EU leaders fail to reach agreement in Brussels

European Union leaders have failed to reach a deal on the bloc's long-term budget at a summit in Brussels, despite a last-minute offer by new member states to accept less funding.

Their failure could add financial gridlock to a political crisis unleashed by French and Dutch 'No' votes on the EU's new constitution.

The constitution was drafted to enable the enlarged bloc to take decisions more efficiently.

The 25 leaders' failure to agree on the 2007-2013 budget came after Britain spurned concessions on its rebate from EU coffers and dug in its heels for a review of farm subsidies, of which France is the biggest beneficiary.

The British maintain that any change must be linked to reform of the bloc's farm subsidies.

Speaking after Tony Blair had a private meeting with Mr Juncker, a British spokesperson said the plan also contained an unacceptable request for additional funds from Britain through a proposed change in the way the rebate is calculated from 2007.

EU sources said Juncker had proposed capping Britain's annual rebate at a level of €5.5 billion, higher than the €4.6 billion freeze proposed previously.

Mr Chirac had earlier made known he would reluctantly accept pegging the refund at its pre-enlargement level of €4.6 billion, instead of phasing it out as he had demanded, if it helped clinch a final deal on the 2007-13 EU budget.

The British Prime Minister will now take over the presidency of a Union in crisis for six months from 1 July facing blame for the collapse of the budget negotiations.

Irish EU referendum postponed

The Government has said it is postponing the referendum on the EU Constitution, but that the ratification process will continue, with a longer period to debate the issue.

Portugal earlier said it will postpone its referendum on the European Union's proposed constitution after the decision by EU leaders to extend the deadline for ratification.

The referendum had been planned for October.

Last night EU leaders agreed to extend the deadline for ratifying the constitution beyond November 2006 after its rejection by French and Dutch voters. 

No new deadline has been announced, but the Luxembourg presidency said that member states had agreed to review the situation in mid-2007.

Denmark had already announced the postponement of its September referendum.

In an interview with RTÉ News last night, the Taoiseach, Bertie Ahern, said that he was confident that the EU Constitution could be saved.

No question of renegotiation

Speaking after EU heads of government held several hours of talks, the Prime Minister of Luxembourg, Jean-Claude Juncker, said there was no question of the constitution being re-negotiated.

However, Mr Juncker also said we could not pretend that nothing had happened and what was required was a period of reflection, stocktaking and debate.

He suggested that those member states who were holding referendums needed more time to explain the benefits of the constitution than those countries using the parliamentary method.

Ultimately, Mr Juncker said, all EU member states had agreed that the constitution was the right answer to many of the questions citizens in Europe were asking themselves.