Germans invite wrath of EU farmers

GERMANY HAS tabled the toughest set of proposals yet for reforming the Common Agricultural Policy, in a move likely to pave the way for curbs on the British budget rebate, according to a document sent to European Union ministers.

The paper outlines plans which could provoke a crisis in Germany's relationship with France, which is resisting more hardline CAP reform.

But the document will also antagonise London by targeting "windfall benefits" of the budget rebate, and Madrid, by questioning whether nations deemed rich enough to join the euro, like Spain, should be eligible for cohesion funds designed to aid the most backward areas.

Bonn is likely to say reduced spending on agriculture, from which the UK benefits relatively little, will remove much of the justification for the rebate.

Germany, which holds the EU presidency, is the biggest EU paymaster, contributing pounds 8bn a year. Chancellor, Gerhard Schroder is determined to reach a deal next month which will cut Bonn's bills.

Its proposal will confirm the fears of much of the EU's agricultural sector, calling for a freeze on spending at 1999 levels between 2000 and 2006.

Worse, from France's perspective, the document stillpresses for "certain forms of co-financing", under which a proportion of spending on agriculture comes directly from national coffers. This has been rejected by Paris on principle.

Bonn wants to set a ceiling on CAP expenditure for the 15 EU nations at 40.5bn euros (pounds 58bn) a year (the current spending) on average for the years 2000-2006. Under the Agenda 2000 proposals, suggested by the European Commission, guaranteed prices for beef, cereals and dairy products will be cut to a level closer to world prices, but farmers will be paid compensation to make up for the drop in revenue.

Germany thinks it has support for plans to cut that compensation, year on year. That is significant because, once the reforms are completed, compensation payments could constitute the majority of CAP payments.

The paper says: "In the event of higher ceilings being required in the initial years of the new financial perspective, this would result in an amount lower than the average at the end of the period."

The paper says it expects the decreasing cost of farm support "visible at the end of the present period for the EU 15 to continue after 2006". France has accepted the idea of "degressive" spending but expected the idea of co-financing to be shelved in return, and reform of the dairy sector to be scaled down.

With no hint of compromise from Bonn, France may be close to provoking a confrontation with Germany at a one-day summit of heads of government due on Friday. Germany is likely to say CAP reform will make the rationale for the British rebate redundant, because the mechanism was conceived in 1984 to redress the fact that the UK gains relatively little from EU farming support.

On the British rebate, the paper calls for adjustments resulting in the "neutralisation of `windfall' benefits", and definition of the areas of "allocated expenditure" covered by the the rebate, worth pounds 2bn a year on average. That is code for a move to take the costs of enlarging the EU out of the spending for which the UK is given a rebate.

The paper mentions "possible phasing-in/phasing-out arrangements" and Bonn is expected to press for a year-on-year reduction in the value of the mechanism.

The "windfall" refers to the fact that current spending in Central and Eastern Europe is not covered by the rebate, which encompasses only spending within the EU, but will be when the new countries join. Britain argues that, although this is the case, the UK will still be worse off after enlargement because of the costs of an expanded CAP and increased structural funds. But Bonn makes clear it is looking for reductions "in several stages, starting in 2000".

The paper also takes a tough line on "structural assistance" for poor areas, tabling one option which would limit spending to 173bn euros over the period, compared with the European Commission plan for 218bn euros. It wants support for favoured areas which no longer qualify phased out more quickly than the Commission plans: four years for areas which used to qualify as the most deprived.

It adds that, for regions no longer eligible, "phasing-out must be limited in extent". It suggests it should "begin in all cases in 2000 and would last for a shorter duration than proposed by the Commission", with help being "degressive in equal annual steps".

On cohesion funding it argues that if states that qualify for grants are in the eurozone, "participation in the single currency cannot be totally overlooked when considering the situation of countries benefiting from the cohesion fund".

That reflects a view, prevalent in Bonn, that nations such as Spain should not be able to argue that their economy is strong enough to share a currency with Germany yet also needs big subsidies.

r Much of central Brussels will resemble a war zone today as razor wire, water cannon and police are deployed to prevent 30,000 farmers laying siege to the EU headquarters.

The farmers are expected to bring the city to a standstill in their protest over CAP reforms. Much of Brussels' European quarter was boarded up yesterday after police distributed leaflets urging shops and offices to close. Householders were advised to stay in, to board up windows and to remove anything that could be used as a weapon or a missile.

A grocer's near the EU headquarters was instructed to black out euro symbols on his shopfront which, it was feared, might inflame passions even more.

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