Europe: EU budget summit next week; creditors to decide on Greece bailout

Updated On: Nov 15, 2012

European Union leaders are holding a summit next week, 22-23 November, to agree on a new seven-year budget for the grouping. A compromise draft was tabled on Wednesday, but has already drawn criticism. Meanwhile, Greece’s creditors are still discussing the terms of its bailout, but are expected to make a decision by next week.

Summit to Discuss EU Budget

EU officials failed to agree on the EU's 2014-2020 budget when they met last week. Discussions continued this week, and are now set to resume at a summit on 22-23 November.

European Union chief Herman Van Rompuy tabled a compromise draft EU budget on Wednesday, aiming to mollify Britain which wants spending cuts. Britain has threatened to veto the seven-year budget, saying the EU should limit spending in light of austerity cuts being made by national governments. Germany, Sweden and the Netherlands have demanded similar restraint.

Mr. Van Rompuy's draft would reduce the roughly €1 trillion budget for 2014-2020 proposed by the European Commission by about €80 billion. The proposal also safeguards a budget rebate paid to Britain each year to compensate for the relatively small amount of agricultural subsidies it receives.

The plan also protects EU spending on items such as research and energy infrastructure, at the expense of more traditional areas such agriculture, which should please northern European countries who say the bloc's budget framework is outdated.

However, Mr. Von Rompuy's cuts still fall short of the €100-200 billion reduction that Britain, Germany, Sweden and the Netherlands want.

The suggestion to cut farm subsidies has also drawn criticism from France, which is the top recipient of agricultural funding. "We do not accept the proposal to reduce by €25 billion (US$32 billion) the money for the Common Agricultural Policy, which we consider a policy for growth," Bernard Cazeneuve, France's European affairs minister, told parliament.

The reduction of funds is likely to face similar opposition from countries such as Greece, Italy and the Czech Republic.

Report: EU tables budget deal that may please UK, anger France [Reuters, 14 Nov 2012] http://www.reuters.com/article/2012/11/14/us-eu-budget-idUSBRE8AD1QG20121114

Analysis: All Set For Big Budget Brawl [Wall Street Journal, 14 Nov 2012]

Creditors Still Discussing Greece

International lenders are still discussing changes to Greece’s €174 billion bailout, and are expected to make a decision by next week. There is currently a deadlock between the International Monetary Fund and the EU over how to reduce the country’s overall debt. Senior officials have vowed to find a compromise by next week, allowing creditors to release €31.3 billion in delayed aid payments to Greece.

The IMF is urging the EU to provide enough relief to get Greek debt to 120 percent of economic output by 2020, but this would probably force Eurozone governments to accept losses on their Greek bailout loans. German Finance Minister Wolfgang Schäuble said on Tuesday that any “haircuts” on official loans were illegal under EU treaties, but other officials have hinted they might be open to “creative” measures involving interest rates.

A decision on Greece's future was due this week, but negotiators gained more time after Athens managed to raise sufficient funds to make a €5 billion debt repayment due on Friday, via the sale of Treasury bills.

Report: Greece wins time on bailout impasse [Financial Times, 13 Nov 2012]

EU Data Expected to Show Recession in 3Q2012

EU statistics office Eurostat is announcing new data on the Eurozone's economy this week. Economists expect the official figures to show that the Eurozone has slipped into its second recession since 2009 in the July-September period, with the bloc's output shrinking 0.2 percent in the third quarter, as it did in the second quarter.

"The distress in more vulnerable member states has progressively started to affect the remainder of the (European) Union," senior European Commission official Marco Buti said in a report this month forecasting a 0.4 percent contraction for the euro zone in all of 2012.

Hopes for a recovery next year are also fading, with the European Commission saying the economy will flatline in 2013.

Report: Euro zone seen sinking into recession as Germany struggles [Reuters, Nov 15 2012]