EU leaders fail to strike budget deal in aftermath of Brexit

Bloomberg

European Union (EU) leaders failed to clinch a deal on its next long-term budget as deep divisions over spending bubbled up in the aftermath of Brexit.
After a 28-hour extraordinary summit in Brussels, they conceded it was impossible to nail down a seven-year spending plan and will 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. “We’ve worked very hard but we need more time.”
The trillion-euro 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.
The final accord will signal whether Europe is prepared to spend more collectively to further its goals, whether it wants to prioritise 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 UK’s departure, which leaves a hole of as much as 75 billion euros ($80 billion).

Two Camps
The EU split into two camps: net payers in the north seeking higher spending, and net beneficiaries in the south and east 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 push for a permanent system of rebates granted for the largest net contributors.
On the other side, the so-called friends of cohesion 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.
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.
Even a last-minute compromise from the European Commission suggesting a ceiling of 1.069% of GNI and offering sweeteners to the frugal camp wasn’t enough.
A deal needs to be struck before year-end to avoid a freeze in some spending for 2021 — including funding for poorer regions.
“We realized the differences are still too big,” German Chancellor Angela Merkel said. “We’ve made a first try, but it’s still early in the year.”