EU budget: Leaders edge towards compromise deal

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Media captionThe BBC's Matthew Price reports on the "belt-tightening budget"

EU leaders have resumed gruelling budget talks amid signs that a compromise deal may be close.

Arguments over the proposed cuts continued in Brussels after all-night talks on the 2014-2020 budget.

Reports say the latest draft puts the spending ceiling at 960bn euros (£813bn; $1.3tn), equivalent to actual payments totalling 908bn euros.

In November the 27 leaders failed to reach agreement amid deep divisions over cuts - a key UK demand.

Prime Minister David Cameron said again on Thursday that he would not accept a deal unless further cuts were made.

If agreed, the cuts will make this the first multi-annual EU budget to see a net reduction.

Any one of the 27 member states can veto a budget deal - a fact which makes the negotiations all the more difficult.

A deal will also require approval from the European Parliament - and MEPs have made it clear that they are prepared to veto an "austerity" budget significantly lower than the original draft put forward by the European Commission.

The budget amounts to about 1% of the EU's overall GDP - it is dwarfed by the combined national budgets.

Clash of priorities

One EU official told Reuters news agency on Friday: "We feel pretty confident that we have the framework for a deal. The deal is not completely finalised, but we feel sure it will be done today."

The all-night talks appear to have cut an initial proposal of 913bn euros in payments down to the figure of 908bn.

The higher 960bn figure relates to spending commitments - the maximum amount that can be allocated to programmes during the budget period. What is actually spent is usually lower, as projects are cancelled or postponed.

Failure to reach agreement on the seven-year budget would mean the EU rolling over annual budgets - a method that would be more expensive and would complicate long-term projects.

The 2013 EU budget is 132.8bn euros - a 2.4% increase on the 2012 budget. The latest proposal, if divided equally over the seven-year period, would equate to 129.7bn euros annually.

North-south split

While Mr Cameron could claim a significant overall cut as a victory the reality is that the UK's contribution is likely to go up, because the UK's rebate - currently about 3.5bn euros - is shrinking, under a previous agreement. That was negotiated by former Prime Minister Tony Blair, to help fund the EU's eastward enlargement.

EU sources say the new proposal will cut transport, energy and telecommunications projects, as well as pay and perks for EU staff.

The summit pits Mr Cameron and some northern European allies - who want EU spending reined in tightly - against mostly eastern and southern European countries who want to protect the big budget areas of agriculture and cohesion funding for the poorest regions.

France's President Francois Hollande, a socialist, champions European "solidarity" and opposes the deeper cuts urged by Mr Cameron. Mr Hollande signalled some readiness to compromise, but said he would not accept a budget that "disregards agriculture and ignores growth".

France is the biggest beneficiary from the EU's Common Agricultural Policy, which accounts for about one-third of the entire budget.

The Commission - the EU's executive body - had originally wanted a budget ceiling of 1.025tn euros for 2014-2020, a 5% increase. In November that ceiling was trimmed back to 973bn euros, equivalent to 943bn euros in actual payments.

But with other EU spending commitments included, that would still give an overall budget of 1.011tn euros.

The UK, Germany and other northern European nations want to lower EU spending to mirror the cuts being made by national governments.

The biggest spending areas - agriculture and regional development - are largely ring-fenced because of strong national interests, an EU source told the BBC.

German Chancellor Angela Merkel - seen as the main powerbroker in the summit - warned well before the talks began that they would be "very difficult".

And a European Commission spokesman warned that more staffing cuts would leave the Commission unable to do its job, as EU institutions integrated further and took on new responsibilities in response to the debt crisis.

The split in the EU reflects the gap between richer European countries and those that rely most on EU funding.

The argument for higher spending is supported by many countries that are net beneficiaries, including Poland, Hungary and Spain.

Others, mostly the big net contributors, argue it is unacceptable at a time of austerity. Germany, the UK, France and Italy are the biggest net contributors.

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