UK unveils EU budget package

BRUSSELS - Britain has unveiled proposals for a slimmed-down European Union budget and offered to pay more towards the cost of the bloc's eastward enlargement, but the European Commission immediately called the plan unrealistic.

Prime Minister Tony Blair hopes the package will end a debilitating standoff in the 25-nation bloc, paving the way for a deal at a December 15-16 EU summit after 10 days of intensive negotiation.

Jose Manuel Barroso, president of the EU executive, branded the proposal unacceptable and "simply not realistic", saying it was "a budget for a mini-Europe and not the Europe that we need".

Britain, which holds the EU presidency, proposed cutting the 2007-13 budget to 846.8 billion euros or 1.03 per cent of EU output, compared to the 871 billion or 1.06 per cent proposed by previous president Luxembourg.

Most of the savings would come from slashing 14 billion euros or 8.5 per cent off planned aid to the poor east European newcomers, slightly less than London had trailed, and cutting 5 billion euros from rural development funds for western Europe.

Britain said it would pay an extra 8 billion euros over seven years towards the cost of enlargement to the ex-communist countries of eastern Europe, either foregoing part of its annual rebate or paying a bigger slice of its Value Added Tax receipts.

However, Foreign Secretary Jack Straw said the rebate won by Margaret Thatcher in 1984 would stay until EU farm subsidies were fundamentally reformed and would continue to rise.

"These proposals keep the rebate. Indeed, the rebate will rise from an annual average over recent years of 5 billion euros to around 7 billion euros per year," he told a news conference in London.

JUNCKER SEES DEAL

Failure to agree on a long-term budget at next week's summit would deepen a crisis of confidence in Europe, triggered by French and Dutch voters' rejection of the EU constitution, and could isolate Britain politically in Europe.

But Luxembourg Prime Minister Jean-Claude Juncker, who failed to clinch a budget deal in June, said the British proposal could be the basis of a deal provided the east Europeans accepted it and Britain moved further on the rebate.

EU officials said a deal seemed within reach because Blair was willing to take domestic political heat for touching the hitherto sacrosanct rebate and had dropped his insistence on overhauling farm subsidies, which benefit France most.

The British proposal contained only a minor 2 billion euro cut in direct payments to farmers despite months of British calls for radical change.

Britain proposed a review of all EU spending and revenue in 2008 but there will be no guarantee that farm outlays, which eat about 40 per cent of the EU budget, will fall before 2014.

The partial concession on the rebate has drawn charges of a "Great Betrayal" from eurosceptical British media, but will disappoint many EU partners who want a deeper cut.

Opposition Conservative spokesman on Europe Graham Brady said Blair had made "ill-considered and damaging proposals to surrender part of Britain's rebate whilst getting nothing in return."

The smaller budget will reduce payments by big contributors Germany, the Netherlands and Sweden. The Dutch and Swedes joined Britain in blocking a deal in June, as did Spain and Finland.

Dutch Finance Minister Gerrit Zalm said the proposal was a step forward but he was still unhappy with the Dutch contribution.

Blair's office announced he would meet or hold telephone contacts with nine EU leaders on Thursday and Friday, including the Swedish, Dutch, Finnish and Spanish prime ministers, to press for a deal. He met east European leaders last week.

Diplomats said Britain had left a margin to restore some proposed cuts and give the new member states a face-saving "victory" next week and is proposing to ease their cash-flow.

By changing the EU's matching funds rule, the newcomers will be able to invest more from 2007 without having to put up as much of their own cash, and they will be allowed an additional year on top of the existing two to spend their allocations.

Straw said the prposal would give Britain rough parity in net payments with similar-sized economies France and Italy.

- REUTERS