MercoPress. South Atlantic News Agency

Budget battle dominates EU leaders talks

Twenty-four European Union leaders confronted British Prime Minister Tony Blair on Friday and demanded he give up his country's multibillion dollar rebate in talks aimed at securing a new EU budget.

The EU leaders also clashed on other key points in a draft budget, seeking further cuts and lower contributions in new spending plans for 2007-2013.

Failure to agree on the 2007-2013 budget, worth some $120 billion annually, would deepen the sense of crisis touched off by French and Dutch votes against a European constitution, and reinforce impressions that the 50-year process of European integration has lost direction.

Talks so far have led to a personal clash between Blair and French President Jacques Chirac over Britain's rebate it gets back annually from the EU.

Blair is determined to defend the rebate then-Prime Minister Margaret Thatcher won in 1984, however his EU counterparts claim the refund is out of date and unfair. It currently totals some $5.5 billion a year.

French President Jacques Chirac told his counterparts at the talks the British rebate had to be reduced immediately, according to a transcript distributed by the French delegation. A proposal to freeze the payment was not enough, he said. Chirac added that by 2013 the EU "should foresee the disappearance of the check" to London.

Chirac said a cut in the rebate "should in no case be conditioned on the revision of farm spending" after 2013, which was proposed in the latest budget draft.

He said France would be willing to accept a compromise to solve the budget deadlock, but was not willing to concede more than $12 billion in reduced funding. "I am ready to make this effort if, and only if, we stop there," Chirac said.

Sweden's Prime Minister Goran Persson said nothing had changed to move the leaders closer to the long-term budget deal, and called for a delay of up to a year to sort out problems.

"I think we shall not rush into a deal today, we have time to continue to negotiate on a better budget and on better distribution in the budget," he said. "We are quite many who are disappointed about the structure. ... It's better to take a year more and continue to negotiate."

German Chancellor Gerhard Schroeder, however, called on leaders to "send a signal that we are able to get an agreement." He said others should compromise and end the appearance of deadlock.

"Others have to move or take back expectations that go beyond the compromise proposal," said Schroeder.

European Commission President Jose Manuel Barroso said it was vital leaders reach an agreement even if it was not perfect, to show that Europe works. He suggested a 2008 review of the budget to assess spending plans.

"We have a window of opportunity and we should grasp that opportunity and get a deal," said Danish Prime Minister Anders Fogh Rasmussen, but he demanded the new budget add more money for research and education.

The EU leaders put aside their problems with their embattled constitution - the summit is the first after French and Dutch voters rejected the document - and were to spend all their second summit day on closed-door talks aiming to get agreement on a new EU budget.

EU External Relations Commissioner Benita Ferrero-Waldner acknowledged the negotiations would be "very, very tough."

Luxembourg Prime Minister Jean-Claude Juncker, whose country holds the EU presidency, suggested a freezing of the British handback until 2013, after which a reduction of the rebate would be linked to cuts in farm handouts that disproportionately benefit France.

However British officials rejected the compromise, while Chirac has refused cuts to the farm aid it gets.

Britain has argued it would only accept doing away with the rebate if agriculture spending is overhauled further beyond current reforms.

The Netherlands and Sweden, meanwhile, are leading a strong charge to reduce their contributions, while Italy, Spain and Portugal are resisting cuts in aid to poorer regions.

The latest proposal foresees cuts in EU farm handouts of $7.2 billion during the 2007-2013 budget years and lowers overall contributions from EU member states.

The Netherlands, Germany, France, Austria, Sweden, and Britain are all net payers, contributing more to the budget than they get back in benefits. They want spending in 2007-2013 capped at 1 percent of the EU's annual gross national income.