Edinburgh Summit: Spain raises stakes over budget plan

SPAIN yesterday tightened the thumbscrews on her European colleagues by making it clear that the British presidency's latest budget plans, though more generous, were unacceptable.

The Spanish Prime Minister, Felipe Gonzalez, raised the stakes in difficult talks about the EC's future financing arrangements, by linking it to all the other difficult issues under discussion. 'The Spanish delegation will not defend any accord that is partial and does not offer and overall solution to all the important points of substance: ratification of the Maastricht treaty, Denmark, cohesion and enlargement,' he said.

Britain's latest plans would increase total EC regional spending to pounds 20.6bn by 1999. Yet this is still some pounds 2bn less than the amount originally proposed by Jacques Delors, the President of the European Commission.

Part of the money will be dedicated to the cohesion fund established by the Maastricht treaty to finance infrastructure and environmental projects in the four poorest EC states, Spain, Portugal, Greece and Ireland - all of whom were yesterday still holding out for Mr Delors's original proposal.

So, early in the summit proceedings (the budget discussion did not begin until late afternoon) much of the hard talking was tactical. Irish sources admitted that 'the UK figures are moving in the right direction', suggesting that there might yet be some flexibility.

There is still pressure, led by Germany and resisted by the British, to reduce the British rebate. A senior German source suggested yesterday that while member states would probably go along with John Major's strategy to defer any discussion until after the summit, the issue would eventually have to be addressed.

Several smaller EC states complained that the presidency risked undermining the Community's economic success by robbing Peter to pay Paul. To find the extra money for regional spending, the presidency has reduced the internal budget lines that fund the administration, training programmes, and research and development.

This is because Britain insists that by 1999 the budget should not exceed 1.25 per cent of total EC wealth. The Commission had originally said, and continues to insist, that 1.36 per cent was the bare minimum with which the EC could fulfil the objectives it had set for itself under the Maastricht treaty.

The French have complained that squeezing the administrative budget risks making the Brussels bureaucracy less efficient, reducing the impact of measures to streamline the Commission, ensure that decisions are taken at the appropriate level of government and increase the system's degree of accountability.

The monetary constraints on all EC countries, all of whom predict slow-to- stagnant growth next year, are such as to give the heads of government very little margin to manoeuvre in developing an economic strategy. 'We are all determined to act within existing parameters - to maintain the fight against inflation and work towards economic convergence,' a British source said yesterday.

The limits of those constraints were brought home by the turbulence in the money markets yesterday, prompted by Norway's decision to allow the kroner to float and the knock-on effects on the French franc and Irish punt, have highlighted the continued fragility of the European Monetary System.

But all member states are aware that public support for the process of closer European integration, and the economic sacrifices that requires, depends on the Community's ability to deliver jobs and pull the EC out of recession.

The loudly-trumpeted initiative that was being put together last night for presentation tomorrow aims to co-ordinate national economic policies more closely and make better use of existing lending bodies, such as the European Investment Bank, to finance capital spending projects. Attempts will also be made to ensure greater flexibility in the labour market through loosely co- ordinated policies of wage restraint. But it will, confess those drawing it up, be modest in scope.