EU leaders split over $1.2 trillion post-Brexit budget

BRUSSELS (Reuters) - European Union leaders discussed a new budget plan on Friday that could allow the EU to spend up to 1.1 trillion euros ($1.2 trillion) in the 2021-2027 period, but deep divisions among governments may block a deal for months.

European Commission President Jean-Claude Juncker talks to French President Emmanuel Macron and Luxembourg's Prime Minister Xavier Bettel during the second day of the European Union leaders summit dominated by Brexit, in Brussels, Belgium October 18, 2019. Aris Oikonomou/Pool via REUTERS

Under a proposal prepared by Finland, which holds the EU’s rotating presidency, the next long-term budget should have a financial capacity between 1.03% and 1.08% of the EU gross national income (GNI), a measure of output.

That would allow the EU to spend 1 trillion to 1.1 trillion euros for seven years in its first budget after the departure of Britain, one of the top contributors to EU coffers.

After the meeting, some EU leaders and officials described the talks as difficult.

The Finnish document, seen by Reuters, is less ambitious than proposals put forward by the European Commission, the EU executive, which is seeking a budget worth 1.1% of GNI. The EU parliament called for an even bigger budget, 1.3% of GNI.

But the Finnish proposal moves beyond a 1% cap set by Germany, the largest EU economy. And it has displeased most of the 27 EU states, EU officials said, suggesting long negotiations before a compromise can be reached.

Talks on budgets are usually among the most divisive in an EU increasingly prone to quarrels. The member states are deeply split over economic policies, financial reforms and how to handle migrants.

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The Finnish proposal, which cuts spending on farmers and poorer regions, has managed to unite the divided EU leaders in their criticism.

“The text has caused nearly unanimous dissatisfaction,” a diplomat involved in the talks said.

New, expensive policies, such as protecting its borders and increasing social security, have been enacted, but states are reluctant to pay more.

Germany and other Nordic supporters of a smaller budget argue that because of Brexit, they would pay more into the EU even with a 1% cap because they would need to compensate for the loss of Britain.

Eastern and southern states, who benefit from EU funds on poorer regions and agriculture, want a bigger budget and are not happy with Finland’s proposed cuts on these sectors.

Under the proposal, subsidies to poor regions would drop to less than 30% of the budget from 34% now. Aid to farmers would fall to slightly more than 30% from over 35% of the total.

To complicate matters, the new budget should also include rules that would suspend funding to member states with rule-of-law shortcomings, such as limits on media freedom or curbs on the independence of judges.

This is irking states like Poland and Hungary, which Brussels has accused of breaches in the rule of law after judiciary and media reforms adopted by their right-wing governments.

Friday’s meeting was not supposed to find a compromise, but divisions are so deep that many officials fear a deal may not be reached by a self-imposed December deadline. A later deal would delay the launch of spending programs.

The Finns remained confident, however, and insist their suggested spending range would eventually be backed by EU states. “The fact that almost everybody is against our text shows we have put forward a fair proposal,” one diplomat said.

Reporting by Francesco Guarascio @fraguarascio, editing by Sonya Hepinstall, Larry King