EU leaders stick to guns ahead of crunch summit

BRUSSELS - Britain stood alone at an EU summit, fighting to defend its $US6 billion ($NZ8.5 billion) budget rebate against the other 24 member states who want it cut back.

The bloc's presidency came up with an eleventh-hour concession to Britain in a bid to win a deal on the 2007-2013 budget and put the European Union back on track after a proposed constitution was torpedoed by French and Dutch voters.

But leaders were gloomy on the eve of the summit which, if it resolves the budget row and comes up with a way forward after the constitution's rejection, will shape the bloc's future direction for years -- but otherwise could leave it drifting.

Luxembourg Prime Minister Jean-Claude Juncker, who will chair the two-day meeting, said he was almost certain he would be unable to broker a budget deal to decide who should pay what.

"I am pretty sure we won't get the financial perspectives through at this summit," he said -- although his late compromise proposal suggested he may have been deliberately understating his chances before trying to pull a rabbit out of the hat.

Others echoed with dire warnings. European Commission president, Jose Manuel Barroso, said unless the summit resolved the budget problem and found a way forward on the constitution, Europe would "sink into a permanent crisis and paralysis".

At the heart of the budget row is a long-standing dispute between France, which benefits most from massive EU subsidies to farmers, and Britain, which won a budget rebate in 1984 to compensate for the fact that it received less than others in subsidies as far fewer Britons worked on the land.

London has said it will only consider a review of its rebate, worth 5.1billion euros ($NZ8.8 billion) this year out of a total EU budget of 106.3 billion euros, if the EU's entire agricultural policy is overhauled -- anathema to France.

Britain finds itself in a minority of one, with all 24 other member states pointing out that it is incomparably wealthier than in 1984 and must share the costs of enlargement after the EU took in 10 poorer ex-communist states in 2004.

Juncker's late compromise proposed freezing Britain's rebate at the pre-enlargement level until 2013, while leaving the agricultural policy ring-fenced to the same date, effectively taking the issue off the agenda for another eight years.

A British official had no immediate comment on the compromise late on Wednesday.

French Prime Minister Dominique de Villepin slammed British intransigence on Wednesday and Italian leader Silvio Berlusconi said: "I am pessimistic. I don't think a deal will be found at that meeting."

Barroso and British Prime Minister Tony Blair are among a growing chorus of leaders who have called for "a period of reflection" on the constitution after French and Dutch voters rejected it in a referendum.

Barroso did not say how long he saw such a period lasting before leaders took a decision on how or whether to carry on ratifying it in countries which have not yet done so, saying that was up to leaders to decide at the summit.

The summit, scheduled to last two days, will discuss the constitution on Thursday and only get onto the thorny budget issue on Friday.

Diplomats say if it became clear no deal was in sight, the meeting would probably break up without a written agreement from the presidency on how to address the problem in the remaining two weeks of Luxembourg's term in office.

- REUTERS