A deal briefly glimpsed before EU budget talks fail

BRUSSELS, Nov 23 (Reuters) - For a few minutes on Friday

afternoon, it looked as if the European Union might just get a

deal on nearly 1 trillion euros of spending for its next

long-term budget.

During a "tour-de-table" among the EU's 27 leaders, the

first time they had discussed the 2014-2020 budget as a group,

it seemed for a moment that France, Poland, Italy and others

might accept deeper cuts than originally proposed, diplomats

said on Friday after the summit broke up without agreement.

Britain, Denmark, the Netherlands, Sweden and crucially

Germany, the bloc's main paymaster, were all pushing for Herman

Van Rompuy, the president of the European Council, to offer

further spending cuts beyond the 80 billion euros he had already

knocked off the original budget plan.

"For about 30 minutes there was a sense around the table

that a deal could be struck, that there could be an agreement on

going further," an EU official tracking the talks told Reuters.

"But the mood quickly changed and the door slammed. It

became evident that it wasn't going to be possible."

Another official said Italy, France and other southern

states, changed their tune after hinting they might be willing

to discuss deeper adjustments to farm subsidies and drew a line,

saying no more reductions.

When the summit ended, after more than four hours of talks

on Friday which followed nearly 12 hours of negotiation on

Thursday, EU leaders were careful not to point fingers of blame.

Britain's David Cameron, seen as a 'danger man' after he

threatened to veto any deal he didn't like, was more emollient

both at the table and in public, saying it had been a group

decision to call off the talks.

German Chancellor Angela Merkel said it was no drama and the

chances of a deal in early 2013 were good, while French

President Francois Hollande said progress had been made.

Cameron was still full of firm words on EU excess, but said

no one nation was to blame for the impasse, a line others

echoed.

"Frankly, the deal on the table from the president of the

European Council was just not good enough," he told reporters.

"It wasn't good enough for Britain and it wasn't good enough

for a number of other countries," he said, mentioning several

northern European states which contribute more to the EU's

budget than they get back in return.

"Together we had a very clear message: We are not going to

be tough on budgets at home and then come here and sign up to

big increases in European spending."

MISSED OPPORTUNITY

On the first day of the summit, Van Rompuy held one-on-one

meetings with each of the EU's 27 leaders and Croatia, which is

due to join the bloc in the middle of next year.

In his session with Cameron, the first that was held, the

British leader made a tough opening bid, saying he wanted 200

billion euros cut from the first budget proposal, bringing the

ceiling down to 890 billion euros.

But that, as with all negotiations, was an opening pitch.

During Friday's talks it appeared that Cameron might be willing

to settle for cuts closer to 105 billion euros, a similar range

to that sought by Germany, the Netherlands, Sweden and others.

That would still have required Van Rompuy, whose first

proposal lopped 80 billion off the original budget framework of

around 1 trillion euros drafted by the European Commission, to

find another 30 billion in savings.

"With 30 billion euros more in cuts, Cameron would have

agreed to a deal. But Van Rompuy didn't go for it - he wasn't

strong enough," said an EU diplomat who was in touch with

delegates in the 5th floor meeting room during the talks.

"Cameron said 'give me 30 billion more and we have an

agreement'."

The diplomat, from a southern European country, said the

British leader had been a positive surprise in the negotiations,

not playing as hard and immovable a role as expected.

"We were all expecting him to be the bad guy, but he played

it very well," he said, adding that Cameron and Merkel had been

tightly aligned. By contrast, Hollande seemed more lonely

without the traditional Franco-German axis backing his position.

While some officials lamented a half-chance lost, others

said there had never been a particularly strong chance of a deal

at the first summit since historically it has nearly always

taken two summits to reach a deal on the long-term budget.

Merkel and other leaders said as they arrived at the summit

on Thursday that it wouldn't be a disaster if they didn't get an

agreement right away and only returned to negotiations in 2013,

and that is now what will happen.

It is unclear when the next round of talks will be held, but

officials indicated that February was the most appropriate time.

"When I look at the complete picture of possible compromise,

I see readiness on all sides and good possibilities to reach

agreement," Merkel said of talks early next year.

"We must consider what it would mean if we were not to reach

agreement. This possibility is extremely unattractive."

What EU leaders now have is a much clearer sense of where

the deep red lines lie and which lines are more pink.

It is clear that for a deal to be struck, the final budget

will need to be around 100 billion euros below the original

Commission proposal.

Leaders reached an informal agreement to avoid further cuts

to agricultural spending, which is dear to the French, Spanish

and Italians, and funds used to help poorer EU member states and

cherished by Poland and others.

That means the axe is likely to fall on administration costs

- salaries, pensions and benefits for the EU's 50,000 civil

servants, whom Cameron sees as ripe for a dose of austerity.

New funds for scientific research and cross-border transport

and energy infrastructure - already cut in the current

compromise - are also likely to shrink further.

At the same time, it is not solely about cuts, officials

emphasised. Net contributors to the budget such as Britain will

also have to surrender some territory.

Hollande homed in on Britain's rebate -- the refund it gets

on each budget and which is largely funded by France following a

deal struck in 1984.

"France will continue to push for a change to the way these

rebates are calculated and keep asking for all countries to

contribute to their payment," he said, naming no one but

effectively targeting Britain with his words.

Britain has always maintained that the rebate, first

negotiated by former Prime Minister Margaret Thatcher, will

never be given up and Cameron has underscored that message.

But if a deal is to be struck, and especially one that

arrives at around 100-105 billion euros worth of cuts, then some

form of adjustment on the resources side may be necessary.

(Writing by Luke Baker; Editing by Paul Taylor)

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