EU budget: Separate Eurozone budget a real possibility

The European Council President Herman Von Rompuy has published an eight page report calling for more federal structures within the 17 member Eurozone including a separate Eurozone budget. The report would be the starting point of discussions for the EU heads of government summit later this week.

A separate Eurozone budget would provide the “fiscal capacity” to “stabilise the situation” in the single currency zone, Van Rompuy argued last week.

"We have to do everything to stabilise the situation in the Eurozone, and if a fiscal capacity or a separate budget can help and can contribute to this stability, then you have to reflect on it, to discuss it," he told a Friends of Europe conference in Brussels. "Every currency union needs also a fiscal capacity, and certainly a fiscal capacity to stabilise the Eurozone."

The two major power houses within the Eurozone, France and Germany, back the proposals, along with long time EU member state The United Kingdom.

Currently, the European Union spends about €130 billion each year on agriculture, infrastructure, regional development, international aid and other areas.  The United Kingdom wants to limit the increase in this budget, with Prime Minister David Cameron threatening to veto any budget that is not in Britain’s best interest.

"If we cannot get a deal that has proper control of that budget, if they put forward ideas for massive increases, I won't say yes to it."

However he has backed a separate Eurozone budget.

"There will come a time when you need to have two European budgets, one for the single currency, because they are going to have to support each other more, and perhaps a wider budget for everybody else," the Prime Minister said during the Conservative Party conference.

In addition, a separate Eurozone budget will allow the British Government to pay less into EU coffers and also remove the UK from the federal structure. Whitehall believes the integration of the Eurozone would enable Britain to start a wider renegotiation. 

Domestic politics is also playing a key part in all this. The Conservatives are taking the UKIP threat to its power base seriously, and senior cabinet ministers such as Michael Gove and Philip Hammond are taking a harder stance on Europe. Number 10 believes this is a win-win situation for the government and the Conservative Party, especially since the Liberal Democrat beliefs are so out of tune with the electorate on this issue.

Van Rompuy, Germany and France want to keep the wider budget process removed from the separate Eurozone budget, however. Cameron may not be so keen to oblige on that.