EU budget talks delayed as leaders set out red lines

Van Rompuy is expected to provide a revised budget plan as the basis for detailed negotiation. The first compromise proposal circulated to national capitals by the Council President pared the 1,053 billion tabled by the European Commission to 973 billion, a 20 billion cut on the 2007-2013 framework.

However, while the summit on the EU's next seven year budgetary cycle starting in 2014 has been planned to continue until the weekend, many leaders are sanguine about the prospect of talks breaking up without an overall deal.

Angela Merkel indicated that she felt under little pressure to reach an agreement. "Germany wants to reach the goal but it may be that we need a further stage", she told reporters outside the Council building.

Germany is comfortably the largest net contributor to the EU budget, and is unwilling to see its contribution go up. French President Francois Hollande, struck a different tone, emphasising that France and Germany would be the likely brokers of a deal. "I am sure that with Germany, we are going to be - as always - a motor to allow this compromise", he said.

The talks are expected to be finely balanced between the eight member states who are net contributors to the budget seeking overall cuts in EU spending and others demanding either an increase or, at least, the maintenance of programmes such as farms subsidies in the common agricultural policy and cohesion funding for infrastructure projects in the bloc's poorest regions.

Italy's Prime Minister Mario Monti said that "it is absolutely essential that Italy obtains better results than those presented in initial drafts", he said.

UK Prime Minister David Cameron, who has been loudest about the potential use of the veto, promised to negotiate hard for British taxpayers.

Meanwhile, European Parliament President Martin Schultz warned earlier that MEPs could reject an eventual agreement if the budget cuts are too deep.