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EU Budget: Trouble for Eastern Europe?

3 MINS READNov 20, 2012 | 15:04 GMT

Video Transcript:

Baltic farmers are on their way to Brussels to protest against the current status of EU farm subsidies. They hope to arrive in Brussels by Nov. 22, when EU leaders will debate the next seven-year budget for the European Union. There is pressure from creditor countries to reduce EU spending in light of national budget cuts. The current crisis is putting to test the capacity of Western Europe to economically support the east and ensure general cohesion.

Around 80 percent of the European Union budget is currently made up of subsidies and funds for poorer EU countries. The common agricultural policy, commonly known as the CAP, includes the agricultural subsidy program and accounts for around 40 percent of the budget. Farmers in Western Europe are the largest recipients of these funds. For countries that joined the European Union after 2004, subsidies are gradually being phased in. Currently, they receive lower subsidies per acre compared to farmers in the west.

The Europeans have long been trying to reform the CAP, and the issue will be an important topic during the next multi-year budget negotiations. In a number of western countries, especially France, the largest European agricultural exporter, farmers carry political weight and, thus, governments are hesitant to cut subsidies.

For the European Union as a whole, the agricultural sector only accounts for around 1.7 percent of gross domestic product and five percent of employment. However, for eastern countries, agriculture still accounts for a higher percentage of total employment and value added. Farmers from Eastern Europe are calling for more balanced farm subsidies between east and west and oppose the cuts to the CAP that are currently being debated.

However, more important than CAP are the structural and cohesion funds for Eastern Europe. These funds account for around 35 percent of the EU budget. While the majority of the CAP goes to western farmers, the structural and cohesion funds mostly go to Eastern Europe to upgrade infrastructure and create links to Western Europe. These funds often account for several percentage points of GDP in Eastern European countries.

Considering the pressure on governments to cut budgets, it is unlikely that EU funding will increase by the amount the poorer members hope. Due to hardened national positions, the likelihood of EU leaders achieving a compromise on the next EU budget when they meet Nov. 22 is slim. Lengthy negotiations on the budget are not unusual; a deal will likely only be reached some time next year.

The ongoing budget negotiations put to question the willingness and capacity by Western Europe to subsidize development in the east. Currently, most of the European Union's wealthy countries are trying above all to stabilize the eurozone. Rising unemployment and economic hardship are leading to discontent, as recentprotests in southern Europe showed. It is likely that Eastern Europe will be increasingly competing for the limited EU funds with southern European countries.

So far Europe's periphery still gravitates toward the west. In the longer run, however, a decrease in Western Europe's economic power and funding capacity leads to the question of who Eastern European countries could turn to. Europe's northeastern and southeastern peripheries would likely be first attracted by the economic weight of Russia and Turkey. Countries that have tried to distance themselves from these two powers in the past could therefore face a dilemma when bridging commercial and political interests.

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