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EU in Discussions on Financing Enlargement - 2002-10-21

European Union officials are breathing a sigh of relief following Ireland's approval of the treaty that paves the way for the bloc's eastward expansion. But, current EU members must now figure out how they are going to pay for the group's enlargement from 15 to 25 countries in 2004.

EU leaders were quick to express their delight at the result of the Irish referendum. The Union's foreign policy chief, Javier Solana, says he expects Ireland's "yes" to enlargement will spur an EU summit later this week to come up with a compromise on how to fund the bloc's expansion. "I'm very pleased at the very good results. This opens the door to continue the process of enlargement. We will have a summit in Brussels in a few days that, no doubt, will be a very constructive one," Mr. Solana said.

EU foreign ministers, meeting in Luxembourg, are discussing ways to solve a dispute between Germany and France over how to pay for enlargement. Germany wants to cut back on the EU's costly agricultural subsidies program, to which it is a net contributor, before the 10 candidates for membership are admitted. France, the biggest beneficiary of the so-called Common Agricultural Policy, refuses to accept any reduction in the aid the EU gives French farmers.

Danish Prime Minister Anders Fogh Rasmussen, whose country holds the rotating EU presidency, says it is urgent to reach a compromise on the issue by this week's summit if enlargement is to proceed on course. "We still have some obstacles to overcome. First of all, we must make a decision on the so-called financial package, that is, to reach a conclusion within the EU on a common position (that) can be presented to the candidate countries in early November concerning budget and agriculture," he said.

Budgetary and agricultural issues are all that are left to negotiate with the 10 candidates who have been cleared to join the EU by 2004. The potential members are upset that the EU is offering them only 25 percent of the farm subsidies that current members get. The EU promises to increase that amount to 100 percent over a ten-year period but says it cannot afford to do so now.

Financial analyst Robbie Kelleher, of Davy Stockbrokers in Dublin, says farming is at the very heart of the enlargement debate. "That is a huge issue. I mean, agriculture accounts, I think, for about 50 percent of the GDP of most of the applicant countries. And clearly, if you were to apply the current policies of the Common Agricultural Policy to the new entrants, then the cost to the EU would be unacceptable," he said.

Recession-hit Germany says its public deficit this year will exceed the EU's allowable maximum of three percent of its gross domestic product. Financial analyst Hans Redeker, of BNP/Paribas in Frankfurt, says that is one reason why Germany so strenuously opposes a continuation of the EU's current agricultural subsidy program.

"If there were to be no reform on agricultural policy in the EU, then Germany would have to pay more, and the effect would be that the budget deficit would increase even further, and that could actually be a quite negative factor in respect of the growth and stability pact," he said.

In addition to the dispute over farm aid, the EU leaders have to sort out how much aid the new members will get for their poorest regions. Countries such as Spain, Portugal, Greece and Ireland, which now get the bulk of such regional aid, are reluctant to lose any of it as the size of the pot dwindles in the years ahead.