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* Consensus on structure of 2014-2020 budget narrows ahead of talks
* Deal expected to produce slight fall in overall spending
* Farming, infrastructure spending to remain top items
* Status quo seen preferable to lack of a deal
By Charlie Dunmore
BRUSSELS, Feb 7 (Reuters) - European Union leaders begin two days of talks on a long-term budget on Thursday, with efforts to refocus spending on growth likely to be thwarted by demands for farm subsidies as pressure to reach a deal grows.
The talks on the 2014-2020 budget, which will assign nearly 1 trillion euros of spending, will pit the EU's more fiscally conservative northern countries against those in the south and east of Europe that want money for infrastructure and agriculture.
Efforts to strike a deal at the last summit in November failed, and diplomats say that if an agreement isn't reached in coming days, one may not be possible before late 2014 or even 2015.
That may focus minds and, ahead of the summit, consensus is forming around a spending framework worth around 950 billion euros over the seven years - equivalent to around 1 percent of the EU's annual GDP but lower than the long-term budget that is about to end.
That would reflect the region's gloomy economic backdrop and represent a victory for the likes of Britain, Germany and the Netherlands, which favour fiscal restraint.
But the bulk of the spending, around 40 percent, would still go on agriculture and related farm subsidies.
That is a frustration for many northern European states that want to see a shift towards research and investment to kickstart growth. Those ambitions will have to be put to one side if they are to at least get a deal that reduces spending.
Two of the biggest recipients of farm spending are France and Italy, both of which have hinted they could block the budget unless their appropriations are maintained. The budget needs to be unanimously agreed among all 27 countries.
British Prime Minister David Cameron has also said he will block an agreement unless there is a sufficient reduction in spending, although he has not said explicitly to what level.
Smaller countries such as Denmark, the Czech Republic, Slovakia and Austria have also set out firm positions, making it almost inevitable that the negotiations will be drawn out and potentially divisive. Talks could even run into Saturday.
While November's attempt to strike a deal failed, there was less of the public squabbling that normally accompanies negotiations.
The chairman of the talks, European Council President Herman Van Rompuy, will be hoping for a similar level of engagement as the summit gets under way at 1630 GMT.
In recent weeks, Van Rompuy has been in touch with every EU leader to assess where the contours of an agreement may lie. He will present them with his compromise proposal as they sit down for negotiations, an effort to prevent the numbers leaking out beforehand and scuppering an agreement.
In November, Van Rompuy began talks by reducing the original budget proposal from the European Commission by 80 billion euros, cutting the headline figure to 972 billion.
Thursday talks will resume from that figure, although it will not be a simple question trying to bring the number down by cutting programmes, since the budget also involves delicate negotiations over rebates - amounts countries get reimbursed after they have made contributions.
There is also a difference in how countries interpret the budget figures, with some focusing on commitments - the maximum amount that could be spent on projects or programmes - and others concentrating on payments - the sums actually spent.
Payments are always less than commitments, and any deal may ultimately rest in the gap between the two.
If there is to be a deal in the coming days, the expectation among diplomats is that it will require a reduction in commitments of in the region of 15-20 billion euros, pulling Van Rompuy's headline figure down to around 950 billion.
But in terms of payments, the figure could end up closer to 900 billion, an amount that negotiators hope will satisfy Cameron and others adamant about spending restraint.
The other major fight will be over rebates, with Britain the biggest recipient. Even opponents of its refund - including France, Italy and Spain - have so far only put up token resistance, and there is no chance of it being cut.
France and Italy, which in theory could qualify for a rebate, want payments to them for agriculture and regional aid maintained or boosted if they are to play ball on rebates.