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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.

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."

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.

The centre and left of the European Parliament have robustly condemned the outcome of the European Council, complaining that the interest of the bloc as a whole has been sidelined in favour of national interests. It is common for the groups in the parliament to criticise the results of European summits, but the missives issued the afternoon following the meeting were abnormally trenchant.

The Party of European Socialists "condemned" the result, attacking the "conservative leaders" who hold a majority in the Council. "The Conservative leaders are fundamentally mistaken. Yet again they have failed to take control of the crisis," said Poul Nyrup Rasmussen, the former Danish prime minister and leader of the PES. "The reaction of the Markets illustrates this clearly." Mr Rasmussen pointed to the overnight downgrading of Irish bonds by the Moody's credit agency as signifying that the investors were unconvinced by the council's plan. He warned that the EU Council had put itself in "direct conflict" with the parliament over its refusal to countenance any move towards debt issuance at the EU level. "The German, British, Swedish and Dutch Governments formed a roadblock to progress on the eurobonds issue. So blatantly putting national interest before European recovery is short-termist and lacking in leadership," he said.

The European Parliament must be consulted on the treaty change, but it has no co-decision power under the 'simplified revision procedure' - the new method the EU leaders are using to deliver the limited treaty change while avoiding any national referendums. But, depending on the fine print of how the permanent bail-out fund is constructed, it may have approval powers. The EU prime ministers and presidents at the summit did not take any decisions on the details of the fund. According to a parliamentary legal expert, if the European Council itself develops the mechanism on an 'intergovernmental' basis, and the fund is similar to the existing €440 billion rescue mechanism, which involves a series of loan guarantees by member states, then the chamber will only be consulted, as with the treaty change. But if the EU is asked to develop and present a proposal, or if it involves any direct EU funds as well as national loan guarantees, then "this is part of the community method, and the parliament has co-decision powers". The Greens also said that the permanent crisis mechanism "will not be enough to get Europe out of the crisis."