COLUMN-Deja vu on EU budget reform: Paul Taylor

-- Paul Taylor is a Reuters columnist. The opinions expressed are his own --

PARIS, Oct 27 - The European Commission has fired the first shot in what promises to be a bitter battle over reform of the EU budget with a draft proposal to shift spending from agriculture towards climate change and energy security.

The idea of reallocating Europe's collective resources away from what many would consider wasteful handouts to grain barons towards priorities such as clean energy may not seem contentious. But this goal risks falling victim to another Franco-German stitch-up to keep farmers' snouts firmly in the European trough.

The EU budget generates strife out of all proportion to its size. If 125 billion euros ($188 billion) sounds like a lot of money, it is less than 1 percent of the bloc's gross domestic product, or roughly one-fortieth of national budgets. The Common Agricultural Policy -- the oldest EU spending programme, created in the 1960s to promote self-sufficiency in food production -- swallows some 40 percent. Aid to poorer regions accounts for another 35 percent, with the rest sprinkled among research, assistance to east European and south Mediterranean neighbours, development and humanitarian aid.

Every seven years, member states engage in trench warfare over how to allocate resources. This pits rich western states against poorer eastern ones, and nations where the farming lobby is powerful such as France, Italy, Poland, Spain and Ireland against service economies such as Britain, Sweden and the Netherlands.

Given the huge strains on public finances wrought by the financial crisis, there will be less rather than more money to share around in the next long-term budget for 2014-20.

With unanimous agreement required, the French are skilled at marshalling support from fellow farming countries in the tortuous negotiations.

Germany, the EU's biggest paymaster, is keen above all to curb overall spending, while poorer newcomers in central and eastern Europe want the richer states to keep funding catch-up infrastructure projects such as motorways, railways and bridges.

The Commission proposes redirecting EU money towards hi-tech projects to boost growth and employment, smart energy networks and the fight against global warming. This would have broader public support in many countries than subsidising farmers.

It suggests farm payments could be co-financed from national budgets in future and targeted towards meeting low-carbon environmental standards. This is sure to infuriate France, the biggest beneficiary of the CAP, which sees farm subsidies as a vital national interest.

Even though agriculture accounts for less than 4 percent of GDP and 3 percent of jobs, farmers' unions can usually count on public sympathy for their sometimes violent protests, and wield disproportionate political clout.

Brussels is right to suggest abolishing the hybrid system of funding the EU from customs and excise revenues, a share of value added tax and a proportion of national income, which fuels endless rows about countries' net balances.

Public hostility makes any idea of a "Euro tax" unfeasible. But the Commission's idea of using the proceeds from auctioning carbon dioxide emissions permits to finance the EU budget makes sense. It would also remove the wretched dispute over Britain's budget rebate which has poisoned EU politics since the 1980s.

Member states would still set the overall budget ceiling and allocate spending among key policy areas jointly with the European Parliament.

The main problem with the Commission paper is the likelihood that it will be crushed by political realities. A similar blueprint for a fundamental overhaul of EU spending by a blue-ribbon panel headed by Belgian economist Andre Sapir in 2003 was quickly buried due to French-led opposition.

French President Jacques Chirac and German Chancellor Gerhard Schroeder had met in a Brussels hotel the previous year and agreed to keep EU farm spending constant for the next decade, pre-empting the budget negotiations. In return, France agreed to cap the overall EU budget at 1 percent of GDP.

"As it stands today, the EU budget is a historical relic," the Sapir commission wrote. "Expenditures, revenues and procedures are all inconsistent with the present and future state of EU integration."

Sadly, the latest attempt at reform looks like deja vu all over again.