European Union budget talks in deadlock as Britain threatens veto

Talks on the European Union's trillion-euro budget ended in deadlock yesterday as leaders of the bloc's 27 member states failed to overcome seemingly irreconcilable differences on how to reduce spending.

"There is no agreement," said one official at the summit.

European Commission President Jose Manuel Barroso said the talks were constructive but "we are not yet at the point of reaching consensus".

Tensions between rich and poor states, and Britain's demands for austerity in the budget for the seven years from 2014 to 2020 had set the summit on a rocky course from the start.

British Prime Minister David Cameron threatened to wield his veto unless spending is frozen in real terms, arguing that at a time of austerity at home the EU must also make cuts. Britain, like many countries across Europe, is responding to economic crisis with major public spending cuts.

Nearly a year after he angered his European counterparts by vetoing a pact to resolve the euro-zone crisis, Cameron was again at odds with them by demanding cuts to the perks enjoyed by so-called eurocrats - the well-paid EU civil servants frequently targeted by the British press.

An EU diplomat said the main obstacle at the summit was Cameron's demand for reductions in the planned budget, adding that "the most virulent" countries seeking cuts were Britain, Sweden and the Netherlands.

Cameron had vowed to bring down the budget from a proposed €1.047 trillion (HK$10.44 trillion) to €886 billion.

EU Council President Herman Van Rompuy submitted new proposals that reintroduced his own figure of €972 billion in spending, which comes to just over 1 per cent of the EU's total economic output, the usual benchmark used in Brussels budget talks.

The blueprint that negotiators worked from yesterday spreads the funds more generously to sensitive envelopes like the "cohesion" funds for regional development and the Common Agricultural Policy, the farm subsidy programme cherished by France and the budget's biggest single item. But that was not enough, and EU leaders threw in the towel mid-afternoon.

The first recriminations began to fly, with a British source criticising a lack of preparation by Van Rompuy, saying it made negotiations more difficult.

So-called cohesion funds - billions of euros handed each year to the EU's newer and poorer entrants so they can catch up with richer neighbours - were also central to the battle at the Brussels summit.

The funds were defended tooth and nail by the 15 "Friends of Cohesion" nations - led by Poland and Portugal - that are net beneficiaries of the EU budget.

The cohesion funds are the second-biggest budget item after the CAP payments to farmers and fishermen, which are another bone of contention. France is by far the biggest CAP beneficiary and French President Francois Hollande vowed to fight to keep the prized agricultural subsidies, while denying he was purely defending national interests.

This week, Hollande lashed out at countries that defended budget rebates, the third hot-button issue at the summit.

He did not name any specific countries, but Britain in particular cherishes its budget rebate, which then prime minister Margaret Thatcher obtained in 1984 on the grounds that London was paying too much into the bloc's coffers. The British rebate was worth €3.6 billion last year, and Cameron vowed on Thursday that he had no plans to give it up.

Germany, the Netherlands, Sweden and Austria also insisted on keeping their rebates.