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Last Updated: Friday, 17 June, 2005, 23:20 GMT 00:20 UK
EU budget summit ends in failure
Tony Blair (left) and Jacques Chirac
The division between France and Britain threatens the entire summit
EU budget talks have broken down after leaders failed to resolve a bitter dispute between Britain and France over the bloc's long-term finances.

Diplomats admitted defeat after Britain rejected a final proposal to have its EU rebate frozen to break the impasse.

British leader Tony Blair says any deal must be linked to reform of EU farm subsidies, a view rejected by France.

The current president of the European Union, Jean Claude Juncker, said the EU was now in "a deep crisis".

Mr Blair said the rebate was the result of a "distortion of expenditure across the EU".

"If we remove the rebate, we have to remove the reasons for its existence," he said.

He attacked the Common Agricultural Policy (Cap), which sets EU farm subsidies, for diverting to agriculture funds that would be better deployed on science, technology and education.

British officials have said their opposition to the deal had the support of four other countries - Finland, Spain, Sweden and the Netherlands.

According to the BBC's James Landale, the remarks were a clear attempt to counter suggestions that Britain has been isolated at the summit in its defence of the rebate.

The UK is set to take over the EU presidency at the start of next month.

Horns locked

Britain said it will veto any cut in the 4.4bn euro (3bn) rebate unless farm subsidies are overhauled, a stance which puts it at loggerheads with France.

French President Jacques Chirac refused to discuss any cut in farm subsidies and says the rebate should "under no circumstances be linked to a reform of farm expenditure".

On Friday morning Mr Chirac said it would not be enough to freeze the British rebate and he wanted to see it scrapped altogether.

However, by the afternoon an aide to the French president said Mr Chirac would in fact be willing to accept a freeze of the UK rebate in order to bring about a deal.

"A freeze is not enough, but if it is a compromise, like all compromises, we'll have to accept that it doesn't make everyone happy," Reuters quoted the official as saying.

Call for delay

The BBC's William Horsley in Brussels says the summit had descended into a bitter feud about what Europe is for and who should decide its future.

Earlier Sweden suggested it may be best to put off any budget decision for a year.

"I think we should not rush into a deal today," he said. "It's better to take a year more and negotiate."

The EU does not exist only for the benefit of the UK
Niclas, Uppsala, Sweden

But the BBC's Jonny Dymond in Brussels says that while some states sympathise with the UK call for agriculture spending reform, none supports the UK's rebate remaining in place.

Earlier the leaders put the EU constitution on hold by abandoning a 2006 deadline for ratification.

French and Dutch voters rejected the treaty in recent referendums.

Other countries have postponed their referendums, including Denmark, Ireland, the Czech Republic and Portugal.

Estonian Prime Minister Andrus Ansip, however, bucked the trend by saying his country would press ahead with ratification as it was a "good treaty for Europe and also a good treaty for Estonia".

The proposed constitution, which needs to be ratified by all 25 member states, is designed to define the future direction of the union and the way it is run.

News conference with UK Prime Minister Tony Blair

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