EU Budget: Leaders Try To Thrash Out Deal

David Cameron and other European leaders are preparing to meet in Brussels to try to reach a settlement on the European Union's long-term budget.

They are under pressure after talks last November collapsed when Britain, Germany, Sweden and the Netherlands demanded deeper cuts from 2014-2020.

European Council president Herman Van Rompuy is trying to broker a deal between the Commission and European Parliament, who want spending to rise, and restive member states.

The meeting is the first summit since Mr Cameron promised British voters an in-out referendum on EU membership after 2015 if he stays in power.

He has vowed to seek a fresh settlement with Brussels to get a "better deal for Britain", and insisted radical reforms would benefit the whole group.

But other countries have warned that the UK cannot "cherry pick" and this week French leader Francois Hollande declared there can be no "a la carte Europe".

Mr Cameron is among those arguing that it is unedifying for the EU to increase its budget when countries are pushing through austerity measures at home.

Downing Street has made clear that his position has not changed and he stands ready to block any new deal if it does not amount to a real-terms freeze.

The UK has highlighted major potential savings, including cuts to the administration budget and a 50bn euro project called "Connecting Europe" designed to improve infrastructure, energy and digital links.

A senior diplomatic source insisted Britain is not isolated and that only Belgium and Luxembourg, where many Eurocrats live, support a proposed increase in administration costs.

But there are significant disagreements between the net contributors and net receiver countries over how the EU budget should apportion its finances.

France has declared that the UK should have to give up some of its rebate - worth £5bn a year to the Treasury - to stand any chance of securing a freeze in spending.

President Francois Hollande said on Wednesday: "There are those who want to see cuts, others - possibly the same - who want guarantees on their own rebate.

"I have been told a solution cannot happen with Britain. But why should one country decide for 26 others? Indeed, we could have agreed at the last European summit."

But the diplomatic source said changing the rebate was a non-starter and suggested Mr Hollande was "playing to the gallery".

Margaret Thatcher negotiated the rebate in 1984 because other countries, and particularly France, benefit disproportionately from the Common Agricultural Policy.

The European Council's last proposal was for a budget limit of 973 billion euros (£840bn) over seven years but the UK, Germany and other countries want this to be closer to 950 billion euros (£820bn).

Ahead of the summit, Mr Van Rompuy insisted the available deal amounted to a "real-terms freeze" - effectively challenging Mr Cameron to take what is on offer.

Failure to agree this week could lead to a considerable delay because officials will then want to wait until after German national elections in September and European Parliament elections next year.

This could stall a decision until 2015, meaning funding to help boost poorer regions in the UK might be held up as well as money for research and educational projects.

Existing spending levels would be rolled over month by month until a budget deal is done - which would effectively freeze spending for the foreseeable future.