Tuesday, June 14, 2005

The falling Euro, and the EU budget

Only those with their heads in the sand would deny that Economic gloom in Europe boosts the dollar against the Euro However, it is worth bearing in mind, as the above story at the Financial Times also points out, that there other factors behind the rise of the dollar.

Big banks are also increasingly reporting large repatriation flows by US multinationals under the auspices of the Homeland Investment Act, a year-long tax break designed to encourage US companies to bring home earnings held abroad. Repatriation had been held up by uncertainty over the accounting treatment of the money, but with these issues now overcome, JP Morgan believes US companies will repatriate $100bn (£55bn, €83bn) before the end of the year, most of which would be converted from euros.
Meanwhile the push for a radical overhaul of the EU budget is on. EU Trade Commissioner, Peter Mandelson, is reported by the FT to be in favour of such reform.
In a speech in London on Monday night, Mr Mandelson floated the idea that Britain could give up part of its rebate paid for by accession states, estimated at €440m out of a total discount from the EU budget of €4.6bn.

“Ministers must be consistent and courageous in their reformism, and be prepared, in the context of a deeper re-think about the EU's budget, to look at reforming Britain's rebate. For a start it is surely wrong to ask the poorer new accession states to pay for any part of the rebate,” he said at a Fabian Society lecture. His comments, in the midst of a dispute between the UK and other member states over future financing, appeared to be an attempt at breaking the stalemate in the budget row. Mr Mandelson warned London against making an overtly aggressive defence of the rebate that could alienate possible allies. He suggested examining the rebate as part of wider reform.

“Refusal to talk about much needed budget reform is part of the old conservatism in Europe, which the Barroso Commission is determined to change. But Britain should be careful not to play into the hands of this conservatism,” he said.

From FT @ Mandelson calls for “courageous” EU reform
It seems that Commissioner Mandelson is echoing the stance of Tony Blair – not surprising given their past political relationship. Here is what the UK proposes
Mr Blair insisted that any change to the rebate had to be linked to radical reform of the budget as a whole, and the common agricultural policy in particular. “We are happy to have this discussion [about the rebate] but it’s got to be on a realistic basic,” he said. He argued that this realistic basis needed to recognise both the “unfairness” that led to the rebate being agreed in 1984, as well as the need to change the system that allocated 40 per cent of its payments to a sector -- agriculture -- that accounts for only five per cent of the EU’s employees. He added the discussions should be on the basis that “there must be fundamental changes, in particular to the CAP and the amount of the budget that it takes up each year.”

“You have to ask the question, in the early 21st century, is a budget formulated in this way the answer to the problem of Europe’s today. I don’t think it is,” he said.

More @
Blair remains defiant over British budget rebate
Blair has a point here, but whether Chirac is prepared to look at fundmental reform of the EU budget is quite another matter.

Unfortunately there is also a strong possibility that there will be no progress on the EU budget. In this case it may well be the new EU member states in Central Europe that will suffer. Funds that are much needed in the CEE region could be cut drastically in an attempt to prune the EU budget. If the benefits that accrued to Spain and Ireland are not going to be repeated then the CEE states will remain the EU’s poor relations, but then it is clear that are many in the old EU 15 who regard the people in the CEE region as somehow inferior and less deserving.