EU braced for budget fight with UK

British Prime Minister David Cameron is refusing to surrender the EU rebate.

Story highlights

  • European diplomats are concerned Mr Cameron is serious about demanding a freeze in the budget
  • A move to veto the budget could be politically attractive to Britain
  • The prime minister believes a two-tier Europe is inevitable and has talked of seeking "fresh consent" of British people
  • To further exacerbate tensions, Mr Cameron is refusing to surrender the British rebate

Brussels is bracing itself for a battle with David Cameron as fears grow that the British prime minister will block a proposed €1tn seven-year spending plan and push for a two-tier EU budget.

Mr Cameron is understood to be interested in Brussel's longer-term plan of a separate spending programme for the eurozone, with UK and European officials considering a compromise that would see the EU budget split in two -- marking a further acceleration towards a divided Europe.

"This idea is gaining momentum," said a British official. "It could mean restraint in the overall EU budget but still provide eurozone countries with more funding from Brussels to support restructuring measures."

European diplomats are growing increasingly concerned that Mr Cameron is serious about demanding a freeze in the budget at next month's budget summit, with one saying: "He'd be delighted to veto a deal -- he'll be greeted at home like a hero."

As the Conservative party gathers for its annual conference in Birmingham, Mr Cameron is being urged by ministerial colleagues to relive his "veto moment" of last December, when he won plaudits in Britain for opposing an EU fiscal pact.

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A move to veto the budget could be politically attractive to Britain, as it would allow Mr Cameron to argue that the UK was not propping up the eurozone. The UK is also suggesting moving to a five-year budget because of economic uncertainty.

Mr Cameron had hoped for French and German support, but British diplomats fear the November summit could turn into a classic confrontation between London and most of the rest of the EU.

The prime minister believes a two-tier Europe is inevitable and has talked of seeking the "fresh consent" of the British people of this new relationship in the next parliament in a clear signal that he favours a referendum.

William Hague, foreign secretary, told Saturday's Daily Telegraph this consent is likely to be in "a general election or referendum". However, Tory MPs are demanding a straight European plebiscite.

Michael Fallon, Tory business minister, told the Financial Times: "We haven't had a referendum on Britain's continuing membership of the EU since 1975." He said that Mr Cameron's so-called "veto" at last December's summit was "very refreshing".

David Lidington, Britain's Europe minister, told colleagues in Luxembourg last month: "When the prime minister talks about the real-terms freeze being a red line to him and not a negotiating position -- that is the stark truth."

To further exacerbate tensions, Mr Cameron is refusing to surrender the British rebate -- an EU refund secured in perpetuity by Margaret Thatcher in 1984.

Germany believes the British threat of a veto is counterproductive. One Berlin official said: "We need fair burden-sharing, and therefore the British [budget] rebate is no longer acceptable. That has been made clear by Germany in Brussels and in London."

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