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UK's EU budget deal in danger

"We have three weeks left. Everybody will want to make their contribution and then we will see."

Angela Merkel, German chancellor

The UK's hopes of a successful deal on the European budget to crown its six-month EU presidency were left ominously in the balance on Thursday night after a wary two-hour meeting in Downing Street between British Prime Minister Tony Blair and German Chancellor Angela Merkel.

On what was only her second day in office the first woman, and the first person from former East Germany, to govern her country stressed both the importance of sustaining the expensive EU model of social protection and the need for economic reforms to fund it.

But she refused to be drawn on whether or not she supports the EU majority in demanding that Britain give up all or most of its annual ?2 billion-?3 billion (US$3.5 billion-US$5.2 billion) budget rebate, or backs Blair who wants further concessions on farm subsidies before he gives ground.

"I want to have success and the situation of each country has to be taken into account. If anybody forgets one country with its interests you won't get any success," Merkel told reporters after she and Blair had spent an hour -- twice as long as scheduled -- in private talks with only interpreters present.

As for the six-monthly EU summit which is due on Dec. 15-16 in Brussels, where there will be huge pressure on Blair to give ground, Merkel later refused to look "into the crystal ball", saying: "We have three weeks left. Everybody will want to make their contribution and then we will see."

That looked like a hint that Berlin expects London to give ground. Most EU states argue that the rebate conceded in the darkest days of former prime minister Margaret Thatcher's rule is no longer justified.

An attempt to clinch a budget deal at the June summit was blocked by UK Treasury concerns. If Britain fails next month, either Austria or Finland, the next countries to hold the EU presidencies, will try in more hostile circumstances. The new eastern European EU members are also pressing hard for an early budget deal to ease the acute costs of their modernization programmes.

Over lunch yesterday, the new Polish prime minister, Kazimierz Marcinkiewicz, disclosed that the new states had written a joint letter calling for an urgent resolution to the wrangling over the budget. He called for "solidarity capable of overcoming selfishness."

Although Blair did not go as far on Thursday as French President Jacques Chirac, who kissed Merkel's hand when she visited Paris on Wednesday, the two leaders appeared relaxed in front of the TV cameras last night.

Blair, whose relationship with Gerhard Schroder faltered over the Iraq war, said he looked forward to developing a "very good and close working relationship" with the new chancellor. Reform was vital to meet the "challenges and opportunities of globalization," he stressed.

Britain also remains committed to trying to secure a budget deal in Brussels, but it will be difficult, as Blair admitted. Downing Street aides said later that no budget detail had been discussed.

Merkel conceded: "Without economic strength Europe will not be able to maintain its social model, and that is why reforms are of the utmost necessity."
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