EU leaders set for clash over budget

BRUSSELS: European leaders are set for another clash over the EU budget at a two-day summit starting Thursday, with the only certainty being that any deal will include serious spending cuts.

Buoyed by hopes that the worst of the debt crisis is over, the meeting beginning at 1400 GMT could have a major impact for years to come if big contributors such as Germany and Britain win the day with a determined push to rein in funding.

A special November summit on the 2014-20 budget ended in a stand-off between those seeking cuts at a time of austerity and others, such as France and Italy who championed continued investment in areas essential for growth in Europe's faltering economy.

German Chancellor Angela Merkel travels to Paris later Wednesday for talks with French President Francois Hollande in a final effort to hammer out a deal, with summit chairman Herman Van Rompuy's latest compromise figures holding the key.

The European Commission, the EU's executive arm, initially proposed a 5.0 percent increase to above one trillion euros for the 2014-2020 budget.

That was too much for British Prime Minister David Cameron, who has shifted ground in the face of growing euro-scepticism at home, and for Merkel, whose voters are already disgruntled at having to fund costly bailouts for near-bankrupt eurozone partners such as Greece.

In November, European President Van Rompuy proposed a budget of 973 billion euros and diplomats say he will likely take that down to 960 billion euros -- but that is unlikely to be low enough for London especially, according to senior sources.

Cameron's relations with the EU are uncertain after he promised a British referendum on membership following talks with Brussels to take back some powers in the face of growing euro-sceptic opinion.

However, Van Rompuy might make some headway with London on deeper cuts to the actual monies paid out over the budgetary cycle, which are less than the headline commitments each state makes.

Diplomats say Van Rompuy will now offer a cut in actual payments from 935 billion euros to 900 billion euro while guaranteeing the continuation of Britain's rebate -- a key issue for any London government.

"I am confident that with some adaptations, the proposal I made on 22 November can constitute the basis for a deal," Van Rompuy said in an invitation letter to leaders published Wednesday.

Van Rompuy said it was "becoming urgent for the (budget) to be adopted if we want future EU policies and programmes to run smoothly and deliver their potential for growth and jobs as of next year."

European Commission head Jose Manuel Barroso, some of whose tens of thousands of staff are currently on strike against cutbacks, told the European Parliament on Wednesday that "further delays will send out a very negative message."

If and when an overall cuts level is agreed, there are arguments to be fought over which policy areas lose out.

Barroso, Hollande and others worry that cutting funds for cross-border infrastructure projects in energy, transport and digital networks, for instance, will only hurt growth and jobs.

The other big hope in Brussels was that this budgetary cycle would be the one that would see the EU start to raise its own funds direct via taxation -- so far, only a minor share of sales tax is levied automatically, the lion's share of the bloc's funding coming via grants from member states.

However, diplomats also say that will not happen.

If they can turn the page on the budget, on Friday EU leaders will focus on their key goal securing free trade deals with the United States and Japan, key ways to deliver elusive growth, jobs and prosperity in the future.