EU leaders face showdown on constitution and budget

European Union leaders headed for a showdown in Brussels today at a summit where deep divisions over the EU budget have exacerbated a crisis sparked by French and Dutch voters’ rejection of the bloc’s proposed constitution.

The two-day meeting had been billed as a chance for leaders to declare renewed unity to restore public faith in Europe, two weeks after the double referendum blow.

Instead, the summit risks degenerating into an unsightly squabble by the 25 nations seeking to grab a bigger slice of the EU’s annual budget, worth over €100bn.

The major countries are all digging in to defend their national interests.

France refuses cuts in the generous handouts to its farmers. Italy says it will veto a deal that axes aid to its poor south.

Germany wants to reduce its contribution to the EU’s coffers. Britain is clinging to the €5bn rebate former Prime Minister Margaret Thatcher got by saying: “We want our money back!”

The bickering has exasperated the EU, which is desperate to show the drive for a united Europe can bounce back from its mauling by the French and Dutch.

Yesterday, European Commission President Jose Manuel Barroso pleaded for unity.

“If we don’t achieve this, the Union will be involved in permanent crisis and paralysis,” he said. “I appeal to all governments, each must contribute to find a solution.”

Today’s talks are scheduled to focus on the future of the constitution, leaving tomorrow for the budget battle. EU nations are split over whether to press ahead with the charter’s ratification.

France, Poland and Germany have said the other countries should go ahead with their own votes on the constitution, which must be ratified by all EU members in order to come into effect.

However, the leaders of Denmark and Portugal are considering following British Prime Minister Tony Blair in freezing national referendum plans.

Ten nations have ratified the constitution, Spain in a referendum and the others in parliamentary votes.

“Stopping the ratification process now would threaten further integration of the EU,” Czech Prime Minister Jiri Paroubek told parliament in Prague.

The Czechs and Spanish are proposing a one-year extension of the 2006 deadline for the constitution’s ratification by all 25 members.

Barroso also called for “pause for reflection” on the constitution – a document which supporters defend as essential for streamlining EU decision-making and detractors criticise as a blueprint for a bureaucratic super-state.

The constitution debate has hardened governments’ position in the fight over EU funding, as leaders heed voters’ concerns that decisions from the EU’s Brussels headquarters override their national interests.

Determined to fight, French President Jacques Chirac insists the agriculture subsides that eat up half the EU’s budget – and favour French farmers – are untouchable.

Chastened Dutch Prime Minister Jan Peter Balkenende insists his compatriots - already the biggest contributors to the EU budget – will not have to pay more to Brussels. Blair threatens to veto any deal that tampers with Britain’s rebate.

But the EU must find the money to pay for much-needed new roads, power networks and phone lines in the eight former communist nations that joined the bloc last year – with a promise of help to bring their economies into line with their rich western neighbours.

The problem is expected to get worse in 2007, when Romania and Bulgaria – who are even poorer than the other newcomers – are scheduled to join.

Barroso insisted yesterday that the EU must stick to its commitments to bring in new members – despite voter worries that the bloc’s expansion is going too far, too fast.

Those concerns have been particularly strong over Turkey, which is due to begin membership negotiations in October – even though those talks are expected to last at least a decade.