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EU Leaders fail to make headway on their trillion-euro budget

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After managing a united front over Brexit, divisions between European Union leaders were laid bare Friday when they discussed how to plug the budget shortfall left by the UK's intended departure.

[BRUSSELS] After managing a united front over Brexit, divisions between European Union leaders were laid bare Friday when they discussed how to plug the budget shortfall left by the UK's intended departure.

The trillion euro (S$1.52 trillion) seven-year budget is a cornerstone of EU policy that lets farmers compete against imports from the developing world, helps poorer states catch up with the rich ones and underpins projects that bind the union together. But agreeing on the amount of cash and how to spend it is a regular source of tension between the net contributors and those who get more than they put in.

Britain, of course, was a net contributor. Now richer members are calling for the hole it will leave to be covered by cuts in the budget for the 2021-2027 period. Poorer ones want everyone else to cough up more.

During their meeting on Friday leaders didn't make any headway in agreeing on a ceiling for the budget, putting at risk a self-imposed deadline to reach a final deal in December. Agreement on the volume of the funds is needed before decisions can be taken on what they should be spend it on, and the conditions attached to the disbursements.

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But so far, diverging positions between different countries have remained entrenched.

"Positions on the budget were significantly apart," said Lithuanian President Gitanas Nauseda "Divergence of opinion was too big to find a compromise today."

European Commission President Jean-Claude Juncker said the discussion didn't offer any guidance as leaders just repeated known positions and predicted there would be no breakthrough in December either.

"We're under time pressure," German Chancellor Angela Merkel said. "We have to quickly reach an agreement under the Croat presidency if possible, otherwise we won't be able to finalize the programs by the time the new financial framework takes effect - which wouldn't be good."

The spat is expected to keep leaders at loggerheads for months, but at its heart it's about a tiny amount of money when spread over the EU's 450 million people: 0.1 per cent of GDP. The bloc's executive arm has proposed that member states commit around 1.1 per cent to the joint budget, while net contributors want to cap that at 1 per cent. Either way it's not much more than they have put in previously.

Finland, which holds the rotating presidency of the EU, has proposed 1.03 per cent to 1.08 per cent, according to an internal memo. The difference between those figures amounts to about 50 billion euros over seven years. Yet almost no one is happy, according to several diplomats following the issue.

The EU is no stranger to fighting over small change.

The 19 finance ministers representing the euro-area's US$19 trillion economy just completed a two-year negotiation over a separate budget worth less than 20 billion euros.

BLOOMBERG