* Britain proposes capping long-term EU budget --letter
* UK letter has initial support of France, Germany, others
* Long-term budget increases would be linked to inflation
By Luke Baker and Marcin Grajewski
BRUSSELS, Dec 16 (Reuters) - British Prime Minister David Cameron renewed his fight at the European Union’s summit on Thursday to cap the EU’s long-term budget, gaining initial support from France and Germany, diplomats said.
Cameron presented a letter to EU leaders to demand a lean EU budget in the bloc’s next long-term spending plan after 2013, which said expenditure should be frozen at that year’s level and increased only according to the rate of inflation.
Cameron, who is often confronted by an influential euro-sceptic media at home, believes the EU budget should be kept under strict control at a time when governments are struggling to tame their national budget deficits.
“European public spending cannot be exempt from the considerable efforts made by the member states to bring their public spending under control,” read a draft of the letter obtained by Reuters.
“Payment appropriations should increase, at most, by no more than inflation over the next financial perspective,” it said.
The next EU long-term budget begins in 2014 and is due to last seven years, although there is a proposal from the European Commission to extend it to 10 years.
Diplomats said the final version of the letter was still being drafted, but it gained initial support of heavyweights France and Germany as well as the Netherlands, Sweden, Finland, the Czech Republic, Estonia, Austria and possibly Slovenia.
“The letter could be made public this week or before Christmas,” one EU diplomat said.
The EU’s budget will be worth 126.5 billion euros next year and it could grow by several percent by 2013. About a third of the budget is spent on aid to poor regions and more than 40 percent on agricultural subsidies.
The letter is bad news for most poorer EU countries from central and eastern Europe, such as Poland, Bulgaria and Romania, as it could signal efforts to trim large aid funds they receive from the bloc to modernise their poor regions.
One Polish diplomat voiced surprise that British demands for a modest budget were supported not only by the EU’s net payers, but also by such countries as the Czech Republic, which is a net recipient from the budget.
Polish Prime Minister Donald Tusk said his country would defend the EU’s budget from attempts to cut it.
“What is the most important from our point of view is for the budget not to be reduced significantly, because we believe the funds flowing to Poland and other countries help us fight the crisis,” Tusk told reporters hours before the summit.
He took cheer from the fact that despite Cameron’s efforts, the summit’s conclusions would not make any reference to cuts.
Allowing the EU’s budget to grow only according to the rate of inflation could mean cuts in real terms as the bloc’s economic output is likely to keep growing.
Another diplomat said Britain has scaled down its demands as it initially wanted to trim the budget to 0.85 percent of the bloc’s output, compared with the current 1 percent.
The real battle over the size of the budget will start in mid-2011 after the European Commission, the EU’s executive body, makes concrete proposals on the long-term budget from 2014.
The EU’s costly farm subsidies will be another contentious issue in the debate. They will be defended by France, their major recipient. But a third diplomat speculated that Britain was working on a deal with France to keep farm spending, saying that such a deal could mean cuts in regional aid funds, mainly for central and eastern Europe.
Britain is also set to defend its rebate from EU coffers won by former Prime Minister Margaret Thatcher in 1984. (Editing by Leslie Adler)