European Union president Luxembourg made a final bid to forge a compromise on the bloc's long-term budget on Friday but chances looked dim as France dug in its heels on farm subsidies and Britain clung to its rebate. An EU summit went into recess as Luxembourg Prime Minister Jean-Claude Juncker held private talks with the main net contributors to the budget. Leaders were due to reconvene at 6 pm (1600 GMT) to decide whether there was any point continuing negotiations.
A failure on the 2007-2013 budget would come on top of a decision to put the EU's troubled constitution on ice until mid-2007 at the earliest, adding to a sense of crisis and drift in the 25-nation bloc that has rattled financial markets.
"Easy it isn't," German Foreign Minister Joschka Fischer told reporters. A British official said: "Things are looking gloomy."
The budget clash came after leaders decided on Thursday to allow more time to ratify the new EU constitution, rejected by French and Dutch voters and declared dead by its critics.
That prompted Denmark, Portugal and Ireland to say they would postpone referendums due later this year.
At the heart of the budget row is a long-standing dispute between France, which benefits most from EU farm subsidies, and Britain, which won a rebate in 1984 to compensate for receiving less than others because far fewer Britons worked on the land.
French President Jacques Chirac, a long-time champion of farmers, made clear that he would not accept Britain's offer to consider a rebate cut in return for a commitment to overhaul the EU's agricultural policy. "The future of the British cheque after 2013 should, under no circumstances, be linked to a reform of farm expenditure," he said, according to speaking notes made available to reporters.
His foreign minister, Philippe Douste-Blazy, told reporters a proposal to freeze the British rebate for seven years was not acceptable. "A freeze is not enough," he told a news conference.
British Prime Minister Tony Blair's spokesman hammered home London's unbending line after Blair met Juncker: "So long as the budget remains distorted, the case for the rebate remains."
He denied a report from a senior Polish diplomat that Blair had offered a 500 million euro ($607 million) cut in the rebate, which is the amount funded by poor new east European member states.
Britain has threatened to use its veto to defend the annual cashback from Brussels, won by former prime minister Margaret Thatcher and worth 5.1 billion euros out of a 106.3 billion euro EU budget this year.
Swedish Prime Minister Goran Persson told reporters he did not expect any budget deal on Friday but his Finnish counterpart, Matti Vanhanen, said he was quite optimistic that momentum was building for a deal.
Persson said the EU would do better to take an extra year and make a fundamental reform of spending, switching resources from agriculture and regional aid to "more modern" priorities.
"I would be lying if I said I thought there would be a deal," he said after the first working session.
Critics say Britain's economy has grown since 1984 into one of the EU's wealthiest, and it should pay its share of bringing the ex-communist east European countries into the club. The Dutch and the Swedes were also talking tough in a bid to reduce their net contribution to the EU budget and Italy was demanding more aid for its poor southern regions.
The Netherlands, the largest net contributor per capita, is insisting on a sharp reduction in its payment. The Dutch opposition, emboldened by the popular rejection of the EU constitution, wants a cut of 1.5 billion euros per year.
While the European Commission says failure to agree now would delay urgently needed investment in eastern Europe, British, Dutch and Swedish officials all said there was no rush.
Financial market analysts said another EU failure after the referendum defeats could harm confidence in the euro zone, even though the euro rose slightly against the dollar on Friday.