EU 'must cut back' before it expands

THE European Union must scale back its farm and regional programmes before Central and Eastern European states join unless it is willing to accept massive spending increases, according to a study for the European Commission.

Bringing Central and Eastern Europe into the Union could add more than 50bn ecus ( pounds 37.6bn) to EU spending unless existing policies are drastically rethought, it says. This would will put all but impossible strains on the Common Agriculture Policy (CAP) and EU schemes for regional aid.

A report by independent economists, Stable money - sound finances, examines the pressures on the EU budget over the next decade and beyond. Published by the Commission's economic affairs section, it is something of a blow for conventional EU thinking on two counts. It concludes that, contrary to previous assumptions, the EU will not need to expand its 65bn ecu budget very far to cope with the impact of a single currency, planned before the end of the century. And it foresees a limited role for EU spending in most areas and says the principle of subsidiarity should prevent too rapid expansion.

These conclusions will be a big disappointment to those in the Commission who believe that Economic and Monetary Union automatically means a massive leap in the scale of their spending powers.

Much more far-reaching than EMU will be the gradual enlargement of the Union, the report says. The EU is currently negotiating accession with Sweden, Finland, Austria and Norway, rich countries whose entry should prove an economic boon. The report says that these four would take 140m ecus from EU structural funds and 2bn ecu from farm cash a year based on 1992 rules. However, they would pay in about 6.4bn ecus, it adds, making them large net contributors.

The details of these countries' contributions has yet to be worked out. Even though some may claim British-style budget rebates, the impact on the EU's finances will be positive. Poland, Hungary, the Czech Republic, and Slovakia would together receive about 26bn ecus a year in structural funds, the report calculates, if current rules applied. Adding in Balkan and Baltic states would take this to 54bn, compared with 16.5bn to be spent in the EU's four poorest states in 1993.

The CAP would be driven into the ground if these states entered and expanded production, the report adds, even on the basis of current reforms.