Britain backs down in milk row with Italy

THE Government was yesterday accused of a climbdown in a long-running row with Italy over EU spending and agriculture.

The argument over milk quotas had threatened to block the EU budget, new Commission appointments and new EU membership. But solving it meant an unattractive fudge which may spark a row in both the House of Commons and the European parliament.

What made this more than just a row about spilt milk was the element of political blackmail. If there was no deal, Italy said, it would not accept a new EU budget. The new financial deal is particularly important. It increases national contributions to the EU budget from the current maximum of 1.20 per cent of GDP to 1.27 per cent by 1999.

This is mainly to raise new funds devoted to southern Europe, a scheme that was agreed at Maastricht in 1991 and had numbers put on it in Edinburgh in 1992. The Spanish said that without this new cash, they could not agree to admitting new members to the EU. That in turn would delay agreement on a new Commission for the EU.

According to Treasury figures, Britain's net contribution to the EU's allocated budget will rise from about pounds 1.46bn this year to about pounds 1.49bn next year after all transactions have been taken into account.

The gross contribution will rise from about about pounds 8bn to pounds 8.5bn, but this is reduced by money paid to Britain and the British rebate.

Finance ministers from the 12 countries were called together for an emergency meeting in Brussels yesterday to end two years of deadlock. The Chancellor, Kenneth Clarke, dropped a special pre- UK budget meeting to attend.

Italy has had a long-running row with the European Commission over its overproduction of milk, for which it has been fined. In 1992, Italy brought the issue to a European summit, agreeing to cut output but only in exchange for higher quotas. Britain took the Commission to court, because the Brussels bureaucracy had reduced the fines levied on Italy for overproduction.

Italy said it wanted the court case dropped and the higher quotas made retroactive, so that the fines would be reduced.

Total deadlock ensued. Yesterday, Britain agreed to drop its court case, Italy agreed to pay a reduced fine, down from 2.5bn ecus ( pounds 1.95bn) to 1.9bn ecus, and a deal was done.

As he emerged from the meeting, the Chancellor of the Exchequer said that a favourable result had been achieved. 'This decision means that those who have got money from Community funds to which they were not entitled will now be paying very substantial fines,' he said. 'This result justifies our having gone to court.'

The decision puts in doubt once more the EU's Common Agriculture Policy, since critics argue Italy has been allowed to get away with breaking the rules. 'The CAP is a fraudster's charter, and this just demonstrates that once again,' said Terry Wynn, Labour MEP on the European Parliament's budgetary control committee. He accused both the Government and the Commission of a climbdown.

British farmers have respected milk EU quotas, and have been unhappy about the way Italy has been treated, said a spokesman for the National Farmers' Union yesterday. 'We want to be sure that Italy really means business about respecting its quota,' said Trevor Hayes in London. One of the many ironies is that despite quotas, the EU continues to produce huge milk surpluses.

The cost of the deal was unclear yesterday, but there will be a bill since the size of Italy's fine has been reduced. Because it comes as the EU agrees new expenditure, it add to the row in Britain over the cost of European Union membership. The Government will include a bill to increase EU 'own resources' in the Queen's Speech next month. It is likely to face a Tory rebellion, but Eurosceptics privately said last night they were split over their tactics.