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Britain and other European Union countries put their weight behind Franco-German calls for tougher eurozone rules at a summit today (29 October), agreeing on "limited" changes to the EU's main treaty in return for a cap on the EU budget.

Officials struggled to deliver the message that legal tricks could accommodate both Germany's push for treaty change and conflicting calls from several other countries which had rejected the idea. Regarding treaty change, the key word is "simplified", officials explained. A simplified provision, enshrined in Article 48, Section 6 of the Lisbon Treaty, allows member countries to unanimously adopt a decision amending all or part of the main elements of the Treaty on the Functioning of the EU (TFEU), which governs how the Union carries out its work. Such a procedure would avoid the need to call a constitutional convention, experts explained. In addition, the European Parliament would only be "consulted" instead of enjoying full voting rights as part of the normal co-decision procedure. The changes to the treaty are to be settled by mid-2013, before the expiry of the present emergency fund agreed earlier this year to deal with crises such as the one that hit Greece. The objective is to replace that with a permanent mechanism. The simplified treaty change procedure will not enter into force until it is approved by member states in accordance with their constitutions. Most EU countries are expected to ratify the decision by a simplified procedure in their parliaments. As for Ireland, it remains unclear whether a change effected in this way would require another referendum.

UK Prime Minister David Cameron appears to have been instrumental in forging a deal, lending his backing to Franco-German calls for treaty change in return for keeping a lid on the EU's 2011 budget. 11 member states, including Britain, France and Germany, will send a letter to the European Commission and Parliament today saying that their plans to increase the EU budget by 5.9% in 2011 are "especially unacceptable at a time when we are having to take difficult decisions at national level to control public expenditure". The letter was signed by the leaders of the UK, Germany, France, the Netherlands, Sweden, the Czech Republic, Denmark, Austria, Finland, Slovenia and Estonia. The bloc's finance ministers had earlier voted for a limited increase in the EU budget of 2.9%. "We are clear that we cannot accept any more than the 2.9% increase proposed by the finance ministers," the leaders say in the letter. Cameron argued that a planned increase in the EU budget would cost his country's taxpayers the equivalent of one billion euros. The 2.9% rise would still cost them £435m (500m euros). Parliament to fight back By agreeing to cap the budget, EU leaders set themselves on a collision course with the European parliament, which has the power to approve or reject the proposed budget. Negotiations between the European Parliament and the Council, which represents the 27 member countries, over the EU's 2011 budget kicked off on 27 October (see 'Background'). "If Cameron is prepared to give up the British rebate [...] then we can for sure discuss a reduction of the budget," said Martin Schulz, leader of the Socialist & Democrats group in the European Parliament, speaking to EUX.TV, the European policy news channel powered by EurActiv. "The European budget is not to be compared with national budgets," said Schulz. "There are no own resources. We have no European taxes. We have no own money. It is money coming from the member states. We can make no debts. The British budget must be reduced because there is enormous debt. Europe has no debts," he said.

A series of compromises and a new draft of next year's EU budget has increased optimism that member states and the European Parliament can reach a deal on the 2011 spending plan before Christmas. But parliament's call for a role in discussions over the bloc's next multi-annual budget (post 2013) could still scupper a final accord.

A day earlier, member-state diplomats agreed to drop previous calls for unanimity voting on decisions to transfer money between EU budget headlines. Parliament has made the greater level of spending flexibility, provided by member state qualified majority voting, a key demand in the ongoing battle over the 2011 EU budget.

Officials from all sides will next meet on 7 December to discuss the budget draft, in a bid to enable a parliamentary vote on the final version at its 15 December plenary session, the last of the year. Sources say Mr Barroso's announcement this week to come forward with proposals on EU 'own resources' in June 2011 has enabled both parliament and member states to claim victory on the controversial issue by breaking the link with the 2011 budget debate but ensuring future discussion on the subject. Now the parliament's demand for a role in discussions over the EU's post-2013 multi-annual budget remains the main outstanding stumbling block.

A compromise on the 2011 EU budget is likely to coalesce around a three-percent increase compared to this year's spending after a vivid discussion among EU leaders and the European Parliament's chief about the rationale of raising the figure when most capitals are being forced to cut their own budgets.

The meeting, which usually consists of EU Parliament chief Jerzy Buzek reading out a statement and then leaving, took an extra hour to wrap up, as British Prime Minister David Cameron intervened to counter the parliament's plea for a six percent increase in the EU budget. Roughly a dozen other leaders then intervened as well, mostly backing the British premier. The Belgian and the Greek prime ministers were among the few who supported Mr Buzek's plea.

He also underlined that the parliament is willing to compromise on the six-percent figure, as long as there is "serious talk" about ensuring future funding for the EU's old and new policies. The Lisbon Treaty, he argued, had created new tasks for the EU: "More responsibilities means more funds." "It is absolutely necessary to have a compromise and finish [budget talks] in three weeks and then we want to start a serious discussion about future funding of EU policies. This is about the future of the EU itself. When we talk about cuts, we also have to think about the cost of non-Europe, of not having the added value of the EU."

A last attempt to reach an agreement for the 2011 EU budget failed on Monday (15 November) due to reluctance by member states to grant MEPs extra powers in future multi-annual budget negotiations. The EU commission will now have to draft a new proposal, while the first months of next year will be funded on the basis of the 2010 budget.

The final collapse was mainly due to disagreements over procedures and extra powers granted to MEPs under the Lisbon Treaty, the EU's new rulebook. Junior ministers from Britain and the Netherlands insisted that the only issue on the table was the budget for 2011 and declined to discuss contentious issues for the long-term budgetary perspective, such as raising more EU "own resources" through supplementary taxes or the "flexibility" of the budget when unexpected expenses arise. Shortly after announcing €95 billion in domestic budget cuts, Britain has spearheaded demands for next year's EU budget to stay frozen at 2010 levels or go up by a mere 2.9 percent, or less than half the MEPs' original request.

British Prime Minister David Cameron is pressing EU leaders in the margins of a European Summit in Brussels on Thursday (16 December) to support a declaration on limiting the size of the EU's future multi-annual budget (post 2013), diplomats have indicated. Although the budgetary issue is not formally on the summit's agenda, the UK leader is hoping to garner the support of enough member states in order to publish a letter later today or on Friday.

Mr Cameron is under pressure from elements of his own Conservative Party to limit future EU spending, especially as national governments implement thumping austerity packages back home. London recently lost its battle to freeze spending in next year's annual EU budget which is decided by majority voting among member states, unlike the long-term framework which needs unanimity.

A tie-up between the size of the future EU budget, Britain's EU budgetary rebate and funding for the common agricultural policy (CAP) is one deal rumoured to be under discussion between France and the UK. France is adamant that CAP funding should not be cut. Poland has been the leading opponent of attempts to limit the size of the multi-annual framework which is then subsequently broken down into annual spending plans. "What is the most important from our point of view is for the budget not to be reduced significantly, because we believe the funds flowing to Poland and other countries help us fight the crisis," Polish Prime Minister Donald Tusk told reporters hours before the summit.

European Commission President Jose Manuel Barroso was cheered in the European Parliament on Tuesday (23 November) when he outlined plans to publish an official proposal on EU self-funding before the end of June 2011. A fresh draft of next year's budget is also expected before 1 December.

Parliament has said debate on the controversial 'own resources' issue is a key demand in the ongoing battle over next year's annual EU budget, but France, Germany and European Council President Herman Van Rompuy have all indicated they oppose the idea of an EU tax. "We will use our right of initiative to put forward formal proposals as to own resources before the end of next June," Mr Barroso told MEPs in the Strasbourg plenary chamber. "The proposals ... will make large endeavours to achieving a consensus in the future. We're open to any ideas," he added.

"I am against the introduction of an EU tax," German Chancellor Angela Merkel said earlier this month. "I do not think that redesigning the way the EU get its revenue is a top priority," Mr Van Rompuy said a week later. Reacting to Mr Barroso's announcement, non-attached UK MEP Diane Dodds called on British Prime Minister David Cameron to clearly state that proposals for an EU tax would trigger a referendum in the country.

The EU's three largest member states - Germany, France and the UK - are set to publish a text on Saturday (18 December), calling for spending restraint in the bloc's long-term financial framework (post 2013). Initiated by British Prime Minister David Cameron, the letter will call for a freeze in the long-term spending plan, excluding inflation, and also seek to rein in the bloc's 2012 and 2013 annual budgets.

The move puts the group of large member states on a direct collision course with the Brussels-based EU institutions, already battered after their call for a six percent rise in next year's EU budget was cut in half by national capitals. With the commission not set to publish formal proposals on the multi-annual financial framework until June 2011, the EU institution may also perceive London's latest initiative as a move to undermine its right of initiative. Still undecided, the framework's period is likely to cover 2014-2020. It is then broken down into annual budgets. Poland and other eastern countries may also be horrified by the attempt to curb future EU payments of which newer member states are large recipients. But other EU members are also set to sign the austerity-letter, with Austria, Italy and Finland among the names suggested by diplomats.

European Commission President Jose Manuel Barroso sought to downplay the letter's significance. "We know different groups of member states sometimes try to position themselves," he said. "What is important in the end is the commission's proposal that is being put forward [next June], and then the discussions on the basis of that proposal." European Council President Herman Van Rompuy was also phlegmatic. "If there are letters, we are very polite people, we read our letters we receive," he said.

The Greek sovereign debt crisis is forcing Europeans to rethink the coordination of their national economic policies, confronting the euro area with its most severe test since its launch eleven years ago.

In January 2010, Greece was found sitting on debts that are expected to hit 290 billion euro this year. Its budget deficit stood at 12.7% of gross domestic product, more than four times the EU limit. 

Faced with an unprecedented speculative attack on the euro, EU countries were compelled to act decisively in order to calm jittery financial markets. In May, they agreed to establish a rescue mechanism worth €750 billion to protect the euro from collapsing under the weight of accumulated debt (EurActiv 10/05/10). Root causes left unaddressed However, the short-term fire-fighting measured soon proved insufficient to tackle the root causes of the problem as markets started questioning the loose coordination of national policies that underpin the eurozone’s economic governance. Indeed, EU institutions currently only have limited powers on economic policy, an area where unanimity decision-making remains the rule. The EU’s main instruments include reviews and non-binding recommendations by the European Commission, such as the stability and convergence programmes and Broad Economic Policy Guidelines, which are submitted for approval by member states in the EU Council of Minister.

MEPs are ready for an agreement on the 2011 budget within the limits set by the Council, provided EU governments accept Parliament's request for budget flexibility and an agreement on a future working method for EU funding. This was the message in Parliament's resolution on the on-going negotiations on the 2011 budget, adopted on Thursday.The resolution was adopted by an overwhelming majority (486 in favour, 64 against and 21 abstentions).MEPs are ready to "facilitate an agreement on the 2011 Budget and related elements within a very tight timeframe" provided three conditions are met:

Just 42% of Europeans say they trust the European Union, according to a new opinion poll, down six percentage points in just six months.

The survey also found that fewer than half of Europe's citizens see their country's membership of the EU as a positive thing, but the European Commission is clinging to the positive elements of the report, particularly on economic governance. Officials are presenting the new Eurobarometer as an endorsement of greater budget oversight from Brussels, pointing to the 75% of Europeans who said stronger coordination between member states will help weather the economic storm.

Notwithstanding the positive spin from Brussels, a deeper analysis of the report shows a crisis of faith in the Union. Just 49% of citizens view membership of the European Union as a good thing, while 47% said they do not trust the EU. Even prospective members have gone cold on the European project, with just 27% of Turks saying they trust Brussels. For the first time, the Eurobarometer included Iceland, which is currently in talks to join the EU. A startling 35% said they trusted the Union, while only 29% thought that Iceland would benefit from becoming a member.

The European Commission (EC) last week gave a thumbs-up to Serbia's implementation of European standards on the road to EU membership and called on the Union to implement its Interim Trade Agreement with Serbia. Serbia signed the accord and the Stabilisation and Association Agreement with the EU in April 2008. Both agreements were suspended pending Serbia's full co-operation with The Hague tribunal. Currently, the only EU member blocking the Interim Trade Agreement is the Netherlands, which demands that fugitive Ratko Mladic be apprehended and extradited.

Serbia, however, still has some work to do. The country must take a more constructive stance on Kosovo, pass the Vojvodina Statute, combat corruption and crime, continue with judiciary reforms, enhance the rights of minorities, and help bring those that attack journalists, human rights activists and members of the gay and lesbian population to justice. Tomislav Nikolic, leader of the Serbian Progressive Party, also noted that European officials reprimanded Serbia's excessive budget spending, adding that if the trend continues, "Serbia will be heavily indebted with no advantage of becoming an EU member." Tanja Miscevic, head of the Serbian EU Integration Office from 2005 to 2008, also expressed restraint in assessing the report.

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German Chancellor Angela Merkel on Tuesday (23 November) warned that the euro is in an "exceptionally serious" situation as the European Commission issued a veiled warning to the Irish political class not to topple the government. "I don't want to paint a dramatic picture, but I just want to say that a year ago we couldn't imagine the debate we had in the spring and the measures we had to take," she said in a speech in Berlin to the Confederation of German Employers, the BDA.

Meanwhile, EU economy commissioner Olli Rehn issued a veiled warning to Irish opposition politicians not to topple the government. Speaking to reporters in Strasbourg asking about worries the Fianna Fail-Green government in Dublin could fall, Mr Rehn said: "Stability is important." "We don't have a position on the domestic democratic politics of Ireland but it is essential that the budget will be adopted in time and we will be able to conclude the negotiations on the EU-IMF programme in time."

Ireland's fiscal sovereignty was hanging by a thread late on Tuesday evening (16 November) as eurozone finance ministers announced that EU and IMF overseers were to head to Dublin to supervise preparations for a fresh round of cuts for the next four years to ensure that they are as deep as necessary. Print Comment article Dublin appeared to stand up to massive pressure from the European Central Bank and other countries that use the euro, particularly Spain and Portugal, to sign up to a bail-out, with Taoiseach Brian Cowen announcing to the Dail, the country's parliament, that the debt-addled country will not apply for assistance.

Earlier in the afternoon, the Wall Street Journal reported that finance ministers were in fact looking at a dual package of between €45 and €50 billion to bail out Irish banks and a broader sum of €80 to €100 billion to shore up the country's public finances, quoting unnamed sources. One contact close to the discussions told EUobserver they "could neither confirm nor deny" the report, while another said the numbers in the Wall Street Journal article "are not a figment of anyone's imagination." In such a situation, reported the WSJ, the IMF would chip in about half the aid that the EU and the UK together would provide. The non-eurozone UK is reportedly under pressure to contribute to any deal, given the heavy exposure of British banks in Ireland, particularly RBS, although Prime Minister David Cameron has recently voiced support for the idea of bilateral financial support for its one-time colony. Shares in UK financial institutions have slid over the past week as a result of the tumult.

The Bulgarian deputy prime minister, who is also the country's finance minister, appears to have let the cat out of the bag on the date of an Irish bailout, telling Bulgarian reporters on Wednesday (17 November) that despite Irish insistence to the contrary, he expects a package will be cobbled together some time next week. Print Comment article "I expect a bailout decision to be taken within a week," Simeon Djankov said at a small briefing following a meeting of EU finance ministers, after reporters asked about the European Commission, European Central Bank and the International Monetary Fund's upcoming mission to Dublin.

Meanwhile, details on the composition of the EU-IMF troika team, who in effect, through their mission to oversee Irish austerity and budget plans will maintain a degree of authority over the elected government of Ireland, are being kept secret. The European Commission, the IMF and the ECB will not release the names or backgrounds of those involved or even the number of officials in the team other than to say, according to EU economy spokesman Amadeu Tardio: "There will be more than two but fewer than 10 people going."

New proposals on joint economic governance put forward by European Commission President Jose Manuel Barroso and EU Council chief Herman Van Rompuy on Monday (28 February) have failed to overcome resistance from some member states.

The Barroso-Van-Rompuy plan does contain a requirement that German-style 'debt brakes' be implemented across the eurozone, however. Resistance to this element comes from those who do not want to open the Pandora's Box of constitutional amendments this could entail. Opposition to the Franco-German pact also revolved around the proposal that countries that maintain inflation-indexed wage systems abandon this practice. Belgium and Luxembourg in particular were resistant.

As key figures on the left in Europe, including within the commission itself, have begun to issue their misgivings over the path of austerity chosen by the EU as a response to the crisis, the commission warned social democrats that throughout the crisis, they have also backed this process. Last week, Greece's EU commissioner, Maria Damanaki, publicly distanced herself from EU austerity, saying it is leading to "social degradation." Former commission president Jacques Delors, a French Socialist, has also called the commission's recent Annual Growth Survey, a first step in the EU's new system of oversight of and intervention in national budgets, as "The most reactionary document ever produced by the commission."

The European Parliament on Wednesday (20 October) adopted by a crushing majority new budgetary and staff regulations for the European External Action Service (EEAS), clearing the last legal hurdle for the launch of the new institution. "It's a historic vote. We're all one happy family now," an official in the entourage of EEAS chief Catherine Ashton told EUobserver.

Ms Ashton is also close to a compromise with the parliament's foreign affairs committee on hearings for new EEAS ambassadors. The diplomats are likely to face parliament questions in early December, after receiving full accreditation from their host countries. Ms Ashton wants the hearings to be held for the most part behind closed doors. Following the vote on Wednesday, the foreign affairs MEPs have little leverage to use against her. Details of the parliament vote on three separate EEAS reports saw the compromise deal get through by over 500 votes in each case against no more than 51. The budget-and-staff package envisages detailed parliamentary oversight on EEAS hiring and firing of diplomats in foreign missions but not on EU member states' spending of the €3-billion-a-year European Development Fund or on military missions. It stipulates an "appropriate and meaningful presence of nationals from all the member states" but not quota-type targets for nationals from new EU countries, as called for by Polish centre-right MEP Jacek Saryusz-Wolski, who tried to put a positive spin on developments in an emailed statement on the day.