Leaders face uphill climb for early EU budget deal
* EU aiming for Nov. deal on trillion euro budget
* Britain seen as main threat to agreement
* Failure could divert euro zone crisis response
* Diplomacy set to intensify in coming weeks
By Charlie Dunmore
BRUSSELS, Oct 23 (Reuters) - European Union diplomats are pushing to secure a swift deal on the bloc's next seven-year budget, believing a Nov. 22-23 summit offers the best chance of agreement - saying the need to solve bigger issues may work to defuse the political challenges.
At stake is nearly 1 trillion euros ($1.3 trillion) of investment between 2014-2020 in infrastructure projects, agriculture and research, designed to help spur the economic growth Europe needs to emerge from its debt crisis.
The desire to reach agreement at a single summit appears at odds with recent shadow boxing by EU governments, with British Prime Minister David Cameron publicly threatening to veto a deal if his demands are not met.
It would also buck an EU trend for long-drawn-out talks over the multi-year budget, which in the past has required at least two summits to get the unanimous agreement needed.
"Differences between EU member states seem to be so big that the negotiations would last much longer than currently expected," said Carsten Brzeski, senior European economist at ING bank.
But with euro zone countries keen to focus their efforts on crisis response measures, and with poorer EU countries wary of any delays to the new spending plan, diplomats insist that a one-shot deal is possible and remains the best option.
"The best chance for a deal at the November summit is the fact that, for many member states, they have bigger fish to fry," said one EU diplomat involved in the discussions.
Even British officials have talked up the chances of a November deal, despite the government's political posturing.
Cameron goes into the talks in a relatively strong position, with one of his main priorities - keeping hold of the country's rebate - assured if no deal is reached.
He also has strong allies in Germany, Finland and the Netherlands, among others, in his bid to cut the overall level of EU spending proposed by the European Commission last year.
London is calling for the deepest cuts, but if offered a deal that safeguards its multi-billion euro rebate and cuts some 100 billion euros from the total, Cameron could see a chance to win back some EU goodwill for little pain.
If no deal is struck, the EU's 2013 budget would roll over with an automatic 2 percent increase based on inflation, which should act as an extra incentive for net contributors such as Britain and Germany to reach a compromise. That means that if Britain vetoes a deal, it could end up paying more than it wants.
"The UK may have to take a little water with its wine, but November could be the best chance for a good deal, because they're not necessarily going to get a better one if they wait," said another EU diplomat who spoke on condition of anonymity.
Others believe Cameron risks painting himself into a corner with his talk of a veto and needs a longer-term vision.
"If the UK is going to play the hard line it has said it would play, then I think there is very little scope to find a compromise which works for everyone," said Fabian Zuleeg, chief economist at Brussels think tank the European Policy Centre.
"If the UK is purely looking at how things play in the British media and with Tory backbenchers, it becomes very difficult to find a compromise here in Brussels."
While Britain was described by one senior EU official as the biggest problem in the budget talks, it is far from being the only one.
Sweden, a net contributor to the EU and which has long called for reform of the common agricultural policy, is also expected to play hardball.
"We have made clear that we believe a freeze in real terms is what should happen given that it has not been possible to achieve a modernization or any major change in the budget." Sweden's Prime Minister Fredrik Reinfeldt told reporters on Tuesday.
Poland, Hungary and other EU members from the former Soviet bloc, set to benefit most from the spending plans, are opposed to any cuts, and each carries its own veto in the talks.
The European Parliament could also use the power granted to it under the 2009 Lisbon Treaty to vote down any deal reached by EU governments if its calls for increased funds are ignored.
The biggest obstacle to agreement in November may be the current lack of groundwork for a deal.
The 50-page government negotiating text on the budget has been debated since April, but less than a month before the November summit it still contains no precise figures, with broad ranges only due to be inserted later this week.
Officials describe this as a deliberate tactic to keep all 27 countries on board during the early part of the negotiations, but it leaves little time for capitals to work out their bottom lines before leaders begin haggling in earnest.
"Whether it is about the size of the total budget, funding sources or the different spending items, right now there does not seem to be a single agreement on any of these issues," said ING's Brzeski.
The diplomacy will move up a gear when European Council President Herman Van Rompuy begins a series of bilateral talks with EU leaders ahead of the summit, starting in London on Thursday. German Chancellor Angela Merkel is also due to meet Cameron in early November.
Van Rompuy, who will lead the November summit talks, has said he is prepared to extend the two-day meeting into the weekend in order to clinch deal, and earlier this month advised those attending to pack accordingly.
"My colleagues have already been warned: it could become the first 'three-shirter' under my watch," he said.