EU: European Union leaders have played down hopes of agreement on the EU's next seven-year budget plan at a summit in Brussels today.
Germany's chancellor Gerhard Schröder said last night that a budget deal was unlikely and Britain's foreign secretary Jack Straw warned that London would veto an agreement rather than abandon its budget rebate.
"Whether it will succeed is an open question. I hope so but a decent amount of scepticism is appropriate," Mr Schröder said.
Mr Straw said that Britain wanted a deal but that any cut in its rebate should be in the context of a general "rebalancing" of the EU budget.
"The rebate is fully justified and if necessary we will use the veto," he said.
Luxembourg's EU Presidency has proposed a freeze to Britain's rebate at its current level of about €4.6 billion for the next seven years, with any further change contingent on a reform of the Common Agricultural Policy (Cap).
Under the presidency proposal, Cap spending would be fixed until 2013 but €6 billion of the cost of subsidising farmers in Romania and Bulgaria would have to come out of the budget earmarked for the current 25 member-states.
The Government wants the €6 billion for Romania and Bulgaria to come out of other budget funds but officials accept that Ireland will face a drastic cut in regional funds in the next budget period. Government sources predict that Ireland will become a net contributor to the EU budget towards the end of the decade.
Mr Schröder said there was no excuse for London's annual refund, which is paid by the other 24 member-states .
"There is absolutely no real justification for this rebate in view of the fact that Britain ranks 6th in terms of wealth per capita but way down in terms of payments per capita," he said.
Britain argues that, without the rebate, it would pay 15 times as much into the EU budget as France does and points out that its current contribution is two and a half times that of France.
Sweden's prime minister Goran Persson said that differences between governments were too wide to bridge and he predicted that there would be no deal today.
"I don't think there will be a deal on the budget. I think the differences are too big," he said.
British sources said that freezing the rebate would mean a loss to Britain of more than €20 billion over the next seven years, a prospect that Mr Blair could not accept.
Further opposition to a budget deal came from the Netherlands, which rejected the EU constitution in a referendum earlier this month.
The Dutch prime minister, Jan-Peter Balkenende said that Luxembourg's proposal, which would cap the EU budget at about 1.05 per cent of Europe's Gross National Income (GNI) did not go far enough in keeping costs down.
The presidency proposal would institute a system of refunds for Germany, the Netherlands and Sweden, to ensure that those countries do not pay a disproportionate part of the EU budget.
The EU does not need to finalise its 2007-2013 budget until next year, although no progress is likely during the six months of Britain's EU presidency, which starts on July 1st.
Officials agree that, if the issue of Britain's rebate is resolves, the shape of a budget deal on which all countries can agree is already clear.
The European Commission President, Jose Manuel Barroso has warned of "permanent crisis and paralysis" in Europe if EU leaders fail to agree today.