EU leaders to clash over long-term budget, no quick deal in sight

By Jan Strupczewski

BRUSSELS, Oct 14 (Reuters) - European Union leaders will clash on Thursday over the size of bloc's next long-term budget, its sources of revenue and spending priorities, with no immediate deal in sight as net contributors and net beneficiaries pull in opposite directions.

The EU budget is how the 27-member bloc finances all of its policies - from supporting farmers to developing new technology and supporting industry and research against competition from China and the United States.

The budget also covers student exchanges and equalising standards of living across the EU, help for Ukraine and EU officials' salaries.

It has to be agreed unanimously and is often the most acrimonious battle the EU has. The seven-year 2028-2034 budget under discussion now is particularly difficult because of additional pressures on national budgets from high energy prices and defence spending.

The European Commission proposed last year a budget of €1.76 trillion ($1.96 trillion), or 1.26% of EU GNI, causing an outcry from net contributors like Germany, the Netherlands and Nordic countries that it was too much.

The latest proposal from the Irish presidency of the EU, to be discussed on Thursday, cuts the total to €1.62 trillion, but that has not stemmed the criticism.

The new total already includes €150 billion to service and repay EU joint borrowing during the COVID pandemic.

The cuts proposed by the Irish focus mainly on what the EU spends on other regions of the world and on the financial safety cushions built into the budget, leaving little for  unexpected events.

It also cuts money for research, fighting climate change, clean transport, connecting energy networks or making Europe more competitive. 

By contrast, it increases subsidies for farmers and for higher living standards in rural areas - because EU politicians want to preserve the support of the small, but vocal group of voters linked to agriculture. 

The Bruegel think tank said the Irish proposal preserved the old, widely criticised structure that focuses on subsidies for farmers and regions, rather than redirecting money to help Europe compete against China and the US.

Bruegel said only France and Germany could break the deadlock, but with France consumed by political infighting ahead of elections and Germany weakened by the record low popularity of Chancellor Friedrich Merz, political leadership was not there.

Even though the EU budget only has to be ready for 2028, leaders want to have a deal by the end of 2026 because next year there are elections in France, Italy, Poland, Greece, Estonia, Finland and Slovakia, with the budget likely to play a role in electoral campaigns.

To reach a deal this year, leaders are likely to hold a special summit on Nov 26-27 to pave the way for a potential agreement at their next planned summit on Dec 17-18. 

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(Reporting by Jan Strupczewski; editing by Philip Blenkinsop)