A final attempt to agree the EU budget failed late on Friday night in acrimony after Britain rejected a compromise proposal on its rebate, reports Denis Staunton in Brussels
It was close to midnight on Friday and European Union leaders were bleary-eyed as Luxembourg's prime minister, Jean-Claude Juncker called them together in the Justus Lipsius building in Brussels.
A final attempt to agree the EU budget had failed after Britain rejected a proposal that would have allowed its budget rebate to climb after 2007 from €4.6 billion to €5.5 billion, at which level it would have been frozen until 2013.
"Financially, from the British perspective, we think this is even worse," a spokesman for the prime minister, Tony Blair, told reporters.
The Netherlands had also rejected the plan because it would have cut its contribution by €750 million rather than the €1.5 billion the Dutch government had demanded.
Sweden was unhappy that support for "modern" elements of the economy, such as research and innovation, was set at too low a level.
Finland wanted a bigger cut to its budget contribution and Spain wanted a slower phasing out of its regional aid.
Mr Juncker invited each leader to state their position on the final compromise proposal but the "tour de table" soon descended into a blame game.
Referring to Britain, the French president, Jacques Chirac, said that some countries did not want a political union and viewed the EU as little more than a free- trade zone.
Germany's chancellor, Gerhard Schröder, blamed the stubborn approach of Britain and the Netherlands for the failure of negotiations.
Tony Blair rejected angrily what he described as a "caricature" of the British position and said that the central problem lay in the fact that farm subsidies accounted for 40 per cent of the EU budget.
After each leader had spoken, Poland's prime minister, Marek Belka, urged Mr Juncker not to give up trying to get a deal. Mr Belka said that if money was the problem, Poland would accept a cut in its EU funding to subsidise Britain's rebate and a reduction in the Dutch contribution.
Mr Belka was followed by leaders from Hungary, the Czech Republic, Slovakia, Lithuania and Latvia, some of the poorest countries in the EU, all of whom offered to take a cut in their EU funding to facilitate a deal.
"My proposal was a reaction to what I perceived as the selfishness of some member states. I asked, is it all about money, if so how much?" Mr Belka said later.
Mr Blair insisted that the problem was not only about money but about the entire structure of the budget.
"That is not a sensible prioritisation of Europe's spending in the early 21st century. That does not correspond to the reform that Europe needs if it is to be fit for purpose in the early 21st century," he said.
"If we want to remove the British rebate, and we are happy to put it on the table, we have to remove the reasons for its existence," he said.
When asked if there had been an attempt to isolate him by Mr Juncker and President Chirac, he said: "If it was such an attempt, it failed.
"We weren't alone around the table in resisting this. I think people know exactly what the issues are here and I don't think they are fooled by the tactics and the manoeuvres."
Slovenian prime minister Janez Jansa said the debate over the budget showed the "new Europe which emerged from expansion was not being seriously considered by the old EU members".
He said efforts to reach a compromise by Mr Juncker had faced "a significant dose of egoism".
Mr Chirac expressed outrage that the poorest countries felt obliged to take up a collection for Britain and the Netherlands, two of the EU's richest member states.
"This will change Europe," he said.
"I ask myself what will be the dignity of those that have said No when the poor member states say at the same time that they want to make sacrifices."
The Taoiseach said later that the atmosphere in the meeting room deteriorated further as leaders traded reproaches.
"It was very hostile in the end, even bitter . . . I don't like to see grown men bickering with each other. It's a waste of time," he said.
Within minutes of the meeting's end, Mr Blair was telling journalists that Britain could not be accused of lacking solidarity with its European partners, adding that the referendum defeats in France and Germany highlighted the need for a deeper debate about where Europe was going.
Mr Chirac described Britain's behaviour in the negotiations as "pathetic" and Mr Schröder said that Britain and the Netherlands had precipitated "one of Europe's worst political crises".
Mr Juncker drew applause from journalists when he said that he would not listen to Mr Blair outlining the priorities of Britain's EU presidency at the European Parliament on Thursday because it was Luxembourg's national day.
He said he would not offer Mr Blair any advice on taking over the presidency "because there is a strong resistance to my advice".