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Europe

Merkel: EU Budget Deal Uncertain

German Chancellor Angela Merkel said Friday it was unclear whether EU leaders would be able to reach a deal at their summit here to break the deadlock over the bloc's long-term budget.

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Will Blair manage to close a deal?

"We'll find that out over the course of the day," she told journalists as she arrived for a second day of talks in Brussels. "We will make every effort, but I cannot at this moment say whether we will succeed or not. The talks are in the truest sense of the word very difficult."

The EU was resuming last-ditch efforts Friday to resolve its budget deadlock after a first evening of talks described as tense and blunt appeared to make little headway, with Britain rebuffing intense pressure over its rebate.

Prime Minister Tony Blair conceded that divisions remained wide, but insisted all sides realized the urgency of striking a deal, in particular to release money for poorer European Union (EU) newcomer states.

"We're talking about very serious issues for a lot of countries and it's going to be a difficult and tough negotiation," Blair said after chairing a first round of discussions at a two-day summit Thursday evening.

"I think that everybody realizes that if we are going to do a deal on the budget, it's now," he noted.

The iro n lady's legacy

The 2007-2013 budget is worth nearly 850 million euros ($1.01 billion) and is vital to releasing much-needed funds to the relatively poor states from central and eastern Europe which joined the bloc last year.

Margaret Thatcher

British Prime Minister Tony Blair is defending a deal secured by Margaret Thatcher in 1984

A deal is being held up by two key issues: Britain's refusal to part with its budget rebate, famously secured by Margaret Thatcher in 1984, and French resistance to cutting back the Union's expensive farm subsidy system.

Failure to find a breakthrough would also deepen the sense of crisis over Europe's failure to get its painstakingly assembled constitution off the ground and could even threaten future enlargement.

Poland, along with France one of the most critical of the British proposal, including a substantial cutback in spending, said it expected Blair to come up with a fresh offer in the morning.

A log way to compromise

"This new proposal is in the process of being worked upon and tomorrow it will be modified during bilateral meetings," said Polish Prime Minister Kazimierz Marcinkiewicz, adding that talks were to resume Friday morning.

Göran Persson Erklärung Tod Anna Lindh

Swedish Prime Minister Göran Persson gave the negotiations a 50-50 chance of success

But participants warned much work remained to be done.

"The gap is still very big because there was not a discussion on figures, that will start tomorrow," said European Commission chief Jose Manuel Barroso. "There was a kind of tension, but it was not aggressiveness."

Swedish Prime Minister Göran Persson said "huge differences" remained, estimating there was only a "50-50" chance of a deal.

"The budget discussion was blunt," Persson said, but added: "Every one of us realizes that if we don't have a deal now it will not be easy next year."

A lasti n g revisio n ?

Thursday evening's first session began with a 15-minute meeting between Blair and his main rival, French President Jacques Chirac, as so often the two key players at the heart of the EU standoff.

Chirac und Blair

At loggerheads: French President Jacques Chirac, left, and British Prime Minister Tony Blair

Blair has already offered to surrender some 8 billion euros of Britain's rebate over the seven-year-budget term.

But Chirac is not only pushing for a bigger cut, but also "a lasting revision of the British rebate in terms of its mechanism and its amount," his spokesman said.

Attention is focusing on a review clause in Britain's proposal: to revisit the budget at some time during the budget period, based on the recommendations of a report to be drawn up by Barroso's commission.

The clause could see Britain put its rebate up for more long-term review in exchange for a comprehensive reform of the spending package.

"If we solve that, and I think it is possible to do, all other issues will be minor ones," said Persson.

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