By Stephen Mulvey
BBC News, Brussels
The failure of European leaders to agree on the future shape of the union's budget throws into perspective two very different visions of what the EU should be about.
Mr Juncker said there would be no quick resolution of the budget row
The UK refused to give up its rebate without guarantees that the budget, and particularly the Common Agricultural Policy (Cap), would be fundamentally reformed.
In a nutshell, the UK wants less spent on farm subsidies and more on research, and other programmes to make the European economy more competitive.
"The rebate is a symptom of the problem, not the problem itself," said a UK official.
"The problem is the imbalance of the budget: 40% of the budget goes to meet the needs of 5% of the population and 2% of European jobs.
"It needs to more accurately reflect the needs of Europe as it faces the challenges of the 21st Century and the challenges of globalisation."
The other vision, held most firmly by France, Germany, Luxembourg and Belgium, sees the distribution of subsidies at the heart of the EU's mission.
The French president was scathing about the British stance
The watchword is "solidarity" - solidarity between rich and poor countries, between rich and poor regions, and solidarity with farmers and the rural economy.
From this perspective the UK rebate was justified when the UK was one of the EU's poorest countries, but is not justified now that it is one of the richest.
The bitterest criticism laid against the UK at this summit was that it refused to play its part in financing the enlargement of Europe, for which it had so forcefully campaigned.
At one point an agreement seemed very close.
The two main protagonists, France and the UK, both made concessions.
France agreed to an idea to freeze the UK rebate, rather than abolish it, and to a proposal to pay farm subsidies to Bulgaria and Romania, when they join in 2007, out of a pot of money that had previously been earmarked for just the existing 25 countries.
The UK agreed to "guarantees" of budget reform instead of insisting that the outline of the reforms should be agreed first.
The difference between success and failure boiled down to a few words, which the UK rejected.
The next proposed settlement from the Luxembourg presidency was far less favourable to the UK and it was clear the summit was going nowhere.
Reports began to circulate that Luxembourg's prime Minister Jean-Claude Juncker was deliberately trying to isolate Britain in order to give the impression that British intransigence was to blame for the failure.
Mr Blair faces tricky times when Britain takes on the EU presidency
Mr Juncker was reportedly trying to pick off the UK's chief allies in the budget dispute - the Netherlands and Sweden - by offering them special deals to reduce their contributions to the EU.
As the man leading the negotiations, Mr Juncker had every right to attempt to meet these countries' objections, and to increase the pressure on the UK if he saw fit, and his true motives may never be known.
"Where do we go from here?" a dejected Mr Juncker was asked at his final press conference.
He seemed to have no answers. "What I see for the future is all very vague, it is impossible to describe," he said.
But, asked if he envisaged a resolution to the budget problems in the next six months - in which the UK will hold the EU presidency - he said flatly, "No".
'Old guard' retiring
The UK's problem is as EU president it has to play honest broker, which is incompatible with mounting a vigorous defence of its rebate.
The UK will do what it can to keep reform of the budget on the agenda, but it's a widely held view that this will be impossible until Europe's old guard has retired.
German Chancellor Gerhard Schroeder seems likely to leave the European scene this year, and French President Jacques Chirac in 2007.
Of course, the budget for 2007-13 will have to be agreed long before the French election.
But the speculation at the summit was that two leaders far more favourable to budget reform could replace them - Angela Merkel of Germany's centre-right Christian Democratic Union, and France's Nicolas Sarkozy, the ambitious interior minister.
There is a general assumption that the new member states from Central Europe are generally favourable to the British view of Europe - they have warm relations with the US and generally support free market economics.
On the other hand, some of them will become major beneficiaries of farm subsidies. Currently, they receive them at only 30% of the rate paid to farms in the 15 older member states.
Once they start receiving subsidies at the full 100% rate, in 2013, it could be very difficult to wean them off.