A deal on the European Union's future budget hinges on Britain's will to move on its cherished rebate, diplomats said yesterday before EU ministers debate the issue for the first time since an acrimonious failure in June.
All eyes will be on Foreign Secretary Jack Straw, as Britain is now responsible for brokering a deal since it holds the revolving presidency, when foreign ministers tackle the dispute over the 2007-13 budget on Monday.
At a June summit, Prime Minister Tony Blair refused to give ground on the rebate, won by then Prime Minister Margaret Thatcher in 1984 and worth €4.6 billion a year, unless he won a commitment to curb farm spending.
"The British hold the key to a deal," one EU diplomat said.
The EU budget is worth €106.3 billion this year. Over 40 per cent goes on farm subsidies, market intervention and rural development, and one-third on aid to poor regions. France is the biggest beneficiary of farm support, and Spain of regional aid.
A second failure to agree on future spending would add to a sense of crisis in Brussels after Dutch and French voters rejected a proposed EU Constitution. It would also delay the flow of crucial EU funds to the new east European member states.
London has circulated a very general paper on what it sees as the key budget issues, but the document omits direct mention of agriculture or the rebate - the two issues at the heart of a Franco-British confrontation in June.
"Many are shocked by the way the presidency is dealing with this. The expectations for a deal in December have been lowered," a senior EU envoy said.
Diplomats said most member states supported the compromise package proposed by the previous Luxembourg presidency in June, which was likely to form the basis for any global accord.
"A deal has to come close to (the June proposals), but also offer something to those who said no," a senior diplomat said, referring to net contributors Sweden, the Netherlands and Finland, which joined Britain in opposing a deal.
But some say the Luxembourg compromise was flawed anyway.
"The sums don't add up even with a massive concession from Britain," one EU official said. "The idea that it just needs a bit of cosmetics to get a deal is plain wrong."
Monday's talks will be a test of whether the warmer atmosphere at an informal summit of EU leaders last week is translated into willingness to strike a deal in December.
Diplomats said much may depend on Mr Blair's domestic position, which has been significantly weakened this week, making it potentially more difficult for him to compromise on the rebate.
London rejected Luxembourg's proposal to freeze the rebate at its level before last year's EU enlargement, saying that would cost British taxpayers billions of euros a year.
Germany also plays a key role as the largest contributor and the delay in forming a new German government could also make it difficult to take negotiations forward, diplomats said.
EU states also disagree on modernising the way the bloc spends its money with countries such as Britain, Sweden and Denmark keen to redirect more funds towards research and development to make the EU more competitive.
But France remains opposed to any bid to cut farm spending. Paris and its farming allies stress that any reduction in agriculture expenditure can only take effect after 2013 under a deal approved unanimously by EU leaders in 2002.
Britain also supports a multi-billion-euro "globalisation adjustment fund" to help workers made jobless because of foreign competition, an idea proposed by the European Commission.
But countries such as Sweden, Denmark, Germany and Austria, and new member states including Hungary, Poland and Cyprus, oppose the idea, diplomats said.