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European leaders fail to reach agreement on EU budget

BRUSSELS, Belgium—Europe's leaders rejected a last-ditch effort at a budget compromise Friday night, raising further questions about the stability of the 25-member European Union.

Five nations opposed the compromise—Britain, Spain, Sweden, the Netherlands and Finland, according to diplomatic sources.

Jean-Claude Juncker, prime minister of Luxembourg and president of the European Council, expressed disappointment in the rejection.

"Europe is not in a state of crisis," he said early Saturday morning. "It is in a state of profound crisis."

The budget isn't expected to be brought up again until next summer, which many nations consider too late to effectively begin 2007.

Earlier Friday, British and French officials traded shots over a subsidy that Britain receives annually from the EU, each side rejecting the other's position. Analysts saw that as evidence that there's little unanimity on the future of Europe.

"The direction of the future of Europe is what is really being debated this week," said Marco Incerti, a research fellow for the Belgian-based Centre for European Policy Studies.

"Does Europe move towards a more liberal economic model, more like Britain and United States or try to retain the social welfare state the voters seem to want. Does Europe continue to expand or close the club? These are not issues easily solved in a two-day conference."

Already, leaders have agreed to postpone any further consideration of the proposed European constitution, which was soundly beaten in votes in France and the Netherlands.

Calling the delay a "pause for reflection," the leaders said they would begin discussing the document again next summer.

Denmark, Portugal and Ireland postponed referendums on the document that they had scheduled for later this year.

The rejection of the EU's budget added to the sense of crisis.

The summit was originally intended to approve the EU budget, expected to be about $120 billion a year for the next seven years.

But the debate boiled down to French President Jacques Chirac versus British Prime Minister Tony Blair.

At issue was a 1984 agreement that the EU would give Britain a rebate annually to minimize the difference between what Britain paid into the EU and what it receives. This year, that's about $5.5 billion.

Chirac called for the elimination of the rebate, saying it was agreed to when Britain's economy was struggling and was no longer needed because the nation is doing well. Chirac was joined by German Chancellor Gerhard Schroeder, who said the rebate "had no real justification."

Cancellation of the rebate would leave Britain and Germany as far and away the largest net donors to the EU, with each donating about $11 billion more annually to the EU than they receive.

Blair has responded that he would be willing to discuss the rebate but only if the EU would restructure the budget to de-emphasize agricultural subsidies, which make up about 40 percent of EU spending.

France, however, objects to changing agricultural subsidies; they benefit France more than any member nation.

At least one leader saw some hope in the rejection.

"It's better to take another year or more and continue to negotiate, rather than make one more bad compromise," said Swedish Prime Minister Goran Persson.


(c) 2005, Knight Ridder/Tribune Information Services.

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