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European Union Confronts the Risk of a 'Brixit'

BRUSSELS, Belgium — Crucial talks on the future of the European Union ended in stalemate Friday prolonging a dispute over a $1.25 trillion spending plan that's poisoning Britain's relations with its continental neighbors.

However Europe's leaders eventually resolve the deadlock, the dispute over the EU's long-term budget risks pushing Britain further toward an exit from the union it joined 39 years ago, further weakening the bloc as it struggles with economic recession and the euro zone debt crisis.

If Prime Minister David Cameron loses his battle to impose an austerity freeze on the EU budget when the talks resume in the new year, he can expect a barrage of criticism back home from euro-skeptics already clamoring for Britain to walk out of the EU.

"The Brits do not want to pay any EU membership fee," said Nigel Farage head of United Kingdom Independence Party, which campaigns for Britain to quit the EU. "By a large majority, the British people want to leave this union and not pay you a penny," Farage told the European Parliament this week.

If Cameron succeeds in forcing through radical cuts in EU spending, he'll alienate many on the continent, including traditional British allies like Poland and the Baltic states who are relying on help from Brussels to modernize their post-Communist economies.

"Please don't expect us to help you wreck or paralyze the EU," Poland's Oxford-educated Foreign Minister Radek Sikorski told a British audience in a recent speech. "Poland wants to be with Germany and France as partners, leading a strong, democratic European political-economic space."

The EU's presidents and prime ministers failed Friday to reach an agreement on the budget after two days of wrangling. They will try to break the deadlock with another summit in 2013.

Although the $1.25 trillion sum sounds massive, spread out over seven years and shared among the 27 EU nations, it represents a contribution of less than 1 percent from each country's annual economic output. By comparison, spending by the government in London eats up over 40 percent of Britain's gross domestic product.

The political significance of the EU budget however is huge, hence the haggling.

French President Francois Hollande knows he will be in for a storm of protest if he agrees to cuts to the EU's agricultural subsidy program which mostly benefits French farmers.

Eastern European leaders are desperate to maintain the $65 billion-a-year funding program for Europe's poorer regions — which is used to support for a vast range of projects including road building in Poland, installing IT systems in Latvian town halls and protecting brown bears in Bulgarian national parks.

"As the third poorest EU country, what we are asking is 'please do not cut,'" Latvia's Prime Minister Valdis Dombrovskis told GlobalPost. "The bad news is there were still additional demands for 30 billion euro [$39 billion] cuts."

Richer countries like Germany and Denmark joined Britain in seeking to put a lid on spending, but even some of them are irritated by Cameron's threat to veto any deal that increases Britain's contribution.

German Chancellor Angela Merkel in particular is peeved that Cameron's refusal to compromise means the budget battle will drag on into next year, distracting the EU from its real problems — fixing the debt crisis and ending the recession.

Cameron denied Britain was isolated. He pointed to support for his tough line from Sweden and the Netherlands. He also stressed his support for Britain staying within the EU, under conditions. "I support our membership of the EU, but ... we need a new settlement," he told a news conference.

The British leader faces a rising tide of euro-skepicism, with lawmakers from his own Conservative Party demanding he renegotiate the terms of Britain's EU membership, or hold a referendum on a so-called "Brixit" from the EU.

If a referendum were called, an opinion poll published last week said 56 percent would probably vote to pull out. Among Conservative voters, that rises to 68 percent.

A year ago, Cameron kept Britain out of a new treaty committing EU nations to tight finances in response to the euro zone crisis and earlier this year Cameron pulled out of a raft EU agreements on police and judicial cooperation.

While Britain is seeking less European integration, German is looking to bind the EU nations even closer together, arguing that an economic and political union is needed with greater oversight of national policies to prevent a repeat of the current debt crisis.

(Read More: Poland Is 'Hostage to Europe': Finance Minister)

Although publicly most EU leaders stick to Merkel's view that she "cannot imagine the EU without Britain," the level of private grumbling from European diplomats about London holding back EU policies is reaching new heights.

Luxembourg's Prime Minister Jean-Claude Juncker gave an illustration of the mood when he was asked Thursday if Britain can be kept on board. "The British know how to swim," was his reply.

Pulling out would not be easy. Over half of British exports go to other EU countries. In order to keep its access to that key markets, Britain would still have to follow EU rules even if it left the EU, but it would no longer have a say in how they are formulated. Non-EU member Norway currently faces that dilemma.

"We will be become subcontractor to the world with zero economic sovereignty, a bits-and-pieces economy offering low-paid, transient work to a public unprotected by any kind of social contract because of the disappearance of our tax base," The Observer newspaper warned in an editorial this week warning against ending Britain's 39-year EU membership.

There are also foreign policy concerns. The US diplomats worry about losing key ally inside the EU, while some in Britain fear an EU exit would leave their country more dependent on the United States.