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Britain defiant in trillion-euro EU budget battle

Rory Mulholland
French President Francois Hollande (L) and German Chancellor Angela Merkel (R) take part in a bilateral meeting at the EU headquarters in Brussels, as part of a two-day European Union leaders summit. France and Germany called for compromise Thursday on the bloc's hotly disputed trillion-euro budget, after British Prime Minister David Cameron turned up in Brussels threatening to wield his veto.

France and Germany called for compromise Thursday at an EU summit on the bloc's hotly disputed trillion-euro budget, after British Prime Minister David Cameron turned up in Brussels threatening to wield his veto.

"I have come to seek a compromise, not to set an ultimatum," said French President Francois Hollande, adding that "Europe is a compromise" and that no country "can come seeking what it spent, otherwise there is no more Europe."

Minutes earlier, German Chancellor Angela Merkel also called for compromise but admitted that a deal between the bloc's 27 member states might be hard to achieve in the two-day summit aimed at reaching an agreement on the 2014-2020 budget.

The two leaders were speaking to reporters ahead of individual "confessionals" held by EU president Herman Van Rompuy with all 27 leaders before the summit officially opened.

Several countries led by Britain are seeking huge cuts in the trillion-euro budget to match austerity programmes at home, but Hollande has rejected proposals to cut spending on the Common Agricultural Policy (CAP), the largest item on the budget.

France is the biggest recepient of CAP funds.

Britain was the potential chief spoiler at the summit, with Cameron threatening to wield his veto unless spending is frozen in real terms for the union that is home to 500 million people and which forms the world's biggest trading bloc.

"No, I?m not happy at all... Clearly at a time when we are making difficult decisions at home over public spending, it would be quite wrong... for there to be proposals for this increased extra spending in the EU," he told reporters.

But an EU diplomat said Cameron, who is under constant pressure from eurosceptics in his Tory party to battle supposed European meddling and bureaucracy, was prepared to accept a 940-billion-euro spending ceiling.

He had initially vowed to settle only for a real-terms freeze from 2011 levels -- which Britain believes would be equivalent to 886 billion euros -- but could still claim he had won a budget cut if the new plan proceeds.

EU net contributor nations -- Austria, Britain, Denmark, France, Finland, Germany, Netherlands and Sweden -- have banded together to demand spending cuts, but are far from being on the same page regarding what should be cut or by how much.

Swedish Prime Minister Fredrik Reinfeldt stuck to his guns as he arrived for his meeting with Van Rompuy, telling reporters: "We want the overall level to come down and we want a more modern budget."

Much of Europe is in or close to recession and austerity-driven nations are demanding huge cuts in EU spending to match belt-tightening at home.

So-called Cohesion Funds -- billions of euros outlayed each year to the EU's newer and poorer entrants in the south and east of the continent so they can catch up with richer neighbours -- are central to the battle at the Brussels summit.

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

"Cohesion is an issue of competitiveness and growth for the whole European Union, not just for the countries with the greatest needs," argued Prime Minister Antonis Samaras of debt-stricken Greece.

The cohesion funds are the second-biggest budget item after CAP payments to farmers and fishermen, which are another bone of contention.

France is by far the biggest CAP beneficiary, and Hollande vowed to fight to keep the prized agricultural subsidies, while denying he was purely defending national interests.

Earlier this week he lashed out at countries which 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 euros last year, and Cameron vowed Thursday that he had no plans to give it up. Germany, the Netherlands, Sweden and Austria are insist on keeping their rebates.

The sense of summit crisis was heightened by the failure on Wednesday at a eurozone finance ministers' meeting to unblock bailout funds needed to keep Greece from bankruptcy.