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European Union

EU's Budget Crisis Looms as European Union Leaders Urge Britain to Give Up Its Rebut of $125 Billion Budget

Strategic Insights

— 2 min read

EU leaders are rushing to resolve the union's budget crisis, which may lead to a fund crisis in the union's budget. The plan involves forcing Britain to relinquish its rebate, which would largely compensate for the country's heavy contributions to the EU budget. The rebate, which has been in place since Margaret Thatcher's time, has a value of $5.8 billion and is expected to reach $8.8 billion by 2013.

Key Takeaways:

  • The European Union's budget crisis may lead to a fund crisis in the union's budget, which could have far-reaching consequences for the EU's member states.
  • The crisis stems from the division between the rich and poor member states, with the poorer states demanding more funds to boost their economic prosperity.
  • The plan to resolve the crisis involves forcing Britain to give up its rebate, which has been a contentious issue for decades.
  • The rebate has been a significant source of contention between Britain and the rest of the EU, with the British media often portraying the issue as a replay of World War II.
  • EU leaders are hopeful that Britain will agree to give up the rebate, which will help resolve the budget crisis and provide relief to the poorer member states.
  • The EU's constitution is currently off the table, and the union faces a crisis over the future of the euro, the single currency it introduced in 1999.
  • Italy has even suggested considering leaving the euro and returning to the lira, while Germany has downplayed discussions about a possible fallback position if the euro collapses.
  • The markets are already sensing instability in the euro, with current bonds issued by Italy carrying a discount of up to 30 basic points compared to bonds issued by Germany or Finland.

Statistics:

  • The EU budget is expected to reach $13 trillion mark by 2013, with the current budget proposals set to increase funds by 0.1% over the next seven years.
  • The value of Britain's rebate is currently $5.8 billion and expected to reach $8.8 billion by 2013.
  • The Italian euro bonds issued by the European Central Bank carry a discount of up to 30 basic points compared to bonds issued by Germany or Finland.
  • The markets are already sensing instability in the euro, with investors charging a premium for bonds from nations that are seen as high-risk countries (Italy, Greece, and Portugal).
  • A possible 20% of $100 billion may have to come from Germany, if an extra 0.1% is allowed on the European Union's budget for the next seven years.

Sources:

  • MARTIN WALKER, UPI, June 5
  • Jean-Claude Juncker, Luxembourg Prime Minister
  • Gerhard Schroeder, German Chancellor
  • Jacques Chirac, French President
  • Tony Blair, British Prime Minister
  • Hans Eichel, German Finance Minister
  • Joachim Fels, Morgan Stanley Economist
  • European Central Bank
  • Morgan Stanley Research

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