THE HANDSTAND

EUOBSERVER / BRUSSELS - The European summit on 16 - 17 June will focus on the talks about the "financial perspective" - the EU budget for 2007 - 2013. What spending areas does it cover, how do the proposals on the table differ and why is it such a contentious issue?

What is the "financial perspective"?
This is the seven-year framework which provides a legal basis for the annual EU budgets.

It sets out the limits for the block's expenditure in its commitments and payments.

The "commitment" ceiling represents the maximum amount of spending the EU can undertake. It refers to projects the Union can get involved in financially, possibly even beyond the given seven-year period.

The "payment" ceilings is the maximum level of actual payments the EU can make within the given time.

The 2007-2013 proposal spells out five main spending categories: Sustainable growth (covering both the cohesion funds and the competitiveness package), Natural resources (agriculture and rural development), Citizenship / Security and justice, EU foreign policy, and Administration.

When and how was the last budget agreed?
The last budget, the so called "Agenda 2000" for the period of 2000 - 2006 was agreed by the European Council in Berlin in 1999. It was agreed at the last minute and after bitter fighting between the then 15 member states.

Its main objective was to prepare the ground for the projected EU enlargement.

It set the commitment ceiling at 1.24 percent of the block's combined gross national income (GNI).

Who were the big winners and the big losers?
Under the 2000-2006 budget, Germany has been the biggest net contributor to the common coffers, followed by Britain, the Netherlands, France and Sweden.

On the other hand, Spain has received the most from the EU, followed by Greece, Portugal and Ireland.

While the latter received the EU money mainly from the package on aid for poor regions, France - as one of the net contributors - cashed in the biggest amount in subsidies for its farmers from the agricultural budget.

What will the new budget mean for big recipients of EU money?
The new proposal cuts down the funds available for the recipients among the "old" member states.

It is caused by a fall in the EU's gross national product (GDP) average, used as a reference point to determine whether a country or a region qualifies for the structural and cohesion funds or not.

Portugal is set to lose most of its 2.5bn euro in aid payments.

On the other hand, the new member states will benefit from the new financial perspective, despite the proposed cuts in the regional aid in a final negotiation box.

Why is it so contentious?
The main dividing line lies between the net contributors and net recipients of EU money.

The six biggest contributors to the EU budget (Germany, France, the UK, the Netherlands, Sweden and Austria) want to have the future spending commitments capped at 1 percent of the EU's GNI.

That figure differs significantly from the Commission's original proposal (1.24 percent), and the European parliament's bid (1.18 percent).

The Luxembourg compromise package sets the commitments at 1.05 percent of GNI.

Apart from the differing views on the budgetary cappings, the national governments disagree on where the cuts should be made, and how to adapt the structural funds to the needs of the enlarged EU and avoid completely abandoning some of the poorer regions in the "old" member states.

Finally, the British rebate and the reform of the EU's farming policy seems likely to block the possible deal due to opposition by the UK and France to any move on the respective grounds.

Why is the agriculture package not to be touched?
It was secured from further cuts by a Franco-German deal in 2002 which had preceeded talks on the financial provisions of the 2004 EU enlargement to ten new countries, mostly from Central and Eastern Europe.

Under the deal, the direct farming subsidies should be cashed out along the unchanged rules until 2013.

What is the British rebate?
This is the annual refund of around 4.6 bn euro to the UK from the common EU budget. Under the current provisions, London gets 66 cents back for every euro of its negative net balance.

The rebate increases along with any boost to the common EU expenditures. If unchanged in the 2007-2013 budget, it could shoot up to 7 bn euro.

The rebate was adopted by the European Council in Fontainebleau in 1984, due to pressure of the then British Prime Minister Margaret Thatcher, who famously argued "I want my money back!".

Originally, it was introduced as a correction mechanism available for any member state, "sustaining a budgetary burden which is excessive in relation to its prosperity".

But only Britain actually used it because of its large contribution to the EU budget and the tiny amount it received in farming subsidies. At the time it was the fourth poorest member state.

Now, however, farm subsdies account for around 40% of the budget compared to 70% at the time and Britian is one of the richest member states in the EU.

Luxembourg has suggested other net contributors should also be reimbursed, while the British rebate should be frozen at the current level in 2007.

What happens if there is no agreement on the budget?
The EU will continue to operate under the current budgetary provisions, based on the 2006 annual budget.

Many of the long term structural projects would not be carried out as they would not be backed up by the overall framework of the EU funds.

New member states would lose out most significantly as they would receive much less EU money than what they are entitled to.

u.s.a.Establishment Beginning to Pay Attention
Author: Jim Sinclair
Thursday, June 16, 2005, 4:08:00 PM EST

Since May the establishment has quietly begun to listen and will continue
to do so.

What I told you would transpire has in fact happened. You know this by
the courage of Mr. Peter G. Peterson, a man of such stature that when
speaking on financial TV he cannot be interrupted by reporters and/or
producers who don't like his script. That is not to say that the drop
dead, beautiful, central-casting interviewer did not try to place words
in this gentleman's mouth. That strategy fell flat on its face.

Mr. Peterson is the Chairman and one of the founders of the outrageously
successful Blackstone Group. He is Chairman of the Council of Foreign
Relations, founding Chairman of the Institute of International Economics
(Washington DC), founding President of the Concord Coalition. Mr.
Peterson was the Co-Chair of the Conference Board Commission on Public
Trust and Private enterprises (Co-Chaired by John Snow, currently
Secretary of the US Treasury). He was Chairman of the Federal Reserve
Bank of New York from 2000 to 2004.

Mr. Peterson spoke of his close and personal relationship with Federal
Reserve Chairman Greenspan. He made many extremely important points in
his conversation:

1. He spoke of three serious deficits, the Budget Deficit, Trade Deficit
and what he considered to be the most important, the Current Account
Deficit.
2. He added to these deficits what he considered to be just as important,
the deficit in personal savings by US consumers.
3. He pointed out that a cumulative Budget Deficit of US$7 trillion was
looming in this generation.
4. He spoke of Chairman Volcker's opinion on a lower US dollar.
5. He spoke of a prestigious group of 12 people and their views on the US
dollar of which 11 expect it to go between 10 and 15 percentage points
lower.
6. He pointed out that a Current Account Deficit running at 6 ½ percent
of GDP must be considered as another cumulative item that will result in
a foreign debt equal to 125% of a single year's GDP.
7. He pointed out that the servicing cost of this debt is a factor and
possibly the most serious concern.
8. He concluded with the comment that expectation that international
entities will continue to support this growth and the cumulative nature
of the Current Account Deficit by purchasing US debt is not necessarily
guaranteed.

Grimacing as Mr. Petersen reviewed the economic scene, she mustered all
the courage she had and then sited the popular theory that the Current
Account Deficit was less than meaningful because the powerful US economy
would simply "grow out of it." With the masterful stroke of a man of
unquestioned intillegence, experience, success, and integrity, Mr.
Petersen dismissed that soft theory firmly.

His dismissal had the same impact as Brave Heart's lancers as they cut
through the English heavy cavalry. Brave Heart's lance was of simple
construction but it effectively ended the era of British heavy horse
military dominance. Mr. Petersen put the party line "grow out of it"
statement into its proper classification and buried it six feet under.

His interview was the most measured, articulate, non emotional sound
analysis of the various complex conditions leading towards an epiphany
for investors that will impact markets with the significance of Tsuami
from 2006 to 2008 and then from 2009 to 2012.

The beautiful lady interviewer - visibly unsettled - broke for an
advertising sponsor promising to have Mr. Peterson back. We have not
seen Mr. Petersen yet and the business reporting day is coming to an end.

Axiom number one of a generational bull market is that the Gold Community
is either out of the market or totally committed and as a result is no
factor in the major upward move in gold and precious metals shares.

Axiom number two of generational bull markets in gold is that the major
move in both gold shares and gold itself is the establishment - not the
so-called Gold Community.

The establishment will listen to Mr. Peterson. The move toward gold by
the big guns has started. The shorts are cunningly trying to cover. It is
only six short months until 2006 is upon us. In my opinion, 2006 to 2008
will be our best years ever.

Wait until 1/1/06 and you will find you are much too late. Things always
start quietly before it becomes apparent. People trying to time the
market perfectly are going to be left behind in the comet's debris trail.

The establishment interest has started. It took form last May in the
majors and is beginning now in the juniors - not January 1st, 2006. In my
view, 2006 is for all practical purposes - TOMORROW!

EU budget explained