After a night of talks, leaders at the EU summit in Brussels are edging towards a compromise deal on the 2014-2020 budget, but there remains a lot of hard bargaining to come.
According to reports, a broad framework for the budget has been hammered out but the UK, Germany and other northern European nations want to lower EU spending to mirror the austerity measures being carried out by their national governments, while other member states, particularly those in southern and eastern Europe, are against the cuts.
The leaders are studying proposals for a 908bn Euro (£774bn) budget for the full seven years, which is 5bn Euros lower than the proposal at a summit in November, when they failed to reach an agreement because of this point.
Prime Minister David Cameron repeated again last night that he would not accept a deal unless further cuts were made, and has proposed a figure as low as 886bn but since any one of the 27 member states can veto the deal, negotiations are very difficult.
However, the all-night talks appear to have cut an initial proposal of 913bn Euros down to 908bn. This latest proposal would also fix the ceiling for absolute spending at 960bn Euros (£818bn), which is a cut of more than 12bn Euros from November’s proposal.
If the leaders fail to reach agreement on the seven-year budget, it would mean the EU rolling over annual budgets, which would be a more expensive method and would complicate long-term projects.
The 2013 EU budget is 132.8bn Euros, which is only a 2.4 per cent increase on the 2012 budget. If the latest proposal were to be divided equally over the seven-year period, it would equate to an annual figure of 129.7bn Euros.
If the cuts are agreed, this would be the first multi-annual EU budget to see a net reduction, but there is still a lot of talking and potential compromise ahead.
As an economist at Milsted Langdon, Kevin Butler, is able to share his in-depth research and expert views on a wide range of economic and financial topics.