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The European Union will start the new year with its old budget after the negotiations on next year's budget have failed. Janusz Lewandowski, the EU commissioner in charge of Budget and Financial Programming, said that according to the rules of the Lisbon Treaty, the funding will be temporarily frozen at the levels of 2010 until the process of negotiating the new budget is completed. "This will delay the financing of important initiatives and investments in the member states: some 90% of the EU budget finances investments which create growth and jobs. Measures to boost economic growth and research and development in our member states will be delayed", he explained and assured that the Commission would immediately begin work on a new draft budget.

The reason for this outcome, as it has often happened in the past year, is the disagreement among Member States (the Council) and the Parliament. It is curious that the dispute was not about numbers but about rights. One of the consequences of the entry into force of the Lisbon Treaty was the greater powers of Parliament in some areas. As a rule, in the past year, the positions of Parliament and the Council on key issues has seriously diverged, leading to delays of some important decisions - such as the creation of the European External Action Service or the adoption of the European financial supervision structure.

During the European Council in October it has become clear that Member States led by Britain, would not agree the 2011 budget to be increased by more than 2.9% compared to 2010. The argument – in a moment of crisis, when national budgets make drastic spending cuts, the EU budget cannot be increased and respectively - Member States' contributions. The Parliament supported an increase of 5.9 per cent, arguing that after the Lisbon Treaty, the Union had new commitments and priorities, which required additional funding. In the end, MEPs showed that they would support a smaller budget increase, but in exchange for guarantees for their role in the negotiations for the next multi-annual financial framework.

The result - no deal

"The European Parliament presented a very moderate position and, in the end, we did not ask for one euro more than what the Council was proposing. Parliament's only condition was to have a serious agreement on rules and procedures implementing the Lisbon Treaty to avoid future budgetary crises. The Council was not ready for an agreement", EP President Jerzy BUZEK said.

EU Commissioner Lewandowski admitted: "It was not possible to achieve sufficient momentum, particularly in the Council I must say and it is not about the majority of national delegations. My impression is that the absolute majority of national delegations were ready to compromise, but some of them had very small, inflated claims."

"A small group of member states were not prepared to negotiate in a European spirit", European Commission President Jose Manuel Barroso said, cited by the BBC. Although no one named officially the Member States concerned, according to European media these were the United Kingdom and the Netherlands.

According to the Council, although an agreement has been reached on the financial parameters, “the European Parliament, however, insisted to link the discussions on the EU 2011 budget to other issues, notably the question of the flexibility for the revision of the multiannual financial framework and the way in which the Parliament would be included in the negotiations on the next multiannual financial framework; on these issues the European Parliament considered the draft joint declaration on the multiannual financial framework presented by the Belgian Presidency and the Council's willingness to discuss the flexibility for the revision of this framework as not being enough."

The Parliament wanted to link Budget 2011 negotiations to the so called “lisbonisation” of the current financial framework 2007-2013, which to be adapted to the new priorities, following Lisbon Treaty's entry into force. According to the EP, more flexible budgetary rules are needed to allow the transfer of funds for the new priorities. The Parliament insisted these issues to be resolved during the current negotiations. The Council, however, insisted these topics to be discussed after next year's budget was approved.

EurActiv wrote that it was Britain who insisted the reallocation of funds to be made only by an unanimous voting in the Council. According to the leader of the ALDE Group in the EP, Guy Verhofstadt, "Although the Lisbon Treaty says a QMV-decision is needed from Parliament and Council, the negotiators of the Council decided to use unanimity, thus giving every budget minister in Europe a veto right. This is not a proper way of working, but even more, it is against the Treaty.”

Ivaylo Kalfin, Deputy Chairman of the Parliamentary Committee on Budgets (Group of the Progressive Alliance of Socialists and Democrats) commented: "It is regrettable that some countries sacrificed the European values to their short-term domestic goals”.

Money is not the problem, a statement from the Greens in the EP reads. “The EP had been and remains willing to agree to the reductions in the EU's 2011 budget demanded by Council in exchange for guarantees on the role of the EP in future budgetary discussions. Unfortunately, the blocking minority of member states seems to think it can just put its fingers in its ears and fail to implement the provisions of the Lisbon Treaty on formalising the role of the Parliament in future negotiations on the EU's financial perspectives." MEPs simply want a formal structure for negotiations on EU's future multiannual budget and an official role for the Parliament in that structure, as well as a guarantee that all options, concerning how to finance the EU, remain on the table, the Greens stated.

It is about the so called “own resources” of EU's budget and the discussion on the introduction of a euro tax, based on financial transactions, carbon trading or aviation fuel. As Guy Verhofstadt explained, "the Council refused even to talk about own resources. The only thing we asked was that in the future own resources should be a more important part of the budget. This isn't about extra taxes. This is about lowering national contributions and replacing them by direct contributions."

As a result of the failure of the negotiations, the procedure provides for the Union to begin 2011 with the same budget as in 2010, allocated in 12 equal parts. Participants in the Conciliation Committee session warned that “the so-called provisional twelfths could have some major consequences. It could inter alia affect projects such as the European External Action Service and the three new financial supervision authorities.” There is “also risk to undermine plans for spending increase in certain areas such as cohesion policy and for priority issues such as youth, mobility and education. It also puts a question mark behind the reimbursement for expenditure on a part of the direct aids for farmers and the mobilisation of the EU solidarity fund and the European Globalisation Adjustment Fund.”

The budget 2011 fiasco can be regarded as a bad sign for the forthcoming more crucial and more difficult negotiations on the next multiannual framework. The “lisbonisation” of the current budgetary framework cannot be delayed any longer, because the Lisbon Treaty is in force for more than a year and major changes resulting from it are ongoing. Meanwhile, the European priorities need more practicality, in order to be fully supported by Member States in terms of drastic cuts in national budgets. Because often the good intentions at the European level are blurred in large “banner” initiatives with little real benefit, but with a large budget.

The Parliament and the Council should meet where the priorities of the Union meet the priorities of Member States and where both can meet the priorities of the citizens. Only such a mutual compromise would be working and useful.