British Prime Minister Tony Blair announced this evening that he is to put forward a final proposal on the European Union's long-term budget that would cut London's rebate to boost aid to poor new east European members.
After two days of tough summit bargaining, Mr Blair said the offer would ensure London paid a fair share towards the cost of enlargement to the ex-communist countries and open the way to an eventual reform of all EU spending.
"People are really going to have to make up their mind as to whether they want to do this deal at all," Mr Blair said, amid growing optimism that an agreement was in the making.
French President Jacques Chirac, long Britain's chief adversary on EU finances, said the 25 leaders had made "serious progress" on the 2007-13 budget and were close to a deal that would overhaul the annual British refund.
Chirac also said he expected the rebate mechanism would ultimately be abolished after 2013. Britain has insisted it will only give up the refund if there is a fundamental reform of EU farm subsidies, which benefit France most.
Diplomats said London was preparing to offer a cut of at least €10.5 billion in the rebate, up from the €8 billion it initially proposed.
"It ... allows us as Britain to pay our fair share of the costs of economic development in these new member states of the European Union but preserves absolutely the rebate in respect of the rest of expenditure," Mr Blair told reporters.
Several sources said the British proposal would raise total spending to 1.045 per cent of EU output or €861 billion over seven years, up from a previous proposal of 1.03 per cent or €849 billion. German Chancellor Angela Merkel, seeking to mediate at her first EU summit, proposed the higher expenditure as a compromise to help new, ex-communist east European member states.
Failure to reach a deal would damage the credibility of the bloc, already reeling from failing to agree a proposed EU constitution earlier this year - and from bitter recriminations after an abortive attempt to agree a budget in June.
It would also prevent the 10 newcomers from using the hefty funds available to modernise their economies and bring them into line with their wealthier western cousins.
Blair spent the day in private meetings with leaders trying to reconcile east European states' demands for more aid with a domestically sensitive further cut in the British rebate, while putting a review of farm spending on the long-term agenda.
The British proposal "also gives us a process for what we believe is essential, which is the fundamental restructuring of the budget for the medium and long term", he said.
However, British Eurosceptics contended he had sacrificed part of the rebate which his predecessor Margaret Thatcher won in 1984 with no guarantee of any change in the Common Agricultural Policy before 2014 at the earliest.
"Seldom in the course of European negotiations has so much been surrendered for so little. It is amazing how the government have moved miles while the French have barely yielded a centimetre," opposition Conservative foreign affairs spokesman William Hague said in London.
Britain won the rebate when it was the EU's second poorest member and benefited little from farm subsidies, which then swallowed up 70 per cent of the budget. It is now second richest and agriculture accounts for 43 percent of EU funds.
France had said a fair British share would be an extra €14 billion worth of contributions over seven years.