British PM Cameron courts rich allies in EU budget battle
* Cameron demands further cuts to EU budget proposals
* British PM says is prepared to block a deal
* UK wants to protect its annual rebate from Brussels
* Cameron promised "in/out" vote on UK's EU membership
LONDON, Feb 5 (Reuters) - British Prime Minister David Cameron hopes to enlist the support of Germany and other rich north European countries in his fight to freeze EU spending at budget talks this week and is prepared to block a deal unless more savings are found.
It will be the Cameron's first European summit since he set out his plan last month to claw back powers from Brussels and put the changes to voters in an "in or out" referendum on Britain's membership of the 27-nation bloc.
His proposals fuelled resentment in some EU capitals and the prime minister held talks with German Chancellor Angela Merkel on Sunday to try to avoid isolation in Europe.
While keen to avoid deepening rifts with Europe at the budget talks in Brussels on Thursday and Friday, Cameron has threatened to block a deal unless leaders find more savings.
Britain wants a real-terms freeze in EU spending to reflect the harsh economic climate across Europe, which would involve more cuts from the latest EU budget proposal.
Cameron will also seek to defend Britain's rebate, a refund from Brussels won by former Prime Minister Margaret Thatcher that is worth about 3 billion pounds ($4.7 billion) a year.
"Spending needs to be reduced further," Cameron's spokesman told reporters on Tuesday. "If it doesn't budge, then the deal isn't going to be doable."
Britain was working "very closely with like-minded allies", such as Sweden, the Netherlands, Denmark and Germany, who "all agree that spending needs to be reduced further", he said.
A first attempt to secure the 1 trillion euro ($1.35 trillion) EU budget for 2014-2020 proposed by European Council President Herman Van Rompuy failed in November.
At the time, Cameron accused the European Union of "living in a parallel universe" and said savings could be made in areas like administration, agriculture and funding for poor regions.
The budget talks pitch Britain and other north European countries urging budgetary restraint against southern and eastern European states that need EU money for public investment and development.
A senior French source involved in the talks said Merkel was keen to avoid alienating Britain at a time of great uncertainty about Britain's future in Europe.
"The Germans are quite flexible on most issues but their key thing is they want the British on board," the source told Reuters. Merkel and Cameron discussed the budget talks by phone on Sunday.
Cameron said last month that his ruling Conservative Party would campaign for the 2015 parliamentary election on a pledge to renegotiate the terms of Britain's EU membership. He said an "in our out" referendum on the country's membership of the bloc would then be held by the end of 2017 - provided he wins a second term.
Cameron's offer of a referendum appeased eurosceptics in his party, a faction that helped to bring down two of his predecessors, John Major and Margaret Thatcher. They have been pressing Cameron to use the euro zone crisis to reshape Britain's ties with Europe.
Although Cameron wants Britain to stay inside the European Union, his plans have put him on a collision course with France and Germany. Merkel has held back from public criticism of Cameron's EU speech, but her Foreign Minister Guido Westerwelle warned that "cherry picking" the European rules that appealed and disregarding the rest was not an option.
Even the United States, a close British ally, is uneasy about Cameron's plan. President Barack Obama said last month that Washington valued "a strong UK in a strong European Union".
Cameron's proposals have also underlined divisions between the Conservatives and their junior coalition government partner, the pro-EU Liberal Democrats.
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