The UK press has been up in arms with reports that Gordon Brown has ‘backed down’ and the Tories are having a rant about the rebate bombshell. The whole thing makes really sickening reading. See The Guardian and BBC. A bunch of nationalistic and mis-informed Tory bloggers have been having a rant here, here and here, but no-one has tried to explain what’s going on with this particular story.

First of all to Brown: what was he trying to do? I won’t go into the details, but the UK rebate is essentially an expenditure in the EU budget that totals about €4.5 billion a year. Before anyone comments on it, yes, I know the money has been paid by the UK – bla, bla – but the expenditure and income sides of the EU budget are essentially kept separate, so the rebate appears as an expenditure in the books.

That €4.5 million essentially works out as a transfer of funds from net-payers to net-recipients – basically most of it comes from France and Italy, rich countries with plenty of farmers. In the EU-15 every country except Netherlands, Germany, Austria and Sweden contributed a bit to the rebate, but these 4 net-payer countries received a small rebate-on-the-rebate i.e. they received small payments back from Brussels of the same size as the amount they would have contributed to the UK rebate.

Tony Blair’s compromise in 2005 was that the new Member States (the 10 that joined in 2004 and – I presume – Romania and Bulgaria) were a lot poorer than the UK and hence should be greater net recipients of EU funds and hence would not have to contribute to the rebate, although the system for NL-DE-AT-SE remained intact. Brown has been arguing that the UK should be exempt from making any payments into these small rebates for those 4 countries – that total about €90 million a year.

There are 2 things that are really wrong with this. First of all, the rebates for these countries are tiny in comparison to the UK’s rebate – their rebates only exist because of the UK’s position. Secondly, the money is peanuts in budget terms. The EU budget is 1% of GNI, and we are quibbling here about something less than 0.1% of the EU budget. So Brown is really trying to have his cake and eat it.

Then on to the media (and blog) reaction. The EU budget is not a zero sum game. The idea is that resources are pooled for the common interest of all of the EU’s member states. Brown – and indeed no-one in the government – ever tries to put that argument. The government makes a big bluster about reform of the CAP budget, but doesn’t match words with actions in Brussels. Further, in this case, as far as I am aware no-one had even noticed the NL-DE-AT-SE issue at the 2005 negotiations – so why the big fuss about this now?

Then there’s the issue about whether some horse-trading was done about EU-VAT rules as a compromise, something that has not been denied by the Treasury.

In short, everyone gets completely annoyed by a relatively low sum of money. No-one from the government (or the media) make even a basic effort to explain what’s going on. And the EU takes a battering as a result. It’s grim, and I really can’t decide whether I dislike Brown or the reaction more.

[UPDATE]
For a good analysis of the EU’s financial difficulties, see this from the FT blog.