Gábor Lakatos

The Last Round of Bargaining Before EU Accession

 

Acceptance of a unified stance depended on accord between Germany and France. The two countries' leaders met prior to the summit and, in an unexpected turn of events, hammered out an agreement concerning direct agricultural income support. According to the deal, spending on agriculture would not be reduced until 2006, but then during the budgetary period lasting from 2007 to 2013, a ceiling would be imposed. This effectively means that after 2006, spending on agriculture will only increase by a maximum of 1 per cent each year, which will mean a reduction in real terms. Thereby, Germany received a guarantee that subsequent to enlargement, spending on agriculture will be frozen in 2007 at the 2006 level, sparing the country any additional financial burdens. At the same time, France made sure that the structure of direct agricultural support payments will remain unchanged until 2007. This private agreement between the two nations made it possible for member states to formulate a common position on the financial terms of enlargement.
Finally, the summit brought unexpected success in the issue of enlargement. Consistent with the wishes of the member states, the EU promised to prepare a financial package that would put new members in a better financial position in the first year after accession than in the last year before it. The new plan set the costs of enlargement between 2004 and 2006 at 37.5 billion euros according to prior calculations. Within that, a ceiling of 23 billion euros was imposed for the structural funds for the first three years, which is 2.5 billion euros less than in the previous offer. At the same time, 16 per cent of available support will be reallocated to the cohesion fund, which will be made available primarily to the poorest member states, i.e. the new members. The remaining 14.5 billion euros will cover agricultural support, internal projects (institutional development, etc.) and administrative measures. According to the offer, direct agricultural support provided to new members in 2004 will be a quarter of that allotted to current members. The level of support will then be gradually increased to 100 per cent over a space of nine years. Those countries whose financial position deteriorates during the first three years following accession will have the option of claiming a one - off lump sum budget refund.
The October offer would have granted Hungary 12.5 per cent of all funds allocated for enlargement, amounting to approximately 4.5 billion euros in the first three years. Of that, 2.87 billion euros would have been allocated from the structural and cohesion funds, 1.37 billion euros provided for agricultural support (including 550 million euros of direct income support to Hungarian farmers) and 411 million euros for internal projects.
The current member states agreed that every one of them would have to make financial sacrifices for enlargement, and they did so without rescheduling debates on the 2007 to 2013 budget. Thus it became clear that the budget would not be increased but, rather, some of its resources would be reallocated to
finance enlargement. The freezing of direct agricultural support in 2006 means that the gradual raising of direct benefits for new members will be financed by reducing the level of agricultural support provided to old members. Neither will enlargement leave the structural and cohesion funds unaffected, which entails new sacrifices for countries that have been net beneficiaries so far. Some even suggested, albeit informally, the renegotiation of the British budget refund which had been secured for the U.K. by Margaret Thatcher. At the same time, the additional sacrifices made by old members in terms of agricultural support will be offset by the CAP's second pillar, spending on regional development. Expenditure in this area, which currently amounts to 10 per cent of agricultural spending, will not be frozen. This could serve to compensate those countries that had been net beneficiaries of direct support.
The EU's financial offer also implies that a comprehensive overhaul of the CAP has been put off until after 2006. At the same time, France, the chief advocate of the current system of direct agricultural support payments, has failed in its bid to separate the reform of the CAP and other budgetary reforms set forth by the European Council in Berlin, as well as the EU's international responsibilities aimed at the gradual elimination of those CAP measures that are detrimental to free trade.

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Denmark, holder of the EU's rotating presidency at the time, prepared a new offer for the Copenhagen summit. The current members - albeit reluctantly - accepted the new deal, which was slightly more generous than the one agreed to in Brussels had been, as the basis for future negotiations. The new package did not propose an increase in the level of direct agricultural support. Rather, it suggested that new members should be able to supplement support payments from their national budgets, with the EU providing both direct and indirect support to this end. As part of the scheme, new members would have the option of reallocating 20 per cent of the resources from the regional development fund to
financing direct payments. The new offer also proposed the establishment of a new fund of one billion euros to counter cash flow problems during the first year of enlargement. New members would be allocated resources from the fund in proportion to their contribution to the EU budget, and the money would be spent on easing liquidity problems arising from the introduction of the Union's support system. The implicit purpose behind the establishment of the new fund was to reduce the burden of direct support payments on the national budgets of new members during the first year of accession. Another new element in the package was the proposal to set up a "Schengen fund" of 300 million euros, with new member states being allocated resources in proportion to the length of their borders with non - EU countries.
At the Copenhagen summit, the Danish presidency's carefully planned tactics paid off and their manoeuvres split the candidate countries' unified stance, which had been shaky in any case. Through a series of private agreements, they managed to isolate the countries that showed the most fierce resistance to the EU's package deal, thereby diminishing the weight of their arguments. This is how Hungary, battling to the last minute, was left on its own, and was forced to accept the Union's finalized offer. Those candidate countries where agriculture is not a significant area were more interested in securing more budget compensation than fighting for increased agricultural support. In addition, the EU offered Poland, the primary advocate of agricultural issues, more favourable financial terms than other countries, as part of a private deal. As a result, Hungary was left isolated in its fight for more agricultural support. It had been evident even before the summit that the candidate countries could only hope for significant gains during negotiations if they presented a unified position throughout. This, however, proved to be impossible right from the start as six of the ten countries came to Copenhagen ready to accept the EU's deal. On the other hand, as long as the influential "Visegrád Four", who were considered to be the "core group" within the candidate countries, showed unified resistance to Brussels' offer, the acquisition of additional resources from the Union remained a distinct possibility. Once Poland parted from the group, however, the remaining three countries were left with limited options.
The Danish presidency appeased Poland by offering them a billion euros of quick and easy cash for the first year of accession. But this was not a supplementary offer. Rather, the money would be granted to Poland through a reduction of the consolidation funds, allocated as a total of 8.6 billion euros for the first three years of membership. The offer seemed tempting to the Polish delegation, even if no additional resources had been offered. In any case, they would have been unable to call on the total amount allocated to them from the structural and cohesion funds, so the reduction would not have any significant effect on Poland. The prospect of a guaranteed, up - front payment of a billion euros, on the other hand, seemed attractive to the Poles - more attractive than a negligible increase in direct agricultural support. Polish farmers would, in any case, not be at a substantial competitive disadvantage compared to their EU colleagues due to the option of supplementing agricultural support from the national budget. As a result, Poland no longer pressed for increasing support for farmers. In addition, the Poles realized that the one billion euros of EU money could well be used to cover the expenses of supplementing agricultural support, thereby reducing the burdens on the national budget. The Polish delegation finally called it a deal when the EU promised to redistribute Polish milk quotas and increase the resources allocated to Poland from the Schengen fund.
Similar tactics were used to disarm the Czechs, who showed little interest in agricultural affairs. Their main concern was the relatively low level of their net financial position compared to other candidate countries. Thus, the Danes were able to win them over easily with the offer of budgetary compensation through an initial guaranteed payment. This was the final blow to cooperation between the Visegrád Four. Hungary and Slovakia, who maintained their objections, were finally forced to give in. As a result, since all candidate countries accepted the European Union's financial terms, accession negotiations came to an end. The ten countries managed to obtain 408 million euros of extra funding in addition to the Danish offer, bringing the total cost of enlargement between 2004 and 2006 to 40.83 billion euros. Let us not forget, however, that this sum represents financial obligations undertaken by the EU. The actual level of payments made will be much lower.
Thus the price tag for enlargement will remain 1.8 billion euros below the initial ceiling set at the Berlin summit in 1999. According to the Danish proposal, an additional 2.2 billion euros were still available for allocation during the concluding negotiations. Originally, most candidate countries had planned on claiming their share of this sum. With this in mind, the 408 million euros of extra funding secured by the ten countries seems a rather paltry achievement.

Gábor Lakatos
is on the staff of the Institute for World Economics of the Hungarian Academy of Sciences. His main fields of research are EU institutions and the domestic and legal policies of member countries. He has co - authored a book on fund applications in the EU.