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The EU budget, who pays what and why?

26 October 2014, 20:21 CET
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(BRUSSELS) - British premier David Cameron's furious refusal of Brussels' demand that he pay 2.1 billion euros in back-dated budget contributions has left some wondering what all the fuss is about.

Herewith background information on how the European Union budget is put together based on contributions from the 28 member states.

- HOW ARE PAYMENTS CALCULATED? -

How much any single member state must pay into the annual EU budget, now running at around 135 billion euros ($175 billion), depends on the size of their economy.

The principle is simple -- the bigger the economy, the more a member state pays, with Germany therefore leading the way, followed by France and Italy.

Britain is a large net contributor but also benefits from a special budget rebate won by the late Margaret Thatcher in 1984 currently worth some 3.8 billion euros.

Many of the smaller, poorer and newer member states do not pay in at all but are net recipients of EU funds designed to bring them up to par with their richer peers as soon as possible.

- WHY DID THEY CHANGE THE RULES? -

Agreeing the EU budget is traditionally one of the most fraught and difficult negotiations in the bloc.

To make that process fairer and more transparent, the EU agreed in 2010 to review member states' economies, going back to 1995, to ensure all were put on the same standard of measurement.

The resulting headlines were dominated by how the authorities were now including previously off-limit and often illegal activities such as prostitution, smuggling or drugs in the figures, which they did.

But they also included activities such as research and development, new forms of investment and new emerging service industries.

The review showed that some economies were considerably larger than previously believed, especially those with a large services sector such as Britain, which accordingly would have to pay more.

- SHOULD BRITAIN HAVE ALREADY KNOWN? -

On that basis, the EU's demand for an extra 2.1 billion euros from Britain should not have come as any surprise, even if the amount is quite large.

At the same time, the Netherlands, a much smaller country, will also have to cough up nearly 650 million euros.

Cameron was livid at what he saw as Britain being punished for its economic success, especially when the French economy has done so badly in the past year that Paris will get a rebate worth nearly one billion euros.

Even Germany gets a credit, of nearly 800 million euros.

Professor Iain Begg, an expert on EU economic governance at the European Institute of the London School of Economics, said the prime minister should not have been surprised since Britain had signed up to the changes.

"Not only has Britain signed up to it and agreed to it but Britain has been one of the strongest advocates of maintaining this particular way of funding the EU budget," Begg told AFP.

- WHAT ARE BRITAIN'S OPTIONS NOW? -

Britain's options appear limited but the best might be for Cameron to make common cause with other aggrieved member states such as the Netherlands and negotiate some sort of reduction or repayment schedule.

Of course, Cameron could also decide not to pay at all but that would likely lead to a very long-drawn out legal battle with an uncertain outcome.

"At the moment it's not possible to get out of the European Commission an exact prescription of how these numbers have been arrived at. At the moment they are publicly saying that they are estimates," he said.

European Commission chief Jose Manuel Barroso said Friday that Britain's questions would be answered, and there would be a meeting of finance ministers on the topic, but ruled out a change in the new regulations.


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