Good News: EU Budget Talks Collapse

France Rejects Compromise; Still Time to Snatch Defeat From Jaws of Victory

I have a bit of good news today. The efforts of European Council president Herman Van Rompuy to mollify the UK and other budget hawks have created such a stir that France rejects EU budget compromise.

Jean-Marc Ayrault, the French prime minister, objected to deep cuts to agriculture spending included in the proposal, but also expressed displeasure with reductions in the development money, known as cohesion funds, that benefit poorer regions.

The biggest object of displeasure appeared to be Mr Van Rompuy's move to trim €25bn from the common agricultural policy – traditionally France's biggest priority – compared with a proposal from the European Commission, the EU's executive arm. Those cuts include a €12bn reduction in direct subsidies to farmers.

Some analysts argue the cull was even more dramatic because agriculture was starting from a low base – historically speaking – in the commission proposal.

Agriculture is not France's only concern. Cuts to the cohesion budget look set to fall disproportionately on its own regions, which tend to be bastions of support for François Hollande, the socialist president.

Paris may also have been stung by Mr Van Rompuy's decision to endorse the UK rebate, the burden of which falls disproportionately on French and Italian taxpayers. Under the proposal, the rebate would be modified so that the UK and Germany – currently exempted – would have to pay a share of the British rebate.

Bernard Cazeneuve, France's Europe minister, said on Wednesday that France was against the continuation of budget rebates for countries such as the UK, Germany, the Netherlands and Sweden. "We don't want these rebates to continue because they represent an anti-European way of thinking," he said.

Good News

Talk is now so cantankerous that EU budget talks collapsed completely.

This is not only good news, it's excellent news. Half the EU budget is dedicated to a preposterous system of crop supports as noted in my post Common Agricultural Idiocy.

The sooner the CAP blows sky high, the better off citizens in Europe will be. Bear in mind the fallback position of the EU is an automatic budget increase of 2% if no agreement is reached.

Should an automatic increase happen, UK prime minister David Cameron may be forced into an up-or-down vote on UK membership in the EU. As it sits now, British citizens would reject the EU, as it should.

Self-Serving Brussels Nannycrats

The Telegraph explains ...

David Davis, a former shadow Home Secretary, condemned the "self-serving, inflation-busting bonus for Brussels" that would force Britain to pay an extra £1.3 billion next year in annual EU contributions, on top of the existing £11 billion.

Writing in the Daily Mail, he warned: "If the EU Commission gets its way, British taxpayers will soon be handing over £22,000 to Brussels every minute. It is time for EU institutions to experience the austerity they happily recommend to member states.

"It's certainly not hard to find savings, given that the EU's 2012 budget is £105 billion – four times what our government will spend on defence this year."

If no deal is signed by the end of next year, the EU budget will rise automatically by two per cent.

Still Time to Snatch Defeat From Jaws of Victory

The bad news is the EU still has some time to work this mess out, and Cameron may not put the EU to a vote if a compromise is reached.

In the meantime, just remember, the more bickering the better.

Anything that cuts the power and the budget of the nannycrats in Brussels is a good thing. The sooner this mess blows sky high the better.

Mike "Mish" Shedlock, a registered investment advisor representative at SitkaPacific, blogs at globaleconomicanalysis.com.