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Hopes Rise of EU Budget Accord With UK

Joshua Chaffin in Brussels and George Parker in London
Wednesday, 21 Nov 2012 | 11:15 PM ET

Hopes were rising in Brussels that an unlikely deal with the U.K. over the EU's long-term budget was taking shape, although the chief negotiator was trying to resolve a deluge of last-minute complaints from other countries on the eve of what could be a gruelling summit.

European Union (EU) flags fly outside the the European Commission headquarters in Brussels.
Bloomberg
European Union (EU) flags fly outside the the European Commission headquarters in Brussels.

The cautious optimism about the UK represents a significant shift: David Cameron, the prime minister, was seen as the biggest obstacle to a deal on the budget, which will cover roughly €1 trillion in spending from 2014 to 2020.

The changed mood reflects the encouraging reception that British officials have given to the latest proposal from Herman Van Rompuy, the European Council president. The draft set a ceiling of €940 billion for payments over the seven-year period, a €3 billion reduction from the current long-term budget.

That would fall short of the real-terms freeze from 2011 levels that Mr. Cameron has demanded — which Treasury officials have calculated at €886 billion — but still allow the prime minister to tell a skeptical public that he had won a budget cut.

"Our feeling is that Mr. Cameron got what he wanted," one EU official said.

To close a deal, Mr. Van Rompuy may have to abandon his suggestion that the U.K. should pay towards its own EU budget rebate, a move which would cut its current annual value of about €3.5 billion by some €1 billion.

(Read More: European Union Exit? Concerns Grow for Britain)

France is particularly unhappy with the U.K. rebate of which it pays about a quarter. President François Hollande has also vowed to block proposed reductions in agricultural spending. "We have to put up allocations for the common agricultural policy so that French farmers are not the adjustment variable," the Elysée palace said.

Mr. Cameron told MPs yesterday he would not surrender any of the rebate, claiming that his Labour predecessor Tony Blair had signed "half the rebate" in 2005 and had "cut away our feet" in the process.

The UK is also demanding reductions to the EU's administrative budget to show that the Brussels bureaucracy is not immune to the economic crisis. France and other countries are also demanding big cuts to overheads.

The prime minister discussed his position with Mr. Van Rompuy on Tuesday evening, and Downing Street has said he plans to approach the summit "constructively".

A truer gauge of the UK's position will come on Thursday morning when the prime minister goes behind closed doors with Mr. Van Rompuy for a 10-minute "confessional" meeting.

Those private sessions with each of the EU's 27 heads of government will precede a sprawling and bruising negotiation that participants believe could either collapse quickly into failure or drag into the weekend.

The late move towards the U.K.'s position has complicated matters by stoking tensions with other member states. The French were described as "exasperated" by one diplomat at proposed reductions in agricultural subsidies, and the Italians hinted on Tuesday evening that they were prepared to wield a veto.

Mr. Van Rompuy was also grappling with demands from Denmark and Austria for their own rebates – and complaints from eastern European members, including Hungary and Romania, aggrieved at their share of development funds.

Several EU officials speculated that many of the initiatives touted for the ability to generate economic growth, including a €46 billion "connecting Europe" infrastructure fund, could be raided to help solve those problems. "It looks vulnerable," one official said.

- Additional reporting by Hugh Carnegy in Paris.