AAP, with a staff reporter
European Union leaders are poles apart on the bloc's budget for the rest of the decade with a tense summit opening six hours late amid efforts to reach a compromise.
Key players were at loggerheads with each other, with Britain and France - whose leaders failed to meet at a planned pre-summit huddle - the main protagonists in a battle over spending priorities for the 2014 to 2020.
For German Chancellor Angela Merkel the omens were not good as she arrived, openly fearing fresh deadlock after a collapse in negotiations already in November.
The summit proper began almost six hours late, with Martin Schulz, head of the European parliament - whose members can veto a deal they think is not ambitious enough in a straight vote - telling leaders that "backward looking" figures mooted in advance offered "the worst of all worlds."
Summit chair Herman Van Rompuy, whose EU headquarters had trailed a series of compromise numbers all week, began a round of old-fashioned collective bargaining with something like "a blank page," according to one participant.
The talks were likely to last most of the night, various sources warned.
UK Prime Minister David Cameron and Czech counterpart Petr Necas had each threatened to veto a deal in mid-afternoon - although senior officials have maintained for days that failure is not an option.
Mr Cameron and French President Francois Hollande, on opposite sides of a north-south split, were meant to meet early evening but diplomats said scheduling problems meant they failed to lock horns.
Instead, each met with allies as German Chancellor Angela Merkel focused on Mr Van Rompuy.
Ms Merkel spoke in ultra-cautious terms as officials tried to bridge differences over the numbers that will shape priorities in the next seven-year budget.
Mr Hollande said cuts that did not protect support for farmers and investment for growth at a time of record unemployment in Europe would not win his backing.
But Mr Cameron placed his cards on the table immediately, saying: "When we were last here in November, the numbers that were put forward were much too high.
"They need to come down - and if they don't come down, there won't be a deal," Mr Cameron added.
"We are ready to use a veto," Mr Necas told Czech media.
Ms Merkel backs Mr Cameron's demands for EU spending cuts to mirror national savings in a time of austerity, but wants to see a rapprochement with Mr Hollande too.
"The positions are still quite far from each other," she said.
Mr Hollande and Italian premier Mario Monti met Mr Schulz to try and fix "red lines", according to the latter's spokesman.
German Socialist Mr Schulz has said lawmakers are ready to throw out any agreement they think stunts Europe's ambitions for the next decade, and in a possible foretaste of things to come, several leading MEPs have warned against fixes that undercut growth and jobs.
Once national leaders find an acceptable compromise, the parliament will stage a secret ballot - reducing the scope for national whips to influence the outcome.