Budget to Be Focus of Next EU Presidency

The European Union's incoming chairman this week called on the bloc's richest members to back down on calls for a long-term spending freeze if they want a budget deal by next June.

Luxembourg Prime Minister Jean-Claude Juncker also said reforms expected under his six-month presidency to the Stability and Growth Pact, the fiscal rules underpinning the euro, would make the the pact "more intelligent."

Agreement on the 2007-2013 spending round is imperative by the end of Luxembourg's turn in the EU presidency in June if the bloc wants to proceed with its long-term plans, Juncker said.

"If we don't arrive at an accord on the outlines by June 2005, it will be impossible to enact the programs which should be available on January 1, 2007," he told a news conference detailing his plans for the next six months.

Juncker said time was needed between next June and the start of 2007 to enact legislation for ambitious infrastructure projects and subsidies for the bloc's newest and relatively poorer members. Luxembourg plans to begin budget negotiations on Jan. 31 at a meeting of EU foreign ministers, according to Foreign Minister Jean Asselborn.

Spending caps

The six biggest net contributors to the EU budget -- Austria, Britain, France, Germany, the Netherlands and Sweden -- have called for the 2007-2013 budget to absorb no more than 1.0 percent of the EU's gross national income (GNI).

But the EU's executive commission wants the level raised to 1.14 percent of GNI, arguing that the bloc needs to put its money where its mouth is if it wants to achieve its long-term goals.

"I believe there is no possibility of having a unanimous agreement based on the proposal for a cap at 1.0 percent," Juncker said. "I think that the compromise to be found will lie between the proposal of the six countries and the proposals of the commission. We have six months to resolve this problem," he said.

If there is no deal by June, many fear that the next EU presidency under Britain will be unable to agree the spending round in time given London's fierce defense of its own financial interests in the bloc.

European Commission chief Jose Barroso urged the bloc's members to clinch a deal during the next six months. Otherwise, he warned, key EU objectives and policies could be in danger.

Stability pact reform

Another economic debate that will come to a head under Juncker's presidency is reform of the stability pact, which was left in tatters by the EU's failure to punish France and Germany for repeatedly breaching its deficit rule.

Infamously dubbed once by former European Commission chief Romano Prodi as "stupid," the pact will become more supple to deal with countries battling to fix their finances in a downturn, Juncker said.

"The pact is not stupid, but it will be rendered more intelligent," he said after holding talks with his Belgian counterpart, Guy Verhofstadt.

"That means that its preventive aspects will be reinforced," Juncker said, pointing to expected reforms that will require euro-zone countries to work harder on bringing down their deficits when economic times are good.

Reforms to the pact are expected to be adopted at an EU summit in March chaired by Juncker, who from Jan. 1 will also assume the semi-permanent helm of the euro zone, leading him inevitably to be dubbed "Mr Euro."