By Ilona Wissenbach and Charlie Dunmore
BRUSSELS (Reuters) - The European Union's chief budget negotiator proposed further modest cuts to the bloc's long-term spending plan on Thursday to try to bridge deep divisions among member states on how nearly 1 trillion euros of funds should be spent.
European Council President Herman Van Rompuy, who chairs EU summits, delayed the start of negotiations by more than five hours and initially withheld his budget plan because he felt governments remained too far apart to strike a deal.
The budget, which covers spending for 2014-2020, tackles everything from agricultural subsidies to scientific research, roads and infrastructure, foreign aid and development assistance and is fought over bitterly, often along national lines.
While vast as a headline figure, it is relatively small in terms of annual GDP, amounting to around 1 percent of the EU's total output, or around 150 billion euros a year.
European Parliament President Martin Schulz said Van Rompuy had suggested a slight cut in the headline amount that can be pledged for spending, known as commitments, but a deeper cut to payments, the maximum sum that can actually be spent.
"President Van Rompuy set out a compromise which would involve spending of 960 billion - we are talking about commitment appropriations here - whereas payment appropriations would just run to about 910-913 billion euros," he told a news conference, saying he didn't like the proposal.
The budget must be unanimously supported by all member states and approved by the parliament to become law, making the parliament's position a factor in negotiations.
That further complicates deal-making on a package that often divides northern European countries that want to keep spending tight and southern and eastern European states that want to maintain funding for infrastructure and farming.
Ahead of the summit, France and Britain appeared at sharp odds over the headline numbers.
Cameron said he wanted to see "tens of billions" of euros cut from the 972 billion euro plan Van Rompuy put before the leaders at a summit in November, when it was not possible to reach a deal.
In order to get the figures down to where Cameron would like to see them, it would more than likely mean cutting into programmes such as farming subsidies that France, Italy, Spain and other countries staunchly defend.
Hollande pledged to defend agricultural spending, and warned that there was a limit to how far he was prepared to go.
"If there are some who are not reasonable, then I will try to reason with them, but (only) up to a certain point," he said in a thinly-veiled reference to Cameron's demands.
While Thursday's summit got off on a poor footing and there were concerns that negotiations could run long into Friday and even Saturday, officials involved in the talks said the gap between member states was not as wide as it appeared.
"It's similar to national budget negotiations - there's lots of noise but it's mainly political," one EU official said.
If it is not possible to reach an agreement in the coming days, the concern is that it may not be possible to return to negotiations until late 2014 or early 2015, a delay that might further undermine international faith in EU decision-making.
Even if a deal can be struck on the seven-year framework, around 40 percent of the spending will still be dedicated to farming and regional development, something that frustrates many northern European states, which want a more dynamic budget.
In recent weeks, Van Rompuy has been in touch with every EU leader to assess where the contours of an agreement may lie. He had said that he would only call a summit if he saw sufficient "convergence" among the countries to make a deal possible.
In November, he began the talks by reducing the European Commission's original budget proposal by around 80 billion euros, bringing the headline figure down to 972 billion.
Thursday's talks were supposed to resume from that figure, although it was never going to be a simple question of just cutting the total, since the budget also involves delicate negotiations over rebates - amounts countries get reimbursed after they have made contributions.
There is also a difference in how countries interpret the budget figures, with some focusing more on commitments, while other such as Britain concentrate on payments.
Payments are always less than commitments, and any deal may ultimately rest in the gap between the two.
Northern European states, including Britain, Denmark and the Netherlands, are adamant that at a time when they are trying to cut budgets at home to bring finances into balance, it is incumbent on the EU to pursue a similar objective.
After the European Parliament president expressed his frustration at the drive for deeper budget cuts, diplomats were quick to point out that spending couldn't endlessly rise.
"It is quite bold for the European Parliament to run a campaign on the premise that voters yearn to cut more at home to pay more to Brussels," one diplomat said.
(Additional reporting by Justyna Pawlak, John O'Donnell and Teddy Nykiel; writing by Charlie Dunmore and Luke Baker; editing by Luke Baker)