Blair: Euro budget very much in balance

A European Union budget deal “hangs very much in the balance”, Prime Minister Tony Blair said today as he arrived in Brussels for a crunch summit.

The Prime Minister admitted it will be “very difficult” to broker an agreement at the last gathering of leaders under Britain’s current EU Presidency.

Key EU states – including France – are urging cuts to the UK’s £2.7bn (€4bn) annual rebate, won by Margaret Thatcher in 1984.

Mr Blair began the gruelling round of talks by heading straight into a one-to-one meeting with chief opponent French President Jacques Chirac.

An Anglo-French row torpedoed the last round of negotiations on the EU’s 2007-13 budget back in June.

France remains resolutely opposed to Mr Blair’s demands for cuts in agricultural subsidies in return for a rebate reductions.

Mr Blair’s latest proposals were immediately rejected by President Chirac when they were produced yesterday.

Poland was also angered by suggestions that the 10 new EU countries should accept smaller development grants to speed a deal through.

Mr Blair signalled concessions to the so-called accession states on his arrival, calling for others to show them the “necessary support and solidarity“.

However, the Prime Minister cautioned: “It is going to be very tough, very difficult.”

President Chirac had no word for reporters as he arrived at the summit ahead of Mr Blair.

After a series of private meetings this evening, the PM will listen to the views of fellow leaders over dinner before beginning detailed negotiations tomorrow.

Failure to broker a deal would mark a dismal end to Mr Blair’s six month EU Presidency.

The Union’s 2006 budget will be unaffected but there are fears that it could lead to paralysis that could delay further enlargement.

It would also be a personal blow to the Prime Minister, who came to power promising to restore Britain’s influence in Europe.

One UK official predicted failure to resolve the budget crisis could mean “paralysis for at least a year“.

That would deepen the continuing sense of gloom triggered by last summer’s Dutch and French referendum rejections of the EU’s constitution.

Foreign Secretary Jack Straw made clear in the Commons that no deal at all would be preferable to a bad deal.

The commission insists the EU needs a future budget drawing on 1.24% of member states’ money – a potential annual budget of £100bn (€147bn) a year.

Mr Blair has proposed a spending ceiling of 1.03% – generating about £80bn (€118bn) a year.

European Commission President Jose Manuel Barroso said the British offer was “wholly inadequate” and “not enough”.