An "air of pessimism, even defeatism," is "gripping the European Union," according to George Parker of the Financial Times (UK).  --  "[T]he European project is losing its emotional appeal," he writes, and there is "rising national self-interest across Europe."  --  Europeans are refusing to take their medicine:  "During 2005, Europe's politicians have turned inwards, a symptom of the continent's failure to come to terms with globalization or even with the prospect of competition from eastern Europe.  Of the 15 'old' EU members, 12 have refused free access to their labor markets to eastern Europeans.  Germany and France have led opposition to an EU law to allow more cross-border trade in services.  In France the talk is of 'economic patriotism.'"  --  But wait a minute.  --  Are things really so bad?  --  Or is all this moaning and groaning mostly a reflection of business interests that are not getting their way?  --  What if a refusal to come to terms with globalization is really . . . a success?  --  A triumph for common sense? - -  What if comparative advantage, which every Financial Times correspondent is required as a condition of employment to consider, along with Ronald Findlay of Columbia, the "deepest and most beautiful result in all of economics, " first stated and proved by David Ricardo in 1817 and for generations the basis for the belief that everybody gains from free trade, -- what if comparative advantage, we say, no longer holds because of the technological changes that have occurred due to the information revolution?  --  What if, as economist Paul Craig Roberts maintains, "There is no basis for comparative advantage when factors of production are as mobile as traded goods"?  --  What then? ...

By George Parker

Financial Times (UK)
December 13, 2005

In any club with 25 members using 20 different languages, communication will sometimes be a problem. "Did you just say this was a budget for a mean Europe?" a Danish journalist asked José Manuel Barroso, the Portuguese president of the European Commission. "No, I said it was a budget for a mini Europe," he replied. In fact, Mr. Barroso clearly meant both.

This week in Brussels, Europe's leaders will try to agree a seven-year budget for the European Union. It will be a cut-price package, modest in its ambition, archaic in its priorities. After a dire year for the EU, the club is being offered a diminished budget for a diminished Europe.

A deal is possible but by no means certain. The squabbling over money has dragged on for most of 2005, souring relations between the Union's rich and poor countries, between east and west: the protagonists have fought themselves almost to a standstill.

But even if the leaders of 25 countries agree an EU budget in Brussels on Friday, it will do little to mask the air of pessimism, even defeatism, gripping the European Union. Jean-Claude Juncker, the veteran Luxembourg prime minister, has remarked: "An agreement is urgently needed, otherwise it will look like we're letting Europe sink deeper into crisis. The dispute over the budget is not the cause of this crisis, just a symptom."

The dispute has come to symbolize the malaise in the EU in 2005, a year in which the "European dream" suffered a series of setbacks: the rejection of its draft constitution, inertia in the face of globalization, resurgent protectionism, and a rise in national self-interest.

Accounting for a little more than 1 per cent of Europe's total GDP, the EU budget is the financial expression of European solidarity, the nearest thing Europe has to U.S. federal transfers from rich to poor states. But the negotiations over the 2007-13 package -- which is likely to end up at about 850bn euros (£574bn, $1,015bn) -- have served to underline how fragile that notion of European solidarity really is.

The concept of rich countries helping the poor has not recovered from the night of March 26, 1999, when Gerhard Schröder, the then German chancellor, agreed again to assuage his country's war guilt by opening his chequebook to Spain. Until that night it was taken as read that Germany and other richer countries, such as the Netherlands and Sweden, would stoically bear the cost of helping southern members such as Spain and Portugal.

The spectacle of José Maria Aznár, Spain's prime minister at the time, contentedly puffing on a cigar in Berlin's Intercontinental Hotel in the early hours of the morning, waiting for Mr. Schröder to hand over more money, spoke to the fact that it was once the budget recipients who set the terms in these negotiations. Mr. Schröder, attacked by the German press for giving in, vowed that the days of Germany as Europe's milchcow were over.

The Dutch, who rejected the EU constitution in June, also want to pay less, as do the Swedes. Today it is the eight EU members from eastern Europe that are seeking solidarity from the richer west but are being sent a message: be grateful for what you are getting.

Britain, holder of the rotating EU presidency, has proposed cutting by 14bn euros the amount of funding earmarked for eastern Europe in an earlier budget draft but says that will still amount to a total of 150bn euros over seven years. "The total value of EU funds they will receive is double the value of the Marshall Plan, which rebuilt western Europe after World War Two," said Jack Straw, U.K. foreign secretary.

Britain has come up with a brutally simple proposal to engineer a budget deal, which involves diverting billions of euros earmarked for motorways and sewerage works in eastern Europe into the U.K. Treasury to help cushion the burden on the British taxpayer. Mr. Barroso calls this the "Sheriff of Nottingham approach": taking from the poor to give to the rich. But Tony Blair, U.K. prime minister, knows the easterners are in a weak position and that without a deal the EU money will not start flowing in 2007.

"You can call it brutal because the British presidency has concentrated on the weakest," says one EU ambassador. "But the new members don't have much choice but to accept." Yet behind the western European criticism of Britain for its "lack of solidarity," a grudging admiration for Mr. Blair's no-nonsense approach to getting a deal is sometimes to be heard. Although they strongly dispute Mr. Blair's claim that the settlement will leave the U.K. paying its "fair share" for EU enlargement, the truth is that none of the net contributors want to pay more.

Almost entirely missing from the debate has been any discussion of the historical context of this budget round -- helping eastern European countries recover from almost 50 years of communism -- or that a more prosperous EU is good for everyone. Spanish diplomats observe that although 40 per cent of their country's gleaming motorway network was paid for by the taxpayers of Germany and other EU countries, this is no zero sum game: the cars speeding down the outside lane are often German marques.

One EU ambassador, asked about European solidarity, replies stony-faced: "What's that?" Would solidarity return? "At this point, I'm not sure."

The budget debate has reflected rising national self-interest across Europe. Now that Europe's postwar generation has banked the EU's biggest successes -- helping to bring peace and prosperity to a war-torn continent -- the European project is losing its emotional appeal.

During 2005, Europe's politicians have turned inwards, a symptom of the continent's failure to come to terms with globalization or even with the prospect of competition from eastern Europe. Of the 15 "old" EU members, 12 have refused free access to their labor markets to eastern Europeans. Germany and France have led opposition to an EU law to allow more cross-border trade in services. In France the talk is of "economic patriotism."

"A modern budget for Europe is not one that 10 years from now is still spending 40 per cent of its money on the Common Agricultural Policy," Mr. Blair said in June. In fact, under the British proposals, the EU would be spending 43 per cent of its budget on farm and rural support, compared with 35 per cent on regional support and just 8.5 per cent on competitiveness.

Debate on modernizing the budget has been stymied by a 2002 deal to fix farm spending until 2013 on the one hand, and by a refusal of richer member states to pay more into EU coffers on the other. Mr. Blair's offer to strike a "big deal" where, in return for big cuts in farm support, he would give up the British rebate -- which since 1984 has compensated the country for its relatively high net budgetary contributions -- was rejected by most member states.

Instead EU leaders are heading for a "small deal," which will leave the basic structure of the budget unchanged for a further seven years. Inevitably, money for priorities such as tackling illegal immigration and anti-terrorism work has been pared back.

Nor has there been any thorough debate on the logic of certain types of spending at a European level. While most can see the case for building motorways in eastern Europe, it is harder to see why countries such as Britain, Germany, and Italy -- all members of the Group of Seven leading industrial nations -- should receive EU aid for their poor regions. Each of the three is a net payer into the EU budget, which means money is paid into the Brussels coffers and then paid out again, with leakage because of administrative costs and sometimes fraud.

A report by a team of academics led by André Sapir, the Belgian economist, set out ways to modernize the budget by making it focus on projects to raise the continent's competitiveness. But it made little headway. Mr. Sapir argued that money should be spent where it made most impact -- often on high-technology projects or training -- instead of the vanity projects that have sucked up so much EU cash in the past. European research spending, which takes advantages of the continent's economies of scale, has produced results in the past with such projects as Airbus or the Galileo navigational satellite -- but research spending is one of the areas already cut in the budget negotiations.

Mr. Barroso summed up his fears when he said: "This is not a budget for a modern, dynamic, competitive, enlarged Europe. On the contrary, it lacks ambition and threatens to make Europe less united rather than more."

Mr. Straw admitted on Monday that the budget talks could fail. But, at least as likely, the EU's 25 leaders could announce an agreement on Friday once the usual haggling and backroom deals are done. After a dispiriting 2005, it may be that a fractious and disoriented EU awards itself the financial package it deserves.


Food and politics often prove a potent mix at European summits -- and Jacques Chirac, French president, looks set to demonstrate the combustibility of the combination yet again at this week's meeting in Brussels. In the twilight of a political career spanning four decades, Mr. Chirac will seek to defend two of his consuming passions: French farmers and French food.

Although the main business of the summit is the European Union budget, food is always high on Mr. Chirac's agenda -- a preoccupation witnessed by Chris Patten, the former EU foreign affairs commissioner.

"He would sit invariably deep in contemplation of a pile of saleroom catalogues for Asian artefacts, his long fingers hovering like birds of prey over the jars of mints and trays of biscuits," Mr. Patten writes in his recent book, Not Quite the Diplomat.

Mr. Chirac's staunch defense of Europe's Common Agricultural Policy (main beneficiary: France) is well-known. But he will also be fighting to secure EU backing for his manifesto pledge to cut value added tax on French restaurant meals from 19.6 per cent to 5.5 per cent.

Takeaway meals at McDonald's and other fast-food symbols of U.S. culinary hegemony attract the lower rate, provoking French chefs to protest on the streets of Paris.

Mr. Chirac needs EU consent because of the possible impact of his scheme on Europe's single market. A VAT victory might make him more amenable to a deal on the EU budget.

It is not the first time Europe's food-fixated leaders have found themselves discussing offbeat national requests. Silvio Berlusconi, Italy's prime minister, raised the issue repeatedly, demanding that a new EU food safety agency should be based in Parma rather than Helsinki.

"The Finns don't even know what prosciutto is," he lamented.

He got his way, claiming he had deployed his "playboy skills" on Tarja Halonen, the Finnish president. Lasse Lehtinen, a Finnish member of the European Parliament, speculated that Mr. Berlusconi's recent face-lift "may have affected his brain."

Mr. Berlusconi also put the question of Italian milk quotas on the agenda of an EU summit in 2003, where leaders were supposed to be discussing the impending war in Iraq. Portugal, which hosted a pre-Iraq war summit in the Azores archipelago, put the islands' dairy cows on the map at a summit a few months later, again over milk quotas.

Such culinary diversions are hardly new. EU diplomats recall how, at a Brussels summit in 1988, Mr. Chirac (then prime minister) held up agreement on an EU budget, again over an issue close to his stomach. "The deal seemed to be done and everyone was about to leave in good spirits," recalls one veteran. "Then Chirac said that he just wanted to raise the question of suckler cows."



Eight years in office have tarnished the British prime minister's pro-European image: he ends his six months in the EU presidency defending the budget rebate secured by predecessor.

Margaret Thatcher in 1984. His efforts have infuriated allies in eastern Europe. But giving up even part of the "British cheque" leaves him open to claims of betrayal at home.


Politically enfeebled, the French president is the most unpredictable element at this week's summit. He will block any attempts to cut EU farm subsidies, while presenting himself as a defender of eastern European countries against brutal budget cuts by Britain.

He is fighting a Gallic side-battle for the right to cut VAT on restaurant meals in France.


Germany's new chancellor is likely to play a conciliatory role at her first EU summit. She supports the British plan for a cut-price budget -- Germany cannot afford to bankroll the EU any longer -- and will be trying to push all sides towards a compromise.

Ms. Merkel's influence with Paris and Warsaw could be vital in securing such a deal.


Newly elected as prime minister of Poland, he rejected the initial British budget deal, which would have cut funding for his country by almost 10 per cent, or 6bn euros.

His rightwing Law and Justice government knows the risks of being perceived to have "sold out" Polish interests.


Rising Dutch euroscepticsm was evident in June when a referendum in the Netherlands rejected the EU constitution.

Fed up with being the EU's biggest per capita budget contributor, prime minister Balkenende will be accompanied at the summit by Gerrit Zalm, the notoriously penny-pinching finance minister who is his main coalition partner.


The European Commission president compared Tony Blair with the "Sheriff of Nottingham," taking from the poor nations of eastern Europe to cut the budget payments of the U.K. and other rich countries.

A year into his job, the Portuguese chief of the EU's executive will play mediator and knows he cannot strongly denounce a U.K. proposal that might end up being accepted.