Veto threats fly in EU budget fight - Reuters

By Charlie Dunmore

BRUSSELS | Wed Oct 31, 2012 1:34pm EDT

BRUSSELS (Reuters) - France joined a growing list of European Union governments threatening to veto the bloc's next long-term budget, turning up the heat at the start of divisive bargaining over a 1 trillion euro ($1.30 trillion) spending plan.

Wednesday's warning from Paris echoed similar threats from Denmark and Britain, where Prime Minister David Cameron came under pressure from opposition lawmakers and rebels in his own party to ditch his call for a real terms freeze in EU spending and push for outright cuts.

The French ultimatum was sparked by a proposal to trim farm subsidies - jealously guarded by top recipient France - as part of a compromise from the Cypriot EU presidency to cut the 2014-2020 budget by more than 50 billion euros.

Even after the proposed cut, agriculture would remain the largest spending area, with deeper cuts penciled in for infrastructure investment in the bloc's poorest regions as well as research.

"We oppose the proposed reduction," French European Affairs Minister Bernard Cazeneuve said in a statement.

"France would not support a multi-annual budget that does not maintain the funds of the common agricultural policy."

The backlash was also a warning not to cut the proposed farm budget further, after Cyprus said much deeper reductions than those outlined so far would be needed to clinch a deal.

Despite support from Ireland and Austria, France's position puts it on a collision course with Germany, Britain and other net contributors looking to slash the overall spending blueprint by 100-200 billion euros.

EU diplomats have warned privately that further cuts are likely to hit agriculture hardest. A Franco-German deal to maintain the nominal level of farm spending served as the basis for agreement on the last long-term EU budget for 2007-2013.

But German deputy foreign minister Michael Link hinted Paris could be fighting a losing battle this time, saying Berlin would continue to press for deeper overall cuts as part of a "modern budget" that prioritizes economic growth and competitiveness.

"We don't think the presidency has found the right emphasis yet," Link said.

HORSE TRADING

The prospect of Britain blocking a deal loomed larger on Wednesday, as Cameron saw his room for maneuver at the budget talks shrink in the face of a parliamentary revolt.

Rebels in his Conservative party have urged the prime minister to insist on cuts to EU spending to reflect the bleak economic landscape across much of Europe.

"This government is taking the toughest line in these budget negotiations of any government since we joined the European Union," Cameron told parliament ahead of a non-binding vote on the EU budget talks.

"At best we would like it cut, at worst frozen, and I'm quite prepared to use the veto if we don't get a deal that's good for Britain," he said.

EU leaders will try to resolve their differences at a summit in Brussels on November 22-23, which is likely to involve long days and late nights of bitter horse trading.

With agriculture and regional development spending together accounting for about three-quarters of the total budget, leaders looking to limit their EU contributions may ultimately be forced into a straight choice between the two.

Poland, like most poorer Eastern member states, receives far less in EU farm support than in regional development funds, credited with helping it avoid a recession.

Making the case for maintaining development spending, Polish Europe Minister Piotr Serafin said the benefits would be felt across the EU - an argument that may sway Berlin and others in the final reckoning.

"Poland is a country that makes particular good use of structural money and has a major impact on the region's economy," he told Reuters in an interview.

"Poland generates growth in other EU members, it generates extra GDP, it adds to the overall welfare of the EU, so it's a good investment." ($1 = 0.7717 euros) (Additional reporting by Sybille de La Hamaide in Paris, Stephen Brown in Berlin, and Christian Lowe and Karolina Slowikowska in Warsaw; Editing by Paul Taylor)