WRAPUP 1-France, Britain set stage for EU budget wrangling
* France objects to proposed farm subsidy cuts
* Cameron loses to rebels in British parliament
* Germany says "modern budget" should target growth
By Charlie Dunmore and Peter Griffiths
BRUSSELS/LONDON, Nov 1 (Reuters) - British Prime Minister David Cameron came under pressure to act tough on the European Union budget and France threatened to use its veto, signalling a divisive start to bargaining over the 1 trillion euro ($1.3 trillion) long-term spending plan.
Wednesday's warning from Paris echoed a similar threat from Denmark last week, while in London Cameron suffered a humiliating defeat in parliament by Conservative rebels determined to push him to take a hard line over Europe, an issue that has long divided his party.
Although the British parliamentary vote is non-binding, mutinous Conservatives said it added force to their demand that Cameron should end his backing for a freeze in EU spending and demand outright cuts.
The French ultimatum was prompted by a proposal to trim farm subsidies - jealously guarded by Paris as the top recipient of such payments - as part of a compromise from the Cypriot EU presidency to cut the 2014-2020 budget by more than 50 billion euros.
Even after the proposed cut, agriculture would remain the largest spending area, with deeper cuts pencilled in for infrastructure investment in the bloc's poorest regions as well as research.
"We oppose the proposed reduction," French European Affairs Minister Bernard Cazeneuve said in a statement.
"France would not support a multi-annual budget that does not maintain the funds of the common agricultural policy."
The backlash was also a warning not to cut the proposed farm budget further, after Cyprus said much deeper reductions than those outlined so far would be needed to clinch a deal.
Despite support from Ireland and Austria, France's position puts it on a collision course with Germany, Britain and other net contributors looking to slash overall spending by 100-200 billion euros.
EU diplomats have warned privately that further cuts are likely to hit agriculture hardest. A Franco-German deal to maintain the nominal level of farm spending served as the basis for agreement on the last long-term EU budget for 2007-2013.
But German deputy foreign minister Michael Link hinted Paris could be fighting a losing battle this time, saying Berlin would continue to press for deeper overall cuts as part of a "modern budget" that prioritises economic growth and competitiveness.
"We don't think the presidency has found the right emphasis yet," Link said.
"CUTTING OUR CLOTH"
The rebels won the British parliamentary vote on Wednesday evening by 307 to 294, a majority of 13, after they received support from the Labour Party, a generally pro-European group accused by Cameron of "rank opportunism" because it had approved EU budget increases while in office.
"This is a time for Brussels to listen to the British people and do what we are all doing, and that is cutting our cloth," Conservative lawmaker Mark Pritchard, one of the revolt's leaders, told Sky News.
Rebels said the vote could strengthen Cameron's position at budget talks in Brussels next month because he will be able to say his hands are tied by the British parliament.
But other Conservatives say Cameron will be weakened after his first significant defeat in parliament since taking power in 2010.
Conservative rebels had urged the prime minister to insist on cuts to EU spending to reflect the bleak economic landscape across much of Europe.
"This government is taking the toughest line in these budget negotiations of any government since we joined the European Union," Cameron told parliament ahead of the vote.
"At best we would like it cut, at worst frozen, and I'm quite prepared to use the veto if we don't get a deal that's good for Britain," he said.
EU leaders will try to resolve their differences at a summit in Brussels on Nov. 22-23, which is likely to involve long days and late nights of bitter horse trading.
With agriculture and regional development spending together accounting for about three-quarters of the total budget, leaders looking to limit their EU contributions may ultimately be forced into a straight choice between the two.
Poland, like most poorer Eastern member states, receives far less in EU farm support than in regional development funds, credited with helping it avoid a recession.
Making the case for maintaining development spending, Polish Europe Minister Piotr Serafin said the benefits would be felt across the EU -- an argument that may sway Berlin and others in the final reckoning.
"Poland is a country that makes particular good use of structural money and has a major impact on the region's economy," he told Reuters in an interview.
"Poland generates growth in other EU members, it generates extra GDP, it adds to the overall welfare of the EU, so it's a good investment."
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