* Berlin wants to cap seven-year budget at 1% of GNI
* EU Commission had proposed 1.11% ceiling
* EU faces higher economic risks if no budget deal by year-end
The European Union may need to scale down plans to boost growth and mitigate the social impact of a slowdown if it fails to quickly agree on a long-term budget, European officials said on Monday, as Germany pushes to restrict spending.
The EU administration is funded with a seven-year budget. The size and targets are often subject to prolonged haggling among its member states.
But divisions over the next 2021-2027 financial framework run deeper than usual at a time when the bloc faces risks of a new economic recession and uncertainty over the outcome of the Brexit process - which is expected to lead Britain, one of the largest contributors to the EU coffers, out of the union.
‘My big concern is that Europe will be in a difficult economic and geopolitical situation if there is no budget by the first of January,’ the EU commissioner in charge of the talks, Guenther Oettinger, told an EU ministers' meeting in Brussels.
He said the urgency to strike a deal was heightened by the bloc's weakening economy, with Germany and other EU states stagnating.
The long-term financial framework needs to be adopted well in advance of its starting date because it has to be translated into yearly spending programmes which also usually require long negotiations.
The EU's executive commission proposed last year a seven-year budget of roughly 1.1 trillion euros ($1.22 trillion) which would represent 1.11% of the bloc's Gross National Income (GNI), a measure of domestic output. The estimate does not include funding from Britain, which is planning to leave the EU at the end of October.
But Germany, the EU's largest economy and the main contributor to the budget, said it wants to limit spending to 1% of economic output, according to a document seen by Reuters. Sweden, Denmark and the Netherlands support Berlin's more cautious spending plans.
The budget for the current 2014-2020 seven-year period also amounts to 1% of GNI, but Brussels said it has to go up because of planned higher spending on research, digital economy, border control and defence.
Berlin said the cap it proposed, although lower than the commission's, would still represent a net increase in spending by EU states, as the bloc would have to do without contributions from Britain.
The European Parliament, backed by southern and eastern European states who are net receivers of EU funds, wants a bigger budget, set at 1.3% of the bloc's GNI.
Lawmakers also urged further funding for new projects on the green economy and for unemployment benefits that have been added to the EU priorities by the commission's president-designate Ursula von der Leynen in her inaugural speech after being appointed in July.
Spain's state secretary for EU affairs, Marco Aguiriano Nalda, told the meeting differences between the proposals made it almost impossible to find a compromise before the end of the year.
But a European official downplayed the risks of delays, saying there was time until the first half of 2020 for a deal.
Poland's State Secretary for European Affairs, Konrad Szymanski, told the same meeting that reduced spending caps would inevitably translate into lower ambitions.
As the bloc nurtures increased ambitions for climate and migration projects, a downward revision of spending could hit sectors that have traditionally benefited from EU financial aid, including agriculture and cohesion funding for poorer regions.
France, a large receiver of agriculture funds, warned that aid to farmers should be maintained as part of the new shift to a greener economy.
A compromise is also made more difficult by plans to make EU funding conditional on upholding the bloc's values, including the rule of law. Germany called for this ‘conditionality’ in its confidential document reviewed by Reuters while France and Italy support Berlin on this issue.
That proposal irks the ex-communist Poland and Hungary in the bloc's east, which the EU has accused of undermining democracy with controversial justice and media reforms.
The budget needs the backing of all EU member states to be adopted.
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