks up around four-fifths of EU expenditure, funding everything from transport networks to farmers’ incomes.

The sparring over 2014-2020 European spending has taken on added significance as the region seeks to contain a three-year- old debt crisis threatening to break up the 17-nation euro. The euro area is struggling to come up with extra support for Greece following 240 billion euros ($307 billion) in emergency aid since 2010 and is pushing for a banking union to regain the confidence of financial markets.

U.K., Germany

National governments finance 70 percent of the EU budget, which totals 994 billion euros in 2007-2013. The commission has proposed a 4 percent boost to 1.03 trillion euros in 2014-2020.

The richest EU countries including the U.K. and Germany oppose an increase, saying it would be inconsistent with efforts by national governments to narrow their budget deficits. That has prompted EU President Herman Van Rompuy, who will host tomorrow’s summit in Brussels, to recommend a reduction to 973 billion euros in 2014-2020.

EU spending amounts to about 1 percent of the region’s gross domestic product. By comparison, national spending in the EU averages around 50 percent of domestic GDP.

Guy Verhofstadt, a former Belgian prime minister who now leads the pro-business Liberal group in the 27-nation EU Parliament, said the preoccupation in London and Berlin over the size of the bloc’s budget is “completely ridiculous.”

The Parliament, which must approve the seven-year spending plans along with national leaders, should be prepared to reject any budget accord among governments that isn’t ambitious enough, Verhofstadt said.

--Editors: Andrew Clapham, Jones Hayden

To contact the reporter on this story: Jonathan Stearns in Strasbourg, France at jstearns2bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertlingbloomberg.net