EU STUCK IN PHONEY WAR OVER MID-TERM BUDGET.

EU Budget Commissioner Dalia Grybauskaite warned this week that unless the member states agreed a new financial perspective for 2007-13 in the next three months, large parts of the European Union's activities would be left without funds once the current budget expires. However, Luxembourg's deputy Foreign Minister Nicolas Schmit told a meeting in Brussels that failure to reach an agreement would not lead inevitably to a "budgetary dead end" as the EU could continue setting one year budgets. He stressed however that the Luxembourg Presidency was still working hard to get an agreement in June.

So far, the signs for a deal are not auspicious. First, the "negotiating box", or outline compromise drawn up by the Luxembourgers, is very short on detail on the key issues which will form the basis of a final agreement. The text does not even contain an overall figure for the total spending envelope for the period, a fact which was criticised by several member states from the budget disciplinarian camp in discussions among EU ambassadors this week. Nor does it spell out the Luxembourgers' thinking on one of the thorniest issues how to deal with the excessive net contributions of some member states and, as part of that, what to do with the UK's annual rebate, worth around Euro 4.5 billion a year.

Without all the key elements on the table, it is no surprise that the real negotiations have yet to start. Nevertheless, one should recognise that there is some movement on some issues. As this week's meeting of...