So the budget talks have failed. On one hand, it's not the end of the world: the 1/12 rule means that the previous year's budget is carried over on a monthly basis until something is agreed. There's even a mechanism allowing the monthly budget to be added to, in the case of monthly fluctuations. On the other hand, it means that the new projects launched by the EU - not just the Lisbon innovations, but the initiatives of the European Council - are not really being taken care of. Money will be found, but budget by default is not a particularly satisfying outcome.
What were the issues? The 2 major issues were the EP's role during the Multi-annual Framework (the multi-annual budget of the EU), and the existence and procedure for a flexibility reallocation mechanism - essentially 0.03% of the EU's GNI that can be tapped into in the case of unforseen spending needs. As the EU cannot borrow money and must stick to its budget, this has been a useful tool in the past for covering crisis expenditure.
The budget increase of 2.91%, agreed on by the Member States, was accepted by the EP (which wanted a 6% increase), in return for a place at the Multi-annual Framework negotiating table. This would entail a political agreement - an interinstitutional agreement to clarify the procedure which is ambigous in the Treaties as to the EP's role. The ministers claimed that they did not have the mandate to negotiate such an agreement, to which Anne Jensen MEP expressed surprise at the press conference, pointing out that the Member States were aware of the issues the EP would raise in advance. On the flexibility matter, this ran into trouble when the UK pressed for the money under this mechanism to be released after a decision reached by a unanimous Council vote (rather than the current QMV).
"Failure to agree on the reallocation flexibility endangers the financing of programmes such as ITER, an international project to design and build an experimental fusion reactor in France, a source explained.
Another payment which now appears to be in jeopardy is a commitment to pay 190 million euros to banana-producing countries following a decision to discontinue preferential import tariffs. Similarly, 300 million euros of compensation to Bulgaria for having closed down four of its nuclear reactors also hangs in the balance." [EurActiv]
So the EP may have wanted more say, but it appears that some Member States attempted their own power grab as well.
The Parliament's demands to be at the table during the Multi-annual Framework talks included a demanded commitment to look at the issue of the EU's own resources. This is being reported as meaning an EU tax - which is the most high profile and obvious option - but that in itself seems little reason to block agreement. Whatever you think of the idea of an EU tax (and I've argued before that it's an option that has points to be considered), unanimous support is needed in the Council, which is unlikely to occur, so committing to considering the broad issue of own resources (shifting some of the budgetary burden from national budgets to some economic activity) isn't really that dangerous.
So Parliament wanted an increase in the budget to help pay for initiatives the EU started (including ones started by the European Council), and were willing to settle for the number member states agreed on; wanted a place at the table when the multi-annual budget is being discussed (since they are equal with the Council with regard to the budget); and a continuation of the flexibility mechanism.