(Bloomberg) — The European Union’s first post-Brexit summit descended into acrimony as squabbling over the bloc’s trillion-euro budget exposed the fault lines holding back its geopolitical ambition.After a 28-hour gathering in Brussels, EU leaders conceded it was impossible to agree on a seven-year fiscal plan amid differences over spending. They’ll have to reconvene sometime before the end-2020 deadline.“Unfortunately today we’ve observed that it wasn’t possible to reach an agreement,” European Council President Charles Michel said Friday. “We’ve worked very hard but we need more time.”The 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 tensions. After three years of uncharacteristic unity during the Brexit negotiations, passions among the 27 member states are once again running high.Leaders spent the much of the summit in different groups as they sought to strike alliances over the budget’s size and fine print. Meanwhile, technical officials from each country were on standby, armed with laptops and notepads to sift through new proposals.But for all their ambition to project an image of the EU as a united global superpower, its leaders spent the better part of two days bickering over fractions of a percentage point of the bloc’s output.“I’ve heard enough of red lines today,” Angela Merkel said after the meeting, voicing her frustration over the manner in which negotiations were conducted.When it’s eventually sealed, the final accord will signal whether Europe is prepared to spend more collectively to further its goals, whether it wants to prioritize innovation over handouts to traditional industries and whether it will wield its financial muscle to force member-states like Hungary and Poland to respect the rule-of-law.The scrap for cash to fund agriculture and regional development — as well as newer issues like climate change and migration — was further complicated by the U.K.’s departure, which leaves a hole of as much as 75 billion euros ($80 billion).Two CampsThe EU split into two camps: net beneficiaries in the south and east seeking higher spending, and net payers in the north wary of a backlash at home for agreeing to chip in more.The Netherlands, Austria, Denmark and Sweden, known as the “Frugal Four,” were joined by Germany in arguing to keep the spending ceiling at 1% of the bloc’s gross national income. They also pushed for a permanent system of rebates granted for the largest net contributors.On the other side, a group of around 16 southern and eastern nations see regional funding as key to helping them catch up with wealthier neighbors and want rebates phased out or abolished. They sought an expenditure ceiling nearer the 1.1% put forward by the European Commission. Some even clung to the European Parliament’s 1.3% proposal.“It was disappointing,” Spanish Prime Minister Pedro Sanchez said, echoing sentiments voiced by many leaders. “We need a balance between national interests and those of the union. We can’t present a vision that’s not backed by budgetary commitments and you can’t do that on 1%.”A deal needs to be struck before year-end to avoid a freeze in some spending for 2021 — including funding for poorer regions.“We now have to let the dust settle,” EU Budget Commissioner Johannes Hahntold reporters. “Then we have to look into the figures and see what has to be done.”–With assistance from Katharina Rosskopf, Irina Vilcu, Nikos Chrysoloras, John Follain, Jonathan Stearns, Ania Nussbaum, Lyubov Pronina, Ian Wishart and Maria Tadeo.To contact the reporters on this story: Viktoria Dendrinou in Brussels at [email protected];Arne Delfs in Berlin at [email protected];Jasmina Kuzmanovic in Zagreb at [email protected] contact the editors responsible for this story: Ben Sills at [email protected], Andrew Langley, Richard BravoFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
