EU BUDGET: WHAT A FINAL DEAL ON FUTURE FINANCING MIGHT LOOK LIKE.

While the document was heavily criticised by a large number of member states' Foreign Ministers at the special session on December 7, it is possible to see possible areas for compromise and EU diplomats are increasingly optimistic about chances for an agreement at the EU leaders' summit on December 15-16.

The UK has offered to put an extra euro eight billion into the pot from its rebate in a bid to broker an agreement through two different methods. One would involve a simple reduction of the rebate (which, if left unchanged, would rise from around euro 5.5 billion currently to an annual average of 7.2 billion over the lifetime of the next budget) with the eight billion being redistributed to the countries according to the current system for calculating each member states' contribution to the refund.

The biggest contributors are France, Italy and Spain who paid 1.6 billion, 1.3 billion and 0.8 billion in 2003 because the 1999 Berlin summit capped the share of other net contributors (i.e. Germany, the Netherlands, Sweden and Austria) to the refund at 25% of their normal share. Germany paid 0.4 billion euro towards the rebate in 2003. This means that those three countries would benefit disproportionately from this way for the UK to inject euro 8 billion into the deal. Under the other option, which involves a higher rate of call-up from the UK's VAT receipts, the euro 8 billion would be distributed more or less equally among all 24 member states. French President Jacques Chirac hates the fact that France is the largest contributor to the UK's refund and would probably accept a solution if this position was changed, say by establishing some kind of parity of contributions among member states based on relative prosperity.

In return, however, he would insist that whichever mechanism was used to reduce the rebate...