EU Summit: European leaders inched their way towards agreement on a new seven-year budget for the EU last night in marathon talks that stretched late into the night.
British Prime Minister Tony Blair presented the final British compromise proposal just before 10pm in Brussels, saying it was a "fair and reasonable package".
Earlier, France and Poland, the two states with the greatest difficulty with the British proposal, both gave optimistic signals that they thought a deal was possible.
The budget proposal would set the 2007-2013 budget at about €862 billion, significantly higher than an initial offer tabled by Britain of €846 billion. But at 1.045 per cent of EU gross national income (GNI), it is still below a previous proposal of 1.06 per cent made by former EU president Luxembourg in June.
Under the proposal Britain would have to give up more of its annual rebate from the EU exchequer and divert more funding to new member states.
Diplomats said Britain was prepared to concede about €10.5 billion of its rebate, up from €8 billion in its initial proposal tabled last week. Mr Blair said this would enable Britain to pay its fair share of the cost of economic development in new member states.
"This is an extraordinarily complicated negotiation," he said. "We are however in a position where shortly we will put down our final negotiating box and then it is for people to make up their own minds frankly whether they want to do a deal or not."
Yesterday began with a series of intensive bilateral meetings between Mr Blair, German Chancellor Angela Merkel and French President Jacques Chirac in search of a compromise.
Mr Blair also held talks with states that were still unhappy about elements of the proposal such as Poland, which argued for a budget set at 1.05 per cent of gross national income. Under Britain's initial budget proposal last week, Poland stood to be the biggest loser from a €14 billion cut in funds to the new member states, when compared with the Luxembourg proposal made in June.
Dr Merkel subsequently proposed a budget offer of 1.045 per cent of GNI in an attempt to break the deadlock in the negotiations. This is a sum significantly higher than the 1 per cent of GNI initially sought by Germany, which is one of the EU's biggest paymasters.
British diplomats praised the role played by Dr Merkel in brokering a compromise between the Polish, French and British.
One official said she had taken a "very constructive role", particularly when compared to the role of former chancellor Gerhard Schröder at the summit in June.
A few hours before the British made their new compromise proposal, Polish Prime Minister Kazimierz Marcinkiewicz signalled that it was optimistic about the proposal.
"There is more chance of solidarity with new member states under the new proposal," Mr Marcinkiewicz said. Another Polish diplomat said its major problem with the initial British proposal was that it had concentrated cuts on the weakest and poorest members of the EU. If this principle was removed it could accept a deal, he said.
The marathon talks stretched from early Thursday morning when Mr Blair met Mr Chirac ahead of the official start of the EU summit. Despite robust exchanges between the two leaders, the talks were much calmer than those held in June, when both men traded insults as the budget talks collapsed in a spectacular fashion.
Mr Chirac said last night he had no criticisms to make of the British, who as current EU president chaired the budget discussions.
"We have seriously progressed. Not everything has been fixed but little by little we are moving to a solution," said Mr Chirac, whose difficult relationship with Mr Blair had been considered a threat to the prospects of a successful outcome to the talks.
France's big concern in the talks was to get permanent reform of Britain's budget rebate while defending the common agricultural policy (Cap). Britain had entered the talks refusing to budge on its rebate without reform of the Cap before 2013. The European Council met in plenary session to discuss the proposal shortly after 10pm with leaders hopeful of a deal on the financial perspectives in a few hours.
Agreement by the European Council does not automatically mean that the budget will be put in place. The proposal will also have to be agreed by the European Parliament, which has warned that it would veto any proposal it deems too small.
Earlier this year, MEPs demanded a ceiling of 1.18 per cent of GNI.
However, MEPs will come under severe pressure to accept a deal by national governments to prevent an inter-institutional crisis over the next EU budget.