Plugging Europe’s Brexit Hole Turns Summit Into a Marathon

(Bloomberg) -- European Union leaders meeting for a second day in Brussels sought to break a deadlock over the bloc’s long-term budget amid wide divisions over how to fill a financing hole created by Brexit.

All-night talks failed to resolve differences over spending levels and rebates, with leaders voicing pessimism over the prospects for a deal and indicating that another emergency summit may be needed to reach an accord.

“I’m prepared to stay the whole weekend, but no, I don’t think we’re going to reach an agreement,” Danish Prime Minister Mette Frederiksen said on Friday, adding that another summit would likely be needed next month.

Since then, leaders have held a series of bilateral negotiations in an effort to move positions closer together. As of Friday afternoon, they were debating a compromise that would set a spending ceiling around 1.05% to 1.06% of the bloc’s gross national income, according to diplomats familiar with the matter.

Talks are “going in the right direction,” Austrian Chancellor Sebastian Kurz said.

Plugging Europe’s Brexit Hole Turns Summit Into a Marathon

The trillion-euro 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 it’s also a lightning rod for the tensions running through the bloc and after three years of uncharacteristic unity during the Brexit negotiations, passions are now running high.

EU governments have been split into roughly two camps: those who want the bloc to spend more, and those who can see they’ll get stuck with the bill.

During the discussions, the Netherlands, Austria, Denmark and Sweden, also known as the “Frugal Four,” together with Germany argued for keeping the spending ceiling at 1% of the EU’s GNI. The countries -- all net payers -- are cognizant of the backlash they could face from taxpayers and opposition politicians over agreeing to pay more.

They also pushed for establishing a permanent system of rebates -- corrections granted to countries that make the largest net contributions. Other countries want such arrangements to be phased out, or ditched altogether.

On the other side were some 16 southern and eastern countries who see regional funding as a key tool to help them catch up with wealthier neighbors and countries like France who push against cuts in agricultural subsidies. They want a spending ceiling closer to the 1.1% proposed by the European Commission. The European Parliament has called for 1.3% and has threatened to derail any accord if it doesn’t get it.

Underscoring the divide, Hungarian Prime Minister Viktor Orban reiterated the 1.3% figure on Thursday. He said the gap between the two camps probably can’t be bridged in an afternoon and another summit will likely be needed.

“Miracles are always in the air, especially in Brussels, but we’re very far from a realistic possibility to make a deal,” he said.

Brexit Hole

Budget talks are complicated further by Britain’s departure from the EU, which leaves a hole of at least 60 billion euros ($65 billion) in the budget that needs to be plugged by either cutting spending or making others pay more.

Member states are also weighing how to tie the disbursement of funds to adherence to rule-of-law norms, a particular flashpoint with Hungary and Poland, which have been accused by Brussels of rolling back democratic standards.

A deal needs to be struck before year-end otherwise several spending plans for 2021 could be frozen, including funding for poorer regions.

Despite the uphill battle, some were still holding out hope of an agreement.

“The summit is still going on so we cannot speak about the failure, but I have to admit that for the moment positions are not that close to be able to find solutions,” Luxembourg Prime Minster Xavier Bettel said. “The problem is, if everyone just calculates what he pays and what he gets, then we will never come out.”

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