* Officials say real terms cut key to EU budget deal
* Merkel plays down chances of agreement at summit
* EU's Van Rompuy expected to detail further spending cuts
By Charlie Dunmore
BRUSSELS, Nov 21 European Union leaders will
need to agree a first-ever cut in the bloc's long-term spending
plans if they are to clinch a deal at a summit starting on
Thursday, with the drive for austerity likely to trump all other
German Chancellor Angela Merkel played down the chances of
an agreement this week, even though senior EU officials warned
that failure could lead to a renewed crisis and derail efforts
to shore up the euro zone.
Officials preparing the meeting, which could drag into the
weekend in the search for a breakthrough, said substantial cuts
in spending for 2014-2020 compared with the current 7-year
budget framework were the only viable basis.
But while some net contributors to the EU budget, such as
Britain and Germany, are firmly agreed on the need for cuts,
other powerful states, such as France and Poland, are determined
to resist sacrifices directly affecting their interests.
"We believe a real terms cut in the overall ceiling is
necessary," said an EU official close to the talks, speaking on
condition of anonymity. "The consequences of no deal would be
serious, and we don't see how a different timeframe would result
in a game-changing proposal."
European Council President Herman Van Rompuy has already
proposed cutting the European Commission's planned 1,091 billion
euro ($1.4 trillion) budget by about 80 billion euros.
EU officials say that represents a real terms cut of about
20 billion euros compared with the current expenditure ceiling
of 1,034 billion for 2007-2013, which Britain's Prime Minister
David Cameron could use to claim victory in the summit.
But Britain - along with Germany, Sweden and the Netherlands
- is pushing for even deeper cuts of at least 100 billion euros
to the Commission's blueprint.
All 27 member states have a veto but Cameron, under pressure
from Eurosceptic rebels in his Conservative party, has been most
vociferous in threatening to wield it.
Sources familiar with Van Rompuy's thinking said they expect
the summit chairman to try to shave a further 20 to 25 billion
euros off the Commission's proposed total in a final compromise
he plans to put to leaders only late on Thursday night.
The extra savings are expected to come mainly from EU funds
earmarked for big cross-border infrastructure projects and
administrative spending on officials' salaries and perks.
Any further cuts to the two main EU spending programmes for
farm subsidies and development aid for the bloc's poorer regions
- which jointly make up three-quarters of the total - could meet
fierce opposition from beneficiaries such as France, Italy,
Poland and Hungary.
Unlike previous budget deals, which EU leaders had to thrash
out among themselves, Van Rompuy will assume the role of chief
negotiator at this week's summit, with European Commission
President Jose Manuel Barroso on hand to crunch the numbers.
The two will hold 10-minute individual "confessionals" with
each of the EU's 27 leaders during the day on Thursday in an
attempt to divine where their ultimate red lines lie.
Van Rompuy's aides said the real bargaining will take place
in bilateral or small group meetings of heads of state and EU
officials, with all leaders only coming together occasionally to
approve elements of a deal "or to put concerted pressure on one
or two countries".
With so many heads of state and government on hand and talk
that the summit could last until early on Sunday morning,
officials predict a lot of down-time with delegations retreating
to their hotels to await the summons from Van Rompuy.
"It's going to be a logistical nightmare as leaders will
have to be available at all times for bilaterals, but most of
the time they will be sitting bored in their delegation rooms at
the council or talking to journalists," one EU official said.
Before the last EU budget marathon in 2005, former German
Chancellor Gerhard Schroeder and his French counterpart Jacques
Chirac had struck a deal to preserve agricultural subsidies in
nominal terms, infuriating Britain's Prime Minister Tony Blair.
Blair vetoed a first attempted compromise only to broker a
deal six months later by reducing the money available to help
the new member states of central and eastern Europe.
A Franco-German deal to exempt farm payments from cuts is
considered less likely this time, with Berlin seemingly keener
to curb overall spending that to featherbed farmers.
Whatever the outcome, officials say the EU's biggest economy
and top budget contributor will be at the centre.
"What Merkel thinks will obviously be very important," the
EU official said. "The German approach in the negotiations will
be more or less where we end up."