EU budget rift may pose new headache for EU summit

BRUSSELS (Reuters) - A row over the European Union’s 2011 budget may drag on until an EU leaders’ summit on December 16-17, complicating a meeting that was supposed to focus on resolving the debt crisis, diplomats said.

The threat of another divisive issue crowding the summit agenda emerged after EU lawmakers and governments failed again on Monday to reach a deal on next year’s budget. They are divided over how much the budget should be increased, and about the future role the parliament should play in budget-making.

Without a budget deal, next year’s spending would be the same as in 2010, disbursed in 12 equal installments. Some programs would be denied funding, such as the EU’s fledgling diplomatic service, a nuclear fusion project and newly created bodies to supervise financial markets.

“It cannot be excluded that the issue will have to go to the summit,” an EU diplomat said of the weeks-long discussions.

A parliament source said there was an agreement in principle on the figures -- that the 2011 budget would grow by 2.9 percent from this year’s 123 billion euros ($163 bln) -- but some governments continue to oppose other demands of the parliament.

The source said there was still a chance of a deal before the summit, because many EU governments do not want to link the discussion on spending with the planned talks on a new, permanent mechanism for handling euro zone debt crises.

Several diplomats said privately that at the last EU summit in October, British Prime Minister David Cameron secured a statement on a need to keep the bloc’s budget lean in exchange for supporting a planned EU treaty change that France and Germany say is needed to set up the new financial mechanism.

Some fear Cameron could make further demands on the EU budget at next week’s summit.

A Polish diplomat said he understood Cameron would like to cut the value of the EU budget to 0.85 percent of the EU’s economic output from the current level of 1.0 percent from 2014, when the bloc’s next long-term budget starts.

Any such cut would hit the EU’s poorer countries from central and eastern Europe hard.

Failure to agree on the budget would be another sign of the EU’s negotiating difficulties at a time it is scrambling to agree on a permanent bailout mechanism.

The parliament is demanding a declaration from member states that would clarify its role in the bloc’s financial planning. It backed off from an initial demand for a 6.2 percent increase in the 2011 budget to try to get an accord on other issues.

The parliament, which has increased powers since the EU adopted a new treaty last year, wants more flexibility in the way the budget is spent and guarantees that lawmakers will be represented during negotiations on the EU’s next, long-term budget, which could be worth 1 trillion euros. They also asked for a debate on giving the EU an independent source of income.

Editing by Stephen Nisbet