Cohesion countries caucus
Cohesion countries caucusReuters

As it looks now, the European Union will not be able to agree on a budget in time for next week's summit and this means that in 2013 European Union will tread water and ration itself to 1/12 of the 2012 budget. T

he European Commission and the European Parliament the two bodies that are expected to enunciate union wide interests rather than represent the interests of the member states are in favor of increasing the budget. The European Council, composed of the leaders of the member states that are responsive to their own domestic politics, is hopelessly deadlocked. The countries that are net contributors to the EU budget generally want either a freeze or a budget cut. Recipient states have the opposite interest.

The European Parliament walked out of talks with the Council to express its frustration that the budget has not been approved.

The new and poorer nations in the European Union are now going to fight tooth and nail to maintain cohesion funds (designed to equalize conditions between the poorer states and the richer ones). These funds are based on legislation that will expire next year. They would have preferred to lock in this budgetary item in a seven-year budget, avoiding the annual budget fights and knowing that the money would arrive.

There are 15 states who are members of the "Cohesion Group. They are led by Poland and Portugal and joined by Bulgaria, the Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Romania, Slovakia, Slovenia and the latest recruit financially beleaguered Spain. Cyprus that under normal circumstances would align with this group has chosen not to take sides because it is the current rotating president of the European Union. Ireland, scheduled to succeed Cyprus in January, is staying on the sideline for the same reasons.

The would-be budget cutters include Austria, Britain, Denmark, France, Finland, Germany, Netherlands amd Sweden. Their argument is that when the European Union is telling member states to cut costs, it also has to practice what it preaches

There are those who expect a deal to be reached next year, after the British Prime Minister David Cameron has shown the voters that he fought the good fight and got Britain the best deal possible. Other holdouts will also soften their demands according to this school of thought.

Based on the previous track record of EU budget negotiations, they may be right. However the European debt crisis has changed the playing field.