Parliament Rejects European Budget Agreement

http://www.nytimes.com/2013/03/14/business/global/parliament-rejects-european-budget-agreement.html

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BRUSSELS — The lawmakers of the European Union gave austerity a poke in the eye Wednesday by overwhelmingly rejecting the bloc’s proposed budget of €960 billion in its current form.

E.U. leaders deadlocked over the seven-year plan in November but finally reached a deal last month after a 24-hour marathon of talks that resulted in spending cuts for the first time in the Union’s history.

Lawmakers at the European Parliament cast doubt on that plan Wednesday, casting 506 votes in favor of a resolution demanding significant changes to the way the money should be spent and the option to raise the overall sum in the coming years. There were 161 votes against the resolution and 23 abstentions.

The Union’s budget — for farming, transportation and other infrastructure, and big research projects — amounts to about 1 percent of the bloc’s estimated gross domestic product over its seven-year span. But it involves furious horse-trading as leaders focus on getting the best deal for their own countries, rather than putting the emphasis on pan-European considerations.

The opposition from the Parliament, which was given the formal power to veto budgets under the Lisbon Treaty of 2009, presents a significant hurdle. As a result of the vote Wednesday, the governments of the Union’s 27 member states must now work out another compromise — this time with Parliament. The process could take months.

“It was foreseeable that the European Parliament would refuse,” Martin Schulz, the president of the legislature, said at a news conference shortly after the vote. “We don’t want to see the European Union going in the direction of a deficit union.”

Mr. Schulz was referring to resistance by some national governments to allocating more money at the start of each year to ensure that projects are fully funded from 2014 to 2020, the period of the budget.

The Parliament’s resolution called on E.U. governments to settle their outstanding bills and to give scope to the Parliament and to E.U. governments to move funds among different areas of the budget to meet needs as they arise. That means money that might ordinarily go unspent would be spent, but without changing the overall budget figure.

But the resolution also called for a review of the budget with the possibility of increasing spending. Many members of Parliament said that raising the overall amount of the budget should be an option, particularly if the economic crisis now gripping the Union tapered off. The decision about who would conduct the review is likely to be an important part of the negotiations in coming months.

Asked about the vote in the European Parliament, the spokesman for the British prime minister, David Cameron, said that his view on the budget deal was “clear and unchanged.”

“The E.U. 27 have set a credit card limit, and that is the right agreement,” said the spokesman, referring to the budget ceiling for 2014-20 agreed to at the last summit meeting. He asked not to be identified, in line with British government policy.

The European Parliament has increasingly become a force to be reckoned with since the Lisbon Treaty. Most notably, in early 2010, it rejected an interim agreement with the United States on sharing information about bank transfers that was intended to help in tracking suspected terrorists, partly on the grounds of privacy concerns.

The Parliament later voted to resume the system on condition of guarantees to ensure protections of citizens’ personal information.

Mr. Schulz said he would formally present the resolution voted on Wednesday to E.U. leaders when they gathered in Brussels for a two-day summit meeting on the bloc’s economy starting Thursday evening.

Austerity also could be a core topic at the meeting if leaders of countries like Spain and France seek to emphasize the need for measures to support growth against calls by leaders of countries like Germany and Finland for budgetary discipline.

Another focus of the meeting is expected to be Cyprus, the latest euro zone country to require a bailout.

The leaders of the 17 countries of the euro area will hold a separate meeting on Thursday night that is to be attended by the newly elected center-right president of Cyprus, Nicos Anastasiades.

Then, on Friday, euro zone finance ministers are expected to assess ways of overcoming the remaining obstacles to a deal.

Cyprus may require about €17 billion, or $22 billion, in aid from the so-called troika — the International Monetary Fund, the European Commission and the European Central Bank — of which up to €10 billion is needed to shore up the banking sector. That is a small amount compared with what has been pledged to Greece but a huge sum for Cyprus, which has a gross domestic product of only about €18 billion.

The scale of the country’s needs has prompted concern about how it could ever repay the money. There are also acute concerns over money laundering.

Another contentious issue is whether troika members will force Cypriot bank depositors to take losses in order to make the country’s debt more manageable.

<em>Stephen Castle contributed reporting from London.</em>