by Piet Coetzer

Crisis in European Union deepens

Britain bids for more say in solving the debt crisis

David Cameron

While the failure of the 27-member European Union (EU) to adopt a budget for the period 2014 to 2020 does not pose an immediate threat to the organisation, it edged the union closer to the danger of disintegration. It coincided with initial failure to come to an agreement with the International Monetary Fund (IMF) on how to resolve Greece’s debt crisis. While Britain moved closer than ever to opting out of the EU, trouble was brewing in Spain. 

South Africa, and especially its agricultural community, would have been particularly interested in the fact that subsidies to the French farming industry were among the central disputes during the failed budget talks. It has long been argued that South African produce exporters are being disadvantaged by these subsidies.

Before the summit in Brussels, there were strong suggestions that British Prime Minister David Cameron may use his veto to block the €970-billion budget if he could not secure cuts in the EU administration’s spending. In the end, he did not need his veto as he was supported by Germany, the Netherlands and Sweden.

Strong divisions on how the EU should be run surfaced between Germany and France, which for long have acted in tandem to dominate EU affairs.

France, eager to preserve farm subsidies, is opposed to the mooted cuts of about €50 billion over the seven-year budget period and wants the austerity measures introduced in the wake of Europe’s sovereign debt crisis to be terminated. Britain not only wants the Brussels administration to adopt some austerity, but also wants to retain its €3.6-billion-a-year rebate on its contributions toward the EU’s administration. This     arrangement came under attack from a number of member countries.

Germany’s support of the British stance, however, has probably not been completely unconditional. It might have been aimed at securing Prime Minister Cameron’s support for German Chancellor Angela Merkel’s EU reform plans that would see Brussels being bestowed with greater power over national budgets.

To retain her support when the European leaders resume budget talks early next year, Cameron will be under pressure to support German plans for a banking union in the eurozone. This subject, an unpopular one within the powerful and influential financial industry in the City of London, will be up for discussion at another summit later in December.

British referendum

The greater danger to the EU than the protracted battle over the budget is the fact that Cameron has edged Britain closer to a public referendum on the question of continued membership of the EU. He has raised again the possibility of a referendum on new terms of EU membership which he is attempting to negotiate.

Cameron may be hoping that the prospect of a referendum will strengthen his hand in the negotiations, but he runs the risk of its backfiring on him. With the latest opinion polls in Britain indicating that there is a marked shift in favour of a British withdrawal from the EU, he maybe forced to have an 'in-or-out' referendum instead of only an 'in-in' one on the terms of membership.

Cameron, himself in favour of retained membership under new terms, did not help to engender positive feelings toward the union when, after the failed attempt to secure cuts from Brussels, he described it as “insulting to European taxpayers”.

A referendum is unlikely to happen before the 2015 general election in Britain, giving time for the present EU financial turmoil to settle down and for a 'new deal' to be completed.

At the same time, unity in the EU came under pressure when, during the week of the heads of state summit, consensus could not initially be reached by the ministers of finance on agreement with the IMF over how Greece’s debt  should come down to manageable levels.

Deep and potentially dangerous divisions between member states and the IMF, as well as between members themselves, came to the fore. The IMF wanted a second partial default or a so-called 'haircut' on the debt. Most eurozone members, led by Germany, wanted to avoid such a 'debt forgiveness' at all cost.

In the early hours of Monday morning last week, at the third meeting in three weeks between the eurozone ministers and the IMF, an immediate crisis was averted – one that would have seen the Greek government running out of money by 13 December. In a complicated deal, which must still be vetted by the national parliaments of member states, a 'haircut' was avoided, but profits from loans made to Greece will go into a special fund at the European Central Bank for access by that country if needed.

The core of the problem is that while the IMF is probably correct on a financial level – that Greece cannot be saved without 'debt forgiveness' – it is a completely different story at political level. In essence, it is taxpayers' money from member states that was lent to Greece in the previous bailout.

With leaders such as Merkel caught in a run-up to elections, a 'gift' to the people of Greece will not be easy to sell at home.

In the meantime, the Greek economy has been worsening since June and austerity measures have led to massive social unrest while unemployment figures are climbing.

In Spain, voters in the semi-autonomous Catalonia region gave pro-separatist parties a majority in parliament in elections the week before last. Sparked by the fallout of the debt crisis in Spain, the region seems set to renew efforts for independence and separate membership of the EU.

Social unrest has also become endemic in Portugal; some of Europe’s larger banks remain under pressure, and even in Britain voices against the EU are gaining momentum.

It is clear that the EU still has some way to go to put the financial and economic crisis behind it, while the very existence of the union remains under threat.

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