The president of the European Parliament warned Britain last night that MEPs would veto its budget proposal unless major changes were made.
Josep Borrell also signalled it would be better to proceed with annual EU budgets as provided for under the EU treaties rather than accept a bad deal.
"I want to be as clear as you can get. The current presidency proposal is unacceptable to parliament so it would be a waste of time for council to agree it," he said after opening European Council proceedings last night in Brussels.
Mr Borrell said the proposal for an EU budget based on 1.03 per cent of EU gross national income was too small and would hamper Europe's ambitions. The 2006 budget agreed by the parliament recently set an upper limit of 1.09 per cent of gross national income.
Mr Borrell warned the current proposal would constitute "backtracking" for the EU. Earlier this year, MEPs demanded a ceiling of 1.18 per cent, a figure that would see an extra €120 billion added to current proposals.
Mr Borrell said he had made the parliament's position clear to all EU leaders.
"I reminded them again the financial perspectives need agreement from the three European institutions. Maybe they think they can put MEPs under pressure to accept a deal. That may have been the case before but it doesn't work nowadays."
He said all the heads of the political groups in the parliament had been unanimous in telling British prime minister Tony Blair at a meeting before the summit that they opposed the deal.
A decision by parliament to veto any agreement reached by the council could provoke an institutional and budget crisis. Under EU treaties the 2006 EU budget would be rolled over for 2007.