* EU’s Van Rompuy expands on his idea for euro zone “budget”
* UK’s Cameron mixes euro zone fund with wider budget talks
* Summit on Oct. 18-19 set to debate euro zone fund proposal
* Initiative is latest effort to get on top of debt crisis
By Luke Baker
BRUSSELS, Oct 11 (Reuters) – The European Union’s top
official fleshed out his ideas for a separate budget for euro
zone countries on Thursday, and indirectly warned British Prime
Minister David Cameron about using the proposal for his own
political gain.
At a conference to discuss the state of Europe after nearly
three years of debt and financial crisis, Herman Van Rompuy, the
president of the European Council, said a separate euro zone
budget was an idea that needed close examination.
Even if it is a long-term project and there are a host of
political and financial obstacles to overcome, it could help
underpin the stability of the single currency, he said.
“We have to do everything to stabilise the situation in the
euro zone, and if a fiscal capacity or a separate budget can
help and can contribute to this stability, then you have to
reflect on it, to discuss it,” he told conference delegates, who
included several ministers from EU member states.
“Every currency union needs also a fiscal capacity, and
certainly a fiscal capacity to stabilise the euro zone.”
The 27 countries in the European Union currently finance a
budget which amounts to around 130 billion euros a year – 1
percent of EU output – and which is used for spending on
agriculture, science, infrastructure and other areas.
But there is no equivalent budget among the 17 countries
that share the euro, a shortcoming that many economists believe
has undermined the stability of the currency project.
Van Rompuy first raised the possibility of a separate euro
zone budget in September and developed his thinking in a
document sent to EU capitals in early October. It forms part of
a series of initiatives to try to resolve the debt crisis.
Germany and France strongly support the proposal and, in a
surprise to many EU diplomats, Britain does too, but for
different reasons. Cameron sees a euro zone budget as a way of
further separating Britain and its increasingly EU-sceptical
electorate from the currency bloc and its problems.
He also sees a euro zone fund as a way of potentially
reducing the amount Britain has to pay into the EU budget, which
is negotiated annually as part of a seven-year framework. The
issue has become particularly acute as the EU prepares to
negotiate the next seven-year plan at a summit in November, a
deal Cameron has threatened to veto unless he gets his way.
“There will come a time when you need to have two European
budgets, one for the single currency, because they are going to
have to support each other more, and perhaps a wider budget for
everybody else,” Cameron said on Sunday, the first day of his
Conservative Party’s annual conference.
Asked if he was prepared to block the long-term EU budget if
spending wasn’t cut further, Cameron replied: “If we cannot get
a deal that has proper control of that budget, if they put
forward ideas for massive increases, I won’t say yes to it.”
TOUGH NEGOTIATION
The concern for Van Rompuy and others is that Cameron is
combining very early discussions on the possibility of a euro
zone fund with negotiations on the EU budget, and by doing so
putting both processes at risk.
“I want to clear out any confusion – this must not be mixed
up with the European Union’s multi-annual budget,” Van Rompuy
told the “Friends of Europe” conference.
“Since we decide on a multi-annual financial framework in
November, it is important that we don’t start mixing up that
discussion with the embryonic idea” of a euro zone budget.
“The objectives are different and the timeframes are
completely, completely different,” he said, adding that those
who try to mix the two should be careful.
But beyond trying to keep Cameron from muddying the waters,
Van Rompuy also faces a battle to try to convince the European
Commission and several euro zone member states that having a
separate budget for them is a good idea.
Van Rompuy’s thinking – firmly backed by Germany – is that
some form of “fiscal capacity” among the euro-area countries
will allow them to iron out labour market and other
socio-economic imbalances that build up in the bloc.
The fund could be used to help a country such as Spain,
which has unemployment of 25 percent and is struggling to
reinvigorate growth. In exchange for budget rigour, the
pan-eurozone fund could provide targeted assistance.
“The fiscal capacity could perform stabilising functions
specific to the euro zone, for instance help countries absorb
asymmetric shocks over economic cycles, so we limit the
adjustment cost in terms of growth and employment,” Van Rompuy
said. “This would also make the euro area as a whole more
resilient.”
While economically it may make sense, politically it is
likely to prove challenging to convince all 17 countries that
they need to pay more into a fund they hope they never need.
