Netherlands and UK could derail EU budget deal

"We had a referendum with a no result, that means it's very difficult or impossible for us to come back with a compromise, a bad deal," a Dutch official said.

"Our government has a lot of support among the people, which makes it easier for us to block [a budget deal]," he added.

Other EU diplomats also believe the Hague might be prepared to veto an agreement on its own if it does not get its way.

"Don't underestimate the Dutch," an official indicated.

The Netherlands has the highest per capita contribution to the EU but only the fifth highest income per capita after Luxembourg, Ireland, Denmark and Austria.

British rebate still key

Monday's main bone of contention, though, was still the UK's refusal to freeze its rebate in line with the Luxembourg presidency's proposal in June.

British foreign minister Jack Straw said the UK presidency's concrete budget offer, due out on 5 December, will contain "substantial changes" to the Luxembourg ideas.

He repeated the British mantra that the rebate is "an anomaly built on an even greater anomaly" - namely the EU's common agricultural policy (CAP), which favours France.

The UK, the Netherlands and Sweden are the only countries that still say it is possible to get a deal in December and to introduce major budget reforms at the same time.

But France is not prepared to give any more than the €18 billion net loss in its EU budget position agreed under the Luxembourg plan.

And the European Commission, increasingly hostile toward the UK perspective, explained the British rebate would climb by 64 percent in 2007-2013 unless the calculation mechanism changes.

Blow to enlargement

Supporters of the Luxembourg box say the "who pays what" row casts a cloud over EU enlargement policy, with the Hague and London focused on national interests instead of delivering on promises made to eastern Europe in the 2004 wave of enlargement.

If the bloc cannot agree on long-term spending, a default system based on the 2006 budget kicks in, which means less money overall and delays in EU projects in the east.

"It’s not credible to speak about new enlargements if you are not able to finance the European Union as it is now," commission president Jose Manuel Barroso told foreign ministers on Monday.

Ambiguity gives hope

The UK has faced criticism for leaving details of what the "substantial changes" will be until 5 December, with Finland and Belgium saying it is wasting time and France turning up its nose at the last minute "take it or leave it" negotiating style.

For their part, eastern European countries are still "praying" that Britain's proposed changes will not turn out to be a deal-breaking push to overhaul the CAP, but rather face-saving rhetoric on modernising the budget.

As for the Netherlands, new member states are confident it would be easy to find a way to please the Hague if the British rebate problem goes away.

"You can easily make €600 million look like €1 billion if you want to," one eastern European official said. "There are experts to do that."