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British Prime Minister David Cameron and Czech counterpart Petr Necas each threatened to veto a deal in what would be the second collapse in negotiations after a breakdown in November -- although senior officials have maintained for days that failure is not an option.
German Chancellor Angela Merkel spoke in ultra-cautious terms as she headed for a session that was put back two-and-a-half hours to allow officials to try and bridge differences over the numbers that will shape priorities of the 2014-2020 budget.
French President Francois Hollande said cuts that did not protect support for farmers and target investment for growth and job creation at a time of record unemployment in Europe would not win his backing.
Cameron said: "When we were last here in November, the numbers that were put forward were much too high," comments that appeared to maintain a collision course with Brussels over a planned clawback of powers to London that he intends to put to a referendum in 2017.
"They need to come down -- and if they don't come down, there won't be a deal," Cameron underlined.
"We are ready to use a veto," Necas told Czech media on his way in. Prague has long operated as a close ally of Britain in EU negotiations.
"We can not say yet if there will be an agreement," warned Merkel, who backs Cameron's demands for European Union spending cuts to mirror national savings in a time of austerity following the debt crisis.
"The positions are still quite far from each other," she added after overnight talks with Hollande in Paris to find common ground around a proposal drawn up by summit chair and EU president Herman Van Rompuy.
Clearly seeking a compromise during talks which could last well into the cold Brussels night, Merkel said it was of "great importance that we can plan and that we spend money carefully," but that it was equally crucial EU partners find "solidarity between net payers and receiving countries on the other hand."
The biggest countries pay more to the EU than they get back in grants or rebates, and the argument has sharpened because of the effect domestically of public spending cuts in a time of debt and recession.
Hollande said he would not agree to a budget that "abandons farming and ignores growth."
"I have come to seek an agreement -- but only if possible," he said, setting down a clear marker for traditional French EU interests. "Should some (partners) be unreasonable, I will try to reason with them -- but only up to a point."
Italy also wants to see money ring-fenced for investment in areas that can generate jobs in a faltering economy, such as cross-border energy, transport and digital networks.
The European Commission, the EU's executive arm, initially wanted a 5.0 percent increase in member state commitments to 1.04 trillion ($1.4 trillion) euros for the 2014-20 budget.
Van Rompuy cut that back to 973 billion euros in November, and EU diplomatic sources said he could reduce this figure -- the maximum amount member states agree to contribute -- to around 957 billion.
At the same time, the total money to be actually spent would be reduced by around 30 billion euros to 905 billion euros, the sources said -- about one percent of the EU's total gross domestic product, a modest proportion compared with national spending levels.
A new element is that the EU parliament now has to approve any budget deal and assembly head Martin Schulz has said lawmakers are ready to throw out any agreement they think stunts Europe's ambitions for the next decade.
Leaders met Schulz at the start of the talks, and in a possible foretaste of things to come, several leading MEPs have warned against "suicidal" or "fraudulent" fixes that undercut growth and jobs.
Most of the EU's budget goes to the Common Agricultural Policy to support farmers, and to Cohesion Funds, money spent to help new members catch up eocnomically with more-established partners.
On the eve of the summit, Van Rompuy said he was "confident that with some adaptations, the proposal I made on 22 November can constitute the basis for a deal."