(Bloomberg) -- European Union governments were presented on Friday with a compromise over the bloc’s budget for the next seven years, which is unlikely to satisfy any of the warring camps and sets the stage for a clash between poorer and richer member states on Feb. 20.
EU Council President Charles Michel proposed that governments commit 1.095 trillion euros ($1.2 trillion) to a joint pot for the period between 2021 and 2027, which corresponds to 1.074% of the bloc’s annual economic output. Michel will chair an emergency meeting of EU leaders on Thursday amid demands by richer governments for a lower cap. Poorer countries are likely to see the figure as insufficient.
The budget is a cornerstone of EU policy that lets farmers compete against imports from the developing world, helps poorer states catch up with the rich ones and underpins projects that bind the union together. But agreeing on the amount of cash and how to spend it is a regular source of tension between the net contributors and those who get more than they put in.
Just minutes after the compromise was circulated in Brussels, diplomats from both groups said they were unhappy about it and said that a deal at the upcoming summit is unlikely as a lot of work is still needed to bring positions closer together.
Earlier on Friday, Spiegel magazine reported that German Chancellor Angela Merkel would be willing to increase her country’s contribution to the EU budget to more than 1% of gross domestic product if the other member states agree to set new financial priorities. In return, Merkel wants the EU to spend less money on agriculture and instead invest in projects that benefit all countries, the magazine said without citing the source of the information.
Michel’s compromise proposal ties disbursements to respect of the rule of law, a key request by several richer nations concerned about sliding democratic standards in countries such as Poland and Hungary. Any financial penalty, however, would need the support of a super-majority of member states, according to the draft seen by Bloomberg -- a clause that is likely to satisfy Warsaw and Budapest.
The previous proposal was much stricter, requiring a super-majority of member states to block -- as opposed to approve -- penalties imposed by the EU’s executive arm on rule-of-law grounds. The new wording on the rule of law is likely to draw sharp criticism from countries who argued for such conditionality and see the compromise as watered-down.
A separate budget for euro-area member states is set at 12.9 billion euros, with an additional 5.5 billion euros earmarked for poorer members of the currency bloc and another 767 million euros to support reforms. The total amount -- to be spread among 19 eurozone countries over seven years -- falls far short of the ambitious plans that French President Emmanuel Macron had envisaged.
(Updates with Merkel comments in the fourth paragraph)
--With assistance from Ian Wishart and Viktoria Dendrinou.
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