Britain hesitant on breakthrough EU budget deal

Juergen Baetz and Raf Casert, Associated Press
EU leaders win breakthrough EU budget deal

French President Francois Hollande, right, waves to journalists as he arrives for an EU summit in Brussels on Thursday, June 27, 2013. European Union leaders meet in Brussels ostensibly to agree on ways to find more jobs for the young, who've been disproportionately punished by years of crisis and recession. (AP Photo/Geert Vanden Wijngaert)

BRUSSELS (AP) -- A European Union summit pushing to end the region's economic turmoil and fight youth unemployment was sidetracked Thursday as Britain refused to sign off on a hard-fought deal on a 960 billion euro ($1.3 trillion) budget.

Two big agreements announced ahead of the meeting in Brussels — on the 2014-2020 budget and on the shape of future bank bailouts — had injected fresh credibility into the efforts of EU leaders to control the region's economic problem.

But the budget deal only highlighted deep divisions among the 27 EU nations over whether to spend or cut their way out of crisis, with the UK seeking reassurances that it won't have contribute too much at a time of belt-squeezing across the continent.

The multi-annual budget, which includes the first cut to EU spending in its history, determines what the bloc can spend on common infrastructure like railway or road projects, farming subsidies and aid to poor countries. It's separate from national budgets — and much smaller — but a source of difficult and passionate debate.

Most key players hailed Thursday's budget deal as a fine piece of brinkmanship and compromise. But British Prime Minister David Cameron sounded a different note, calling it "absolutely essential" that the EU stick to parts of an earlier agreement reached in February.

He insisted that Europe must do what "we're doing in Britain, which is getting control of spending, making sure we live within our means and then making ourselves more competitive."

Judged by the numbers, Britain's opposition to the deal appeared more guided by principle than substance: Due to a provision on agricultural funding, the country would lose some of its previously negotiated repayment from the budget, costing it about an annual 200 to 300 million euros, a diplomat from a major EU country said.

The issue left London up against Paris, which would have to pay for the bulk of the shortfall otherwise, the diplomat said. He spoke on condition of anonymity because he wasn't allowed to discuss the closed-door talks publicly.

The EU leaders' were seeking to hash out a compromise over a late working dinner. Their talks were initially meant to focus on finding ways to get more young people employed, and calmly taking stock of EU efforts to stabilize the world's biggest economic bloc now that its deep debt troubles have subsided.

The EU countries have been trying since last fall to cobble the budget together. Some countries wanted to increase or maintain spending levels while others firmly insisted it made no sense to increase the budget while individual governments were imposing tough austerity policies at home.

After months of arguments, European Parliament President Martin Schulz triumphantly announced a budget agreement with the European Commission on Thursday morning.

Thursday evening, he said he was "quite surprised" that the EU leaders didn't sign on. "I had thought ... that things were almost wrapped up. That is not the case," he told reporters.

"If it fails here (among EU leaders) ... that is certainly not the best way of regaining confidence in Europe."

Crucially, the EU budget also includes money for the employment measures that the bloc's leaders are debating at this week's summit. No budget agreement would mean no money for those projects.

The EU's 27 leaders are also at odds over how to step up the fight against unemployment, with a German-led group calling for structural reforms and others saying more spending was needed to kick-start growth.

Unemployment is at a record high of 11 percent for the EU and 12.2 percent for the 17 member countries that use the euro. It is far worse for the young: Latest figures show almost one in four people aged under 25 in the EU are unemployed. In Greece and Spain, that rate has it hit more than 50 percent.

"It is simply unacceptable that young people should be paying with their life chances for a crisis for which they are entirely blameless," Schulz told the leaders.

But Germany, Europe's reluctant paymaster, again dashed hopes of investing any new money to ease the problem.

"The German government insists that the problems of Europe and the eurozone have to be tackled at the root and solved step by step," Chancellor Angela Merkel said ahead of the summit. Spending more won't solve the problems, she insisted.

The leaders' flagship unemployment policy is a pledge made last year to spend 6 billion euros getting young people back to work, starting in 2014. Half of that money, however, is only being repackaged from other existing budget projects.

Thursday's deal on the budget came only hours after EU finance ministers reached a landmark deal determining that banks' shareholders, creditors and holders of large deposits will have to bear the brunt of future bank failures, so that taxpayers don't have to. The joint rules on how to restructure or wind down banks are a key step toward establishing a so-called banking union for Europe, aimed at restoring stability after a tumultuous few years that have dragged down the global economy.

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Angela Charlton and Sylvain Plazy in Brussels and Geir Moulson in Berlin contributed to this report.

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