The EU summit finishes without agreement after talks on a future budget collapse and David Cameron accuses Brussels of operating in a "parallel universe".

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Country leaders were unable to bridge deep divisions over spending priorities for the next seven years.

One senior MEP even accused David Cameron of undermining an agreement by defending the UK rebate. But the British prime minister was keen to emphasise that the UK position had received support from other EU leaders. Mr Cameron claimed his calls for cuts to the EU budget had been backed by the Netherlands and Sweden, while Germany, the Baltic states, Denmark and Italy had also pushed for more restraint in EU spending.

Earlier, Prime Minster, Mr Cameron had said there was a "real problem" with progress and the deal was "just not good enough". He also warned it was not the time for "tinkering" with the money spent but that the EU needed to cut "unaffordable spending".

He defended his views, saying he had rejected an attempt to commit taxpayers to real-terms increases in EU spending and had protected the British rebate.

Deal still possible

However, Mr Cameron said a deal was still "doable" but insisted it could not be "a deal at any cost".

Talks on the budget which had been expected to put in place measures until 2010 began on Thursday but fell apart this afternoon. Most EU members had wanted a budget increase, but the UK are among the countries to oppose that view.

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President of the European Council Herman Van Rompuy had suggested a revised proposal for the new budget at the start of the two-day summit and said he believed a compromise was possible. But he decided to end the summit on the 2014-2020 EU budget, worth about 1 trillion euros, and try again early next year rather than continue negotiating into the weekend.

Talks to be revisited in the New Year

Mr Van Rompuy said: "The bilateral talks yesterday and the constructive discussion within the European Council show a sufficient degree of potential convergence to make an agreement possible in the beginning of next year. We should be able to breach existing divergences."

And German Chancellor, Angela Merkel said: "We had the opportunity to study the proposals of Mr Van Rompuy last night. I believe that we won't get where we want to be in this round either, which is a unanimous decision. We will discuss this now.

"I have always said that it wouldn't be dramatic if today were only the first step, we will see in the next hours. I think the positions are still far apart and if we need a second round we will take the time to do it."

Arriving for the negotiations earlier this morning, Mr Cameron showed little signs of being happy with the talks so far.

He said: "Well I don't think there's been enough progress so far.

"There really is a problem... there hasn't been the progress in cutting back proposals for additional spending.

"It isn't a time for tinkering. It isn't a time for moving money from one part of the budget to another. We need unaffordable spending cut. That's what's happening at home, that's what needs to happen here."

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