EU leaders gather for budget horse-trading

The last budget summit, in November, failed to reach agreement despite Van Rompuy chopping €80bn from the European Commission's original proposal to arrive at €971bn in commitments for the seven-year period.

This summit is suspected to take up discussions where they last left off.

One EU official likened the process to leaders having lunch, taking a "long walk," and now coming back for coffee.

This 'coffee' summit is expected to result in further cuts. Van Rompuy on Monday briefed EU ministers that the second round of reductions is likely to clock in at around €15bn. Where these are made felt is key to the success of the summit.

Farm and regional subsidies, already down from the current seven-year cycle, are expected to avoid the scalpel.

Van Rompuy has also privately indicated he wants to ringfence development aid, the research budget and the EU's student exchange programme. In addition he is touting a new youth employment scheme, supposed to cost billions.

Squaring the circle is expected to come at the expense of the commission's pet infrastructure project ("Connecting Europe"). Other budget lines, such as for pre-accession states or the EU's earth observation programme (GMES), may also be slimmed down. EU officials' wages are set to take a hit too despite their latest strike earlier this week.

"Politically it's inevitable that there will be some further cuts there," said one EU source, noting that for the UK, the Netherlands and Sweden the EU wage question had become "ideological."

Small sweeteners to multiple member states will be part of the overall deal.

Britain has been particularly vocal about what it wanted and still wants in terms of spending reductions - but there is sense of "impatience," according to one EU source - among other member states over how much more it can demand.

For his part, Van Rompuy is hoping to avoid getting into bilaterals with individual member states.

He wants the overall ceiling figures agreed first and is set to produce a new proposal on Thursday afternoon. EU leaders with individual complaints should then say so in front of their colleagues.

The pressure to get a deal this time round is higher, with less time left to agree the myriad of laws needed to be completed to get the financial framework in place by the end of 2013.

Part of the member states' negotiations will also have to take into account the European Parliament. MEPs have to approve the deal with an absolute majority, a fact they are at pains to point out to governments.

They have been highly critical of member states "short-sightedness" when it comes to EU spending.

"My sense is that in the parliament there is great opposition - they will be very unhappy with the text - but at the same time I think there are sufficient people in parliament who could be convinced that it is in Europe's interest to move ahead with this," said one official from the Irish EU presidency, which will steer budget negotiations.

Potential gestures to the parliament include making the budget more flexible so it is possible to move unspent money from one budget line to another, wording on EU tax-raising powers and a clause to review the budget mid-way through the cycle.