Spain faces cut in EU budget allocation of 20 billion euros

A new blow at the height of the crisis: Spain looks set to lose around 20 billion euros in European Union budget allocations from 2014 to 2020 compared with the previous seven-year period, according to diplomatic sources familiar with the negotiations.

For the first time, Spain will be a net contributor to European coffers, most likely during that entire period.

The news is all the more striking because it comes in the middle of Spain’s economic crisis, with GDP contractions of around 1.5 percent expected this year and the next, unemployment hovering at 25 percent and rising fast, and the long shadow of a second bailout looming over Madrid.

However, the 20-billion-euro budget cut is not a done deal. Just a week away from a EU summit, its 27 member countries are still far from reaching an agreement. Figures could change depending on the reference period used for calculations: either figures from 2009 and 2010, when the crisis was not quite so acute, or the more recent data that Spain is lobbying to use. But this will require further negotiations, and diplomatic sources said it is unrealistic to expect significant improvement on that front.

The cuts that the European Council is proposing will significantly harm the Spanish economy, which stands to lose the equivalent of two percent of GDP if the suggested figure of 20 billion euros stands.

What’s more, the cutbacks are focusing on two items that are particularly sensitive for Spain’s social and economic development: cohesion funds, which aim to reduce regional disparities and could fall up to 30 percent according to the diplomatic sources, and agricultural subsidies, earmarked for a 17 percent reduction in direct payment to farmers and rural development grants.

Spain unequivocally rejects this plan in favor of the first project presented by the European Commission, which left the agricultural chapter nearly intact, according to figures provided by the Commission itself. France is also forcefully rejecting cuts to agricultural policy: it received 36 billion euros for this item between 2007 and 2013, which eats up 40 percent of the EU budget.

As for the cohesion funds, Spain might find support from France and Germany in its appeal to moderate the cuts. Between 2007 and 2013, Spain received 43 billion euros in cohesion funds.

These budget negotiations typically follow a liturgy that includes one failed summit that will put agonizing pressure on the following one. This means that neither the European Parliament nor the majority of member delegations expect anything like an agreement to come out of this upcoming summit. Besides Spain, the budget plans will face opposition from at least France as well as the traditional British veto.

“Will Spain’s aspirations be satisfied? Very unlikely,” said European sources. “It didn’t do its homework in time and now all it can do is attempt to block plans through unanimity. But in order to play it all or nothing you need to be in a global position without too many cracks where you could get caught. And with its current need for financial help, it’s obvious that Spain is not in a position for too many moves like that.”