British Prime Minister Tony Blair said yesterday the European Union's future budget would have to be smaller, despite protests from poor new eastern members, unless there was a fundamental reform of farm spending.
His official spokesman gave the clearest indication so far that Britain would agree to give up part of its annual rebate from EU coffers to share the cost of the 25-member bloc's enlargement into eastern Europe last year.
Leaders from central and eastern Europe pleaded with Mr Blair not to cut aid allocated to the bloc's poorest regions in proposals for the long-term budget due out on Monday.
"I'm not 100 per cent happy with ideas of the proposals that we don't have yet," Estonian Prime Minister Andrus Ansip said after leaders of the three Baltic states met Mr Blair, seeking a deal this month as holder of the EU's rotating presidency.
Mr Blair declined to confirm that Britain would propose a 10 per cent cut in funding for the 10 new member states but a Baltic diplomat confirmed that that was what they had been told.
"They were unhappy. He proposed 10 per cent cuts to cohesion and rural development funds for new member states," he said.
Mr Blair spelled out his approach in Kiev on the first leg of an east European tour.
"If we cannot get a large deal which alters fundamentally the way the budget is spent, then... we will have to have a smaller EU budget," he told a news conference.
Britain would pay its fair share of the cost of enlargement, but it would not abandon its rebate from EU coffers, now worth €5.6 billion a year, which he said was "inextricably linked" to farm spending.
Mr Blair suggested EU leaders agree at a December 15-16 summit on a mid-term review by the executive European Commission that would allow, but not force, a change in spending priorities in the second half of the 2007-2013 budget period.
Any deal would have to deliver rough parity between the net positions of Britain and like-sized countries, he said - a reference to France and Italy.
More than 40 per cent of the EU budget is spent on farm aid and about a third goes to poor regions.
France, with wide support in the EU, has refused to allow any reopening of a 2002 agreement that pegged agricultural spending at current levels until 2013.
Mr Blair faced a rough ride in selling his proposal to the east European states who have regarded Atlanticist, pro-market Britain as their biggest ally in the bloc.
A draft letter to Britain by seven ex-communist newcomers, obtained by Reuters, warned: "We will not be prepared to accept reductions in allocations for the new member states in cohesion policy and rural development."
Mr Blair's spokesman confirmed he was offering them "less than the headline figure" but said London was looking at ways to make it easier for them to spend the money quickly.
Britain had agreed in 1999 not to take its full rebate entitlement once the new members joined, "and that same kind of spirit would guide our approach in these discussions," he said.
The proposed spending cut would allow a reduction in the EU payments of net contributors Germany, the Netherlands and Sweden and help London salvage more of its own rebate.
British officials argue the newcomers do not have the capacity to absorb all the money earmarked for them in the proposal of previous EU president Luxembourg.
That would have given them between 3.5 and 4.0 per cent of their gross domestic product each year - which the British say is twice the post-war US Marshall Plan aid to Europe.
London may offer the newcomers an extra year on top of the existing two-year limit to spend EU allocations and reduce the percentage of national matching funds required, diplomats said.